The provisions on a simple joint-stock company were introduced on the 1st of July 2021. The Act of 19th of July 2019 amending the Code of Commercial Companies and certain other acts regulates it (Journal of Laws 2019, no. 1655). The grounds for dissolving a simple joint-stock company are similar to those of an LLC and a joint-stock company. According to art. 300120 of the CCC liquidation occurs as a result of one of the following reasons:
- the ones set forth in the company’s agreement,
- a general meeting’s resolution on liquidation of the company,
- a general meeting’s resolution on transferring company’s registered office abroad,
- a court judgment issued on the request of a shareholder or a member of the company’s body if it has become impossible to achieve the company’s objectives or if other serious reasons have arisen due to the company’s relations indicating that the company continuing to operate would injure the shareholders or would be contrary to good practice,
- a declaration of the company’s bankruptcy,
- other reasons provided for by the law.
The legislator introduced a completely new procedure for dissolving a simple joint-stock company. It consists in taking over all the company’s assets by a designated shareholder. That person is referred to in the Act as the acquiring shareholder. This is an exception to the rule that the dissolution of a company follows a mandatory liquidation procedure.
The purpose of the company’s liquidation is to finish its interests, pay debts, collect receivables, and withdraw the remaining amount to the shareholders.
During the liquidation of a joint-stock company, it preserves its legal personality. Once the process is over, it loses it. So, a company loses its legal personality only after removing it from the register. The business name of the company during the liquidation process includes the phrase ‘in liquidation’. Although the liquidation procedure changes the company’s goal, it still preserves the status of an entrepreneur. But the liquidation purpose limits the goal of the company. Initiating the liquidation procedure results also in other effects described in special regulations. For example, the expiry of the permit granted to the brokerage house or of a permit to operate as a brokerage house.
Company’s agreement as a reason to dissolve a simple joint-stock
Shareholders may specify in the agreement certain situations that allow for the dissolution of a company without any further actions. They can do it both at the stage of establishing the company and during its operation. Among the most frequently indicated reasons there are:
- expiration of the period for which the company was established;
- achieving a specific economic goal;
- obtaining financing for a particular project;
- failure to obtain the intellectual property rights required for the company’s intended activities;
- lack of persons with specific qualifications to participate in a joint-stock company.
The occurrence of a cause specified in the agreement starts the liquidation procedure. There is no need to adopt a separate resolution of the general meeting. The resolution will be necessary if the agreement requires it additionally. It will also be necessary when the indicated cause is so vaguely defined that the time at which the company’s liquidation opens is hard to determine with certainty.
The shareholders’ resolutions on the liquidation of a simple joint-stock company
Adoption of such a resolution can occur at every stage of the company’s operations. It requires the majority of votes which equals ¾. It must be also notified in the protocol prepared by a notary public. But, it may be adopted by an absolute majority of votes if the balance sheet prepared by the management board shows a loss exceeding the sum of supplementary and reserve capitals and 1/3 of the share capital. It is worth mentioning that the company’s agreement may specify the rules for adopting such a resolution in a different way. For example, by adopting a quorum, or another (but only higher) majority of votes to adopt a resolution.
The liquidation of the company begins upon the adoption of a relevant resolution. In such a resolution, it is also worth appointing persons who will act as liquidators. Another important provision concerns the way of representing the company by liquidators. This will enable the immediate undertaking of liquidation actions.
Resolution of the shareholders on transferring the company’s registered office abroad
A resolution on the company’s dissolution may be adopted on every stage of its operations. It is adopted by the majority of votes which equals ¾. Additionally, a notary public’s protocol must include a relevant annotation about it. Determining the seat of the company is an obligatory element of the statute. Thus its transfer requires also a change to the statute. Yet, a resolution of the general meeting to transfer the seat of a simple joint-stock company abroad is not a reason for dissolution if it is to be moved to another member state of the EU, or a state that is a party to the Agreement on the European Economic Area and, at the same time, the law of the target state allows it. This regulation is a consequence of the view of the Court of Justice of the EU. To be precise, the view expressed in the judgment of 25th of October 2017, in case of ref. no. C-106/16: Polbut – Wykonawstwo sp. z o.o. in liquidation.
