Company conversions are a tool that is widely used in business practice, especially for the purpose of optimising ownership structures. The newly approved amendment to the Act on Conversions of Commercial Companies and Cooperatives primarily incorporates changes following the adopted Directive of the European Parliament and the Council and brings significant changes to simplify and streamline the processes of company conversions.
In the following text you will find the answers to these questions:
The amendment contains a proposal that deletes the need for a fee-based publication of the conversion project through the Commercial Bulletin. It should now be sufficient if the conversion project, together with the notice to creditors, employees and shareholders, is filed in the collection of documents with the competent registry court at least one month before the date on which the conversion is to be approved.
The current statutory regulation requires that an expert be appointed by the court for the valuation or review of the estate. The amendment simplifies the process so that the court will no longer have to appoint the expert, but it will be sufficient if the expert is selected from the list of experts directly by the person involved in the conversion.
The amendment contains a provision that the creditor shall only have the right to an additional security if it applies to the court within three months from the date of publication of the conversion project in the Collection of Deeds. The current legislation provides that the creditor may assert its claims within six months from the date of registration of the conversion in the Commercial Register.
The current statutory regulation provides that a conversion by way of a division may be implemented in two basic ways:
The amendment newly proposes the introduction of a spin-off by demerger, which consists in the fact that the company being demerged does not cease to exist and the demerged part of its assets is transferred in exchange for a share or shares in the newly formed company (spin-off with the formation of a new company) or an existing company (demerger by merger). A combination of both scenarios is then possible.
For example, in practice, this institution will allow the company being demerged to set up a subsidiary in this way, while preserving the tax and succession advantages associated with the conversions.
The amendment incorporates into Czech law harmonised provisions on cross-border divisions and cross-border changes of registered office.
The process of conversion by way of a division (whether by spin-off, split-off or a newly regulated spin-off) with the establishment of newly formed companies should now be harmonised at the level of the European Union. Divergent legislation in the individual Member States has precluded the possibility of implementing divisions effectively, with the result that only cross-border mergers have been used in the field of cross-border conversions.
Thus, if a company intended to spin off part of its assets to a company from another Member State by way of a conversion, it was usually necessary to carry out a national division first and then proceed to a cross-border merger, which made the whole process very complex and costly.
Finally, the possibility of a cross-border change of registered office, which should now also be allowed to third countries, can be pointed out. Currently, the law provides for this possibility only to EU Member States.
The amendment introduces a number of changes that could make the conversion processes more efficient, making it easier for entrepreneurs to manage their assets and enabling more efficient transfers of assets, especially within business groups.
It is always advisable to consult and implement the specific set-up of the entire process of the intended conversion and its outcome with experts, as a number of not only legal but also accounting and tax aspects are involved.
Autor: Aleš Malach
In the following text you will find the answers to these questions:
- What possible simplifications the amendment brings, including simplifying the appointment of experts?
- How the new institution of division by way of allotment works?
- What's new for cross-border conversions?
Trade Bulletin
Appointment of an expert
Creditors' right to additional security
Division by way of allotment
- a division in the form of a spin-off and
- division in the form of a split.
The amendment newly proposes the introduction of a spin-off by demerger, which consists in the fact that the company being demerged does not cease to exist and the demerged part of its assets is transferred in exchange for a share or shares in the newly formed company (spin-off with the formation of a new company) or an existing company (demerger by merger). A combination of both scenarios is then possible.
For example, in practice, this institution will allow the company being demerged to set up a subsidiary in this way, while preserving the tax and succession advantages associated with the conversions.
Cross-border transformations
The process of conversion by way of a division (whether by spin-off, split-off or a newly regulated spin-off) with the establishment of newly formed companies should now be harmonised at the level of the European Union. Divergent legislation in the individual Member States has precluded the possibility of implementing divisions effectively, with the result that only cross-border mergers have been used in the field of cross-border conversions.
Thus, if a company intended to spin off part of its assets to a company from another Member State by way of a conversion, it was usually necessary to carry out a national division first and then proceed to a cross-border merger, which made the whole process very complex and costly.
Finally, the possibility of a cross-border change of registered office, which should now also be allowed to third countries, can be pointed out. Currently, the law provides for this possibility only to EU Member States.
Conclusion
It is always advisable to consult and implement the specific set-up of the entire process of the intended conversion and its outcome with experts, as a number of not only legal but also accounting and tax aspects are involved.
Autor: Aleš Malach