4 key information about cross-border conversions

It is almost a year since Polish limited companies and limited joint-stock partnerships can be transformed into a company based in another Member State. The foreign entity so transformed  continues the business of the Polish company. It also operates under the laws of the country of the converted company[1]. 

The introduction of this legal institution has already made it possible to transfer more than one business between EU member states, without setting up a new business connected with ceding contracts, etc. Prior to the amendment of the Polish regulations, such a transformation was also possible, but based on the directly applicable EU treaties and the CJEU jurisprudence confirming it (i.e. in a not so obvious manner). 

The new regulation also allows the recently popular ‘return to Poland’ from foreign structures, in particular Cyprus and Luxembourg. It is interesting to note that Cyprus has only recently implemented the provisions of the directive into its legal order. Whereas Luxembourg is in the early stages of implementation and all indications are that the process will still take some time. However, this should not be an obstacle to planning and conducting a cross-border conversion process.

In this article, we point out the 4 most important issues regarding this method of transferring a company’s registered office abroad.

1. Cross-border conversion plan 

In the cross-border conversions – as in domestic conversions – a key document is a conversion plan. The contents of the plan regulate the most important principles of cross-border transformation, including, among others: 

• the legal form,
• the business name and registered office of the company being transformed,
• the draft articles of association,
• the proposed timetable for the transformation.  

The proposed text of the articles of association should be drafted in accordance with the law applicable to the converted company. It is important that the cross-border transformation plan is subject to an expert examination as to its accuracy and reliability. 

2. Securing the interests of the shareholders in cross-border conversions of the company 

The provisions of the Commercial Companies Code secure the interests of shareholders who disagree with the cross-border conversion of the company. If a shareholder voted against the resolution on cross-border transformation and his objection was recorded, he may demand the repurchase of his shares or stocks in the transformed company. The same possibility is available to a shareholder who was unjustifiably not allowed to participate in the meeting on the adoption of the resolution on the cross-border transformation. 

3. Certificate of compliance with Polish law 

Once the formal requirements have been met, it is necessary to apply for a certificate of compliance with Polish law of the cross-border transformation of the company with a request to the competent tax authority for a tax opinion. 

The examination conducted in the course of issuing the opinion should make it possible to assess the cross-border operation in question from the point of view of the risk of abuse and tax avoidance. 

4. Safeguarding the interests of the company’s employees and creditors

The management of the converted company is also required to draw up a report for the shareholders and employees. This report has to explain the legal basis and justify the economic aspects of the cross-border transformation, including the effects of the transformation on the employees and on the future business of the company.  

Employee representatives are able to express an opinion on the report. 

Creditors of the transformed company will be able to request security for their claims that have not become due at the time this plan is disclosed or made available. The request will be valid if they make it probable that security of their claims is at risk by the transformation. They have one month to do so from the date on which the cross-border transformation plan is disclosed or made available. 

If you have any questions in the field of cross-border conversions, we invite you to contact us. Our team of experts will be happy to dispel any doubts in this subject area. 

[1] According to the amendments enacted, implementing the provisions of Directive 2019/2121 of the European Parliament and of the Council of 27 November 2019