Court’s ruling as a ground for liquidation of a simple joint-stock company
The dissolution of a company may also result from the ruling of the registry court. It is issued at the request of a shareholder or the management board member if the company’s goal is impossible to achieve. Alternatively, if there were other significant circumstances resulting from the company’s relations that indicate that further operations would injure the shareholders or would be contrary to good practice. This solution is the equivalent of art. 271(1) of the CCC, relating to the liquidation of an LLC. Yet, the solution from art. 300120§1(3) of the CCC specify that other important reasons resulting from the company’s relations that justify the dissolution must show that company’s further operations may be harmful to shareholders or are contrary to good practice.
Declaration of bankruptcy as a reason for liquidation of a simple joint-stock company
Declaration of bankruptcy results from the company’s insolvency. The Act on Bankruptcy Law governs this process. Insolvency occurs when the company does not perform its pecuniary liabilities. It also occurs when the company performs the liabilities but they exceed the value of the assets. It’s important to keep in mind that filing a bankruptcy petition does not automatically mean a declaration of bankruptcy. The court dismisses a petition if the assets of an insolvent debtor are not sufficient to cover the costs of proceedings. The same effect occurs if the assets are sufficient to cover these costs only. The court may dismiss a petition if it turns out that the debtor’s assets are encumbered with:
- a mortgage,
- a pledge,
- a registered pledge,
- a tax pledge or
- a marine mortgage
to such an extent that his remaining assets are not sufficient to cover the costs of proceedings.
It is also necessary to distinguish between liquidation bankruptcy and bankruptcy with the possibility of an arrangement. The latter takes into account consequences for the further existence of the company. The goal of the proceedings involving the liquidation of assets is to remove the company from the Register of Entrepreneurs. In the case of bankruptcy with the possibility of an arrangement, the company preserves its entry into the Register. Moreover, it continues its operations. What is important, declaring bankruptcy will lead to the dissolution and removal from the Register only after bankruptcy proceedings are over. Upon declaration of bankruptcy, the company enters into a state of liquidation. The liquidation process will terminate its operations. Further proceedings should follow the provisions of the Act on Bankruptcy Law.
Other events provided by law as a reason for dissolution of the company without liquidation proceedings
Among these reasons, we may specify particular situations. They occur, e.g. in connection with a merger of companies (Article 493 § 1 of the CCC). Another example is division of a company (Article 530 § 1 of the CCC). There is also a sanction for infringement of antitrust regulations. In the above cases, the legislator abandons the liquidation proceedings in the sense described in this article.
Takeover of the company’s assets by a designated shareholder. Another reason for dissolving the company without conducting liquidation proceedings
So far, the Code’s regulations indicated that dissolution of a company usually required liquidation procedure. Art. 300122 of the CCC provides an exception to the obligatory liquidation procedure. It states that, at the request of the company, on the basis of a resolution of the general meeting adopted by a majority of ¾ of votes cast in the presence of shareholders representing at least half of the total number of shares, and with the consent of the registry court, all assets of the company are taken over by a designated shareholder (acquiring shareholder). The registry court allows the takeover of the assets by the acquiring shareholder at the request of the company. Yet, the company must show that it will not lead to any damage to its creditors or shareholders. If the company’s assets are taken over by a shareholder, the registry court announces the adoption of such a resolution. It also invites the creditors to voice their objections. The timeframe granted for this must amount to at least 30 days from the date of the announcement. In the case of simple factual circumstances, there is a chance that this deadline will be set at exactly 30 days. Or that it will be at least shorter than the statutory deadline of 3 months for liquidation. This will significantly shorten the entire procedure.
As soon as the decision on the takeover of assets becomes valid, the management board applies for the company’s removal from the register. Upon the removal, the acquiring shareholder assumes all its rights and obligations.
What are the stages of liquidation a simple joint-stock company process?
