Another amendment to the Code of Commercial Companies (CCC) started to take effect yesterday. When preparing the package regarding the simple joint stock company, the lawmakers decided to make several important simplifications to the provisions on the reorganization of companies. Easier transformations can help avoid the obligations related to the obligatory dematerialization of shares.

No auditor = cheaper and quicker transformations

Perhaps the most noticeable change is the withdrawal from the obligatory audit for all transformations by a statutory auditor.

The model to date did not provide for any exceptions to the need for an auditor to audit the transformation plan (this obligation could not be waived, e.g. by a resolution of the shareholders). From 1 March 2020, auditors will only be necessary in the case of a transformation into a joint stock company and the transformation of a sole proprietorship.

In practice, this change means shortening the transformation process by 2-4 weeks and reducing the costs of the process by the auditor’s fee (usually at least 1,000 euros).

Another new matter is the change in the auditor’s powers – only the transformation plan had been audited to date, whereas the auditor will now have to additionally establish whether the valuation of the assets is reliable.

Direct settlement of a reverse merger

Reverse mergers, namely the takeover of the parent company by a subsidiary, have not been directly approved to date by the CCC. They were conducted in practice, but the lack of appropriate regulations was related to the risk of the refusal to register such a process.

The new wording of Article 515 CCC dispels all doubts as to both the admissibility of the reverse merger and the way in which it should be conducted (in particular, there will no longer be a need for the company to increase its capital and redeem its own shares).

Other changes related to transformations

  • Introduction of the principle of automatic participation in a transformed company (except for transformations of companies into partnerships) – in practice, this will sometimes mean that it will not be possible to exit from the company during the transformation;
  • There will be a corporate right to buy back stocks/shares in the case of companies being transformed into partnerships, on condition that the partner votes against the resolution and requests the objection to be recorded;
  • Waiver of the obligation to specify the value of the shares or stocks in transformation plans – this will now only be necessary when transforming a company into a partnership; importantly, the fair value of such shares/stocks will need to be specified;
  • There will be no need to prepare articles/memorandum of association of the transformed company – the articles are to be replaced by a resolution on the transformation (we are concerned that, in practice, this provision will complicate the transformation process – even though it was supposed to simplify it);
  • The obligation to prepare a valuation of assets and liabilities will only apply to a transformation into a joint stock company (this applied to all types of transformations to date).