EU Unravels Poland’s Corporate-Liquidation Scheme

(CN) – In a ruling Wednesday that makes it easier for EU businesses to relocate their registered offices to different member states, the European Court of Justice called out a law in Poland that mandates liquidation as part of such moves.

Liquidation is a useful way, the Luxembourg-based court found, at ensuring that a number of entities, whether creditors, minority shareholders or employees, face little blowback from a corporate move.

Poland’s scheme fails, however, according to the ruling, because of the government’s failure to consider what actual risk of detriment these entities face, or whether there is a less restrictive way to protecting their interests.

“As regards, in particular, the interests of creditors, as stated by the European Commission, the provision of bank guarantees or other equivalent guarantees could offer adequate protection of those interests,” the ruling says. “It follows that the mandatory liquidation required by the national legislation at issue in the main proceedings goes beyond what is necessary to achieve the objective of protecting the interests referred to in paragraph 56 of the present judgment.”

Poland’s law is thus disproportionate, according to the ruling, “since a general obligation to implement a liquidation procedure amounts to establishing a general presumption of the existence of abuse.”

Wednesday’s ruling from the European Court of Justice was issued with respect to a company called Polbud when it was established in Lack, Poland. In 2011, its shareholders voted to transfer the company’s registered office to Luxembourg. This resolution made no reference, however, to a transfer of either the place where Polbud’s business is managed or the place where that company’s business is actually carried out.

Two years later shareholders of Consoil Geotechnik Sarl in Luxembourg adopted a resolution to implement the 2011 resolution, transferring the registered office of Polbud to Luxembourg.

When the registry court in Poland refused to remove Polbud’s name from the Polish commercial register, it told Polbud to hand over documents signed by the liquidator.

“Polbud stated that it did not see any need to produce those documents since it was not being wound up, its assets had not been distributed to the shareholders and the application for removal from the register had been lodged because of the transfer of the company’s registered office to Luxembourg, where it was continuing its existence as a company incorporated under Luxembourg law,” the ruling states.

Polbud sued in District Court of Bydgoszcz, Poland, and appealed unsuccessfully to the Bydgoszcz Regional Court.

Poland’s Supreme Court in turn referred the case to the EU’s highest court.

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