Liquidation shall be opened on the date on which the judgement on dissolution of the company by the court becomes final and non-appealable, upon adoption by the general assembly of a resolution on dissolution of the company or the occurrence of other reasons for its dissolution (art.461 § 1 of the CCC).
The stages of ending a company’s operations after the occurrence of one of the indicated causes are as follows:
- Appointing the liquidators
Upon the opening of the liquidation process, mandates of the management board members expire. They lose their powers to run the company’s affairs and represent it. Consequently, the liquidators take over their tasks. If there are no other provisions in the statutes or resolution of a general meeting, liquidators are the members of the management board. But, if the court decides on liquidation, it may also appoint liquidators itself.
In internal relations, the liquidators shall comply with the resolutions of the general meeting. Yet, this rule doesn’t apply to liquidators appointed by court.
- Preparing a balance sheet of the opening of liquidation
Before undertaking any liquidation actions, liquidators must prepare an opening balance sheet. It must be submitted to the general meeting for approval. It is a financial statement that complies with the regulations of the Accounting Act. The liquidation balance sheet should reflect all assets at their selling value. This is to divide the company’s real assets among the creditors, and then to divide the remaining part between shareholders.
- Reporting the liquidation proceeding to the KRS and announcement in the Court and Economic Journal
The primary obligation of liquidators is to notify the registry court of the opening of liquidation. The liquidators have 7 days from the date of opening of liquidation to do that. Once liquidation has begun, one should notify the registry court about this fact. This will result in providing the company’s name with an additional phrase, i.e. ‘in liquidation’. Another consequence will be deleting information about management board members and commercial proxies. Finally, information about liquidators and their manner of company’s representation should be provided. It is important to keep in mind that every liquidator has the right and duty to make such a notification.
- Liquidation actions
Liquidators should close the current business of the company. They should also collect the receivables and perform the obligations. Another duty is to liquidate the company’s assets. Liquidators may start new cases, understood, for example, as concluding new agreements with contractors, only if they lead to the conclusion of pending cases, e.g. order an external company to sell real estate belonging to the company in order to pay creditors. There is no specific time limit for liquidation. It lasts until all liquidation activities are completed.
- Termination of the company’s operations
After completing the current business of the company, collecting receivables and settling liabilities, the remaining assets should be divided. The division, unless the agreement specifies otherwise, should be in proportion to the shares held. It is possible to close the liquidation once the company ends its operations and after distributing the assets.
- Liquidation report
The liquidators must prepare a liquidation report on the day preceding the distribution of the remaining assets. This report will be further presented to the general meeting of shareholders for approval. This is the last stage that closes the liquidation. The liquidators publish the approved report at the registered office of the company. When approving the report, the shareholders should appoint a person responsible for the safekeeping of the books and documents of the dissolved company. In the absence of such a designation, the court will appoint that person.
- Submitting an application for deleting the company from the National Court Register
As the final step, the registry court must receive the approved liquidation report. An application to remove the company from the register should be enclosed along with it. The dissolution of the company takes place when the decision of the registry court on the deletion becomes final and binding. From this moment on, the company’s legal existence has officially ended.
What changes are introduced by the new regulations on a simple joint-stock company?
Simplification of the procedure
The new regulations on a simple joint-stock company involve the simplification of the current liquidation procedure. This can be seen in the reduced number of liquidation announcements from two to one. Another difference is limiting the period for creditors to file claims to 3 months. It means that the post-liquidation division of the assets of a simple joint-stock company between shareholders may take place only after the creditors have been satisfied or secured. Therefore, it cannot be earlier than within 3 months from the announcement of the liquidation opening. In the case of other capital companies, the act indicates longer periods. For example – 6 months for a limited liability company and 1 year for a joint-stock company.
Transfer of assets
The regulations on a simple joint-stock company also introduced a new way of ending its existence. It consists in transferring all the company’s assets to one of the shareholders. He will then have to repay the company’s debts and satisfy the claims of the other shareholders. This way of closing the business may be attractive to small entities that don’t have significant assets. It can also be an opportunity to keep the company’s assets unchanged and then use them in a different way.