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On the Possibility to Avoid a Corporate Transformation in Insolvency Proceedings

On the Possibility to Avoid a Corporate Transformation in Insolvency Proceedings

Czech Republic
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In its recent decision in re Smusta a.s., the Supreme Court ruled on the possibility to avoid a corporate transformation in insolvency proceedings.

In its decision, the Supreme Court held that although the Act on Transformations contains its own rules for the protection of creditors (general protection in Section 35 and in special protection in relation to demergers in Sections 257 and 258), these protections are not exclusive and the institute of avoidance of antecedent transactions under the Insolvency Act can be used in "addition" to them. An avoidance order does not lead to the annulment or invalidation of the transformation, but merely to the “ineffectiveness” of the transformation vis-à-vis the insolvency administrator (and the debtor's creditors).

Among other things, the nature of a corporate transformation as a voidable transaction was examined in the judgment. Although, as the court noted, a transformation it is not a 'classical' bilateral transaction of the sort usually avoided pursuant to the insolvency law rules, the very nature of a transformation does not preclude its voidability.

These views are consistent with Articles 12and 19 of Sixth Council Directive 82/891/EEC, as interpreted by the CJEU judgment C-394/18 of 30 January 2020, I.G.I.Srl v. Maria Grazia Cicenia and Others.

(Judgment of the Supreme Court of 30 September 2022, Case No. 29 ICdo 133/2020)

By Marek Pume, Junior Lawyer, JSK, PONTES


Czech Republic Knowledge Partner

PRK Partners, one of the leading Central European law firms, has been helping clients achieve their business objectives almost 30 years. Our team of lawyers, based in our Prague, Ostrava, and Bratislava offices, has a unique knowledge of Czech and Slovak law and of the business environment. Our lawyers studied at top law schools in the United States, United Kingdom, Switzerland and elsewhere. They also have experience working for leading international and domestic law firms in a number of jurisdictions. We speak your language, too. Our legal team is fluent in more than 15 languages, including all the key languages of the region.

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