Cross-border reincorporations have long been of interest not only to legal scholars, but also to legal practitioners and entrepreneurs from various business fields.
The case law of the European Court of Justice (ECJ) in landmark cases such as Daily Mail, VALE, Cartesio or Centros, shows that there is still uncertainty with regard to the compatibility of certain national regulations with EU economic freedom principles. Further challenges may arise in the context of Brexit, as certain British companies may be willing to make use of the EU freedom of establishment and relocate to other EU member states.
The Polish Perspective
Polish corporate law does not regulate cross-border reincorporations. Nor is there relevant case law from the Polish courts. Pursuant to the Polish International Private Law (the “International Private Law”), a legal entity transferring its seat to another state shall be subject to the law of that state. The legal personality acquired in the state of origin shall be retained if the law of both the state of origin and the host state so provide. The International Private Law expressly provides that the transfer of a seat within the European Economic Area shall not lead to the loss of legal personality. At the same time, under the Polish Commercial Companies Law, a shareholders’ resolution to relocate a company seat abroad leads to the dissolution of the company upon the company’s deregistration from the Polish commercial register, preceded by mandatory liquidation proceedings. Thus, in order to relocate to another EU member state, a Polish company must be subjected to a formal liquidation and deregistration procedure. This liquidation implies the end of the company’s legal existence and involves various statutory obligations (e.g. completion of current business, recovery of debts, performance of obligations, sale of assets, satisfaction or securing of creditors, reporting obligations, and indication of where the company’s books and documents are to be deposited). Thus questions arise as to how this all works when the company aims to continue its business activity following relocation to the host state and whether this is compatible with the EU’s economic freedoms.
Polbud Case
The issue of EU member state legislation possibly impeding the EU’s freedom of establishment was the subject matter of the ECJ’s recent ruling of October 25, 2017 in the Polbud case (C-106/16). In that case, the shareholders’ meeting of a Polish limited liability company – Polbud–Wykonawstwo sp. z o.o. – decided to relocate the company to Luxembourg. When the company applied to deregister from the Polish commercial register, the court maintaining the register rejected the application on the ground that the documents related to the mandatory liquidation proceedings had not been submitted. Polbud argued that it did not see the need to produce these documents, since it was not being dissolved. On the contrary: Polbud had not lost its legal personality and was continuing its existence as a company incorporated under Luxembourg law. Therefore, Polbud argued, fulfillment of the liquidation procedure was neither necessary nor possible. The ECJ ruled that the EU’s freedom of establishment applies to the transfer of the registered seat from one EU member state to another for the purposes of its reincorporation under the law of the host state (subject to conditions imposed therein). The ECJ further ruled that national provisions requiring the liquidation of a company to be reincorporated in another EU member state are liable to impede the cross-border reincorporation, if not prevent it entirely, and therefore constitute a restriction on the freedom of establishment. Thus, the ECJ stated that such a requirement goes beyond what is necessary to achieve legitimate protection purposes such as the interests of creditors, minority shareholders, and employees.
Outlook on the Future
Following the ECJ’s ruling in the Polbud case it seems that some Polish regulations for commercial companies may be incompatible with EU law. The ECJ’s considerations on reincorporations should be reviewed and taken into account by all EU member states so that their national laws do not impede the exercise of EU economic freedoms. It remains to be seen if, following the final decision on Brexit, British companies will aim to make use of the recent ECJ case law and relocate to other EU member states.
By Arkadiusz Ruminski, Associated Partner, and Klaudyna Lichnowska, Associate, Noerr Poland
This Article was originally published in Issue 4.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.