The Court of Justice has ruled that under the EU principle of freedom of establishment, transfer of the registered office of a Polish company abroad within the European Economic Area cannot be conditioned on conducting liquidation of the company in Poland.
Polbud–Wykonawstwo sp. z o.o. in liquidation (Case C-106/16), judgment of the Court of Justice of 25 October 2017
Doubts of interpretation under Polish law
The issue of the permissibility of transferring the statutory registered office of a Polish company abroad has been problematic, particularly because of the unclear regulations in this area. Under Art. 270(2) and 459(2) of the Commercial Companies Code, a shareholders’ resolution transferring the registered office of a Polish company abroad results in dissolution of the company. While under Art. 273 and 460 §1 a resolution on continued existence of the company, adopted up to the date of filing of an application to delete the company from the commercial register either (1) unanimously by all the shareholders (in the case of a limited-liability company—sp. z o.o.) or (2) by a majority of the shareholders required to amend the statute, in the presence of shareholders representing at least half the share capital (in a joint-stock company—SA), could prevent dissolution of the company, in the context of transfer of the company’s registered office abroad these provisions raise doubts of interpretation. On one hand it might be stated that the shareholders adopting a resolution to move the registered office of the company to another country could at the same time also adopt a resolution (with the required majority) on the continuing existence of the company. On the other hand, some interpretations have deemed a resolution on continued existence of the company to be tantamount to repeal of the resolution on transfer of the company’s registered office abroad.
Consequently, in the case of transfer of a company’s registered office abroad, the Polish registry courts have required liquidation proceedings to be conducted prior to removal of the company from the commercial register (Commercial Companies Code Art. 272 and 461). This has meant winding up the company’s current operations, collection of its receivables, performance of its obligations, and reduction of the company’s assets to cash (Art. 282 §1 and 468 §1). Then, after completion of the liquidation and the shareholders’ approval of the liquidation report prepared as of the date preceding the distribution among the shareholders of the assets remaining after satisfying or securing the creditors, the liquidators should post the liquidation report at the registered office of the company and file it with the registry court along with an application to delist the company from the commercial register (Art. 288 §1 and 476 §1). The books and records of the dissolved company should be turned over for safekeeping to the person indicated in the articles of association or statute of the company or the shareholders’ resolution; if such person is not indicated there, the registry court will designate the person to store the books and records.
But these actions often conflicted with the practical need to maintain the legal capacity and identity of the company and continue its operations despite moving the company’s registered office outside of Poland.
It should also be pointed out that these requirements did not reflect the rule set forth in Art. 19(1) of the Private International Law of 4 February 2011, according to which, upon transfer of its registered office to another country, a legal person becomes subject to the law of that country. The legal personality obtained in the country where the company had its previous registered office is maintained if so provided by the law of each of the interested jurisdictions. Meanwhile, this provision of the Private International Law expressly provides that transfer of a company’s registered office elsewhere within the European Economic Area does not result in loss of its legal personality.
Position of the Court of Justice
The established case law of the Court of Justice of the European Union concerning the freedom of establishment (Art. 49 and 54 of the Treaty on the Functioning of the European Union) clearly indicates that the freedom of establishment includes the right of a company established under the laws of one member state to be converted into a company under the laws of another member state if the conditions specified in the law of the other member state are met.
In light of the doubts surrounding the application of this principle under Polish law, the Court of Justice issued a judgment on 25 October 2017 in C-106/16 Polbud–Wykonawstwo in response to a request for a preliminary ruling from the Supreme Court of Poland concerning the rules for transfer of the statutory registered office of a company within the European Economic Area.
State of facts
The shareholders’ meeting of Polbud–Wykonawstwo sp. z o.o. adopted a resolution on transfer of the company’s registered office to Luxembourg, submission of the company to Luxembourgish law, and change of the company’s name to Consoil Geotechnik Sàrl.
Consequently, Polbud–Wykonawstwo filed an application with the Polish registry court to remove the company from the National Court Register, due to the transfer of the company’s registered office to Luxembourg. The registry court summoned the company to submit the shareholders’ resolution designating the entity for storage of the books and records of the dissolved company, the financial report signed by the liquidator and the person entrusted with maintaining the accounting books, as well as the shareholders’ resolution approving the liquidating financial report.
In response, Polbud–Wykonawstwo asserted that the summons was unwarranted because the company was not dissolved and its assets were not distributed among the shareholders, but the reason for filing the application for removal from the commercial register was the transfer of the company’s registered office to Luxembourg. Consequently, the registry court denied the application to delete the company from the register due to failure to file the required documents. The district court refused to reconsider the application, and the regional court denied the company’s appeal. After filing of a cassation appeal, the Supreme Court of Poland sought a preliminary ruling from the Court of Justice.
Request for a preliminary ruling
The Supreme Court raised the following questions:
First, does the freedom of establishment under Art. 49 and 54 TFEU preclude the application of provisions of national law which make removal of a company from the commercial register conditional on the company being wound up after liquidation has been carried out, if that company has been reincorporated in another member state and is continuing its legal existence there?
Second, under the freedom of establishment, can a requirement under national law that a process of liquidation of a company be carried out preceding the winding-up of the company, which occurs on removal from the commercial register, be a measure that is appropriate, necessary and proportionate to a public interest deserving of protection consisting in safeguarding the interests of creditors, minority shareholders, and employees of the migrant company?
Third, must the freedom of establishment be interpreted as meaning that restrictions on freedom of establishment cover a situation in which, for the purpose of its conversion to a company of another member state, a company transfers its registered office to the other member state without changing its main head office, which remains in the state of initial incorporation?
Response from the Court of Justice
In its response, the Court of Justice held that Art. 49 and 54 TFEU must be interpreted as meaning that freedom of establishment is applicable to the transfer of the registered office of a company formed in accordance with the law of one member state to the territory of another member state, for the purposes of converting it, in accordance with the conditions imposed by the legislation of the other member state, into a company incorporated under the law of that member state, when there is no change in the location of the real head office of the company.
The court pointed out that restrictions on the freedom of establishment are permissible if justified by overriding reasons in the public interest, but they must be appropriate for ensuring the attainment of the objective in question and not go beyond what is necessary to attain that objective. The court recognised that overriding reasons in the public interest include the protection of creditors, minority shareholders, and workers. But, the court observed, the Polish legislation here “prescribes, in general, mandatory liquidation, there being no consideration of the actual risk of detriment to the interests of creditors, minority shareholders and employees and no possibility of choosing less restrictive measures capable of protecting those 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.” Consequently, the court found that the mandatory liquidation required by the Commercial Companies Code goes beyond what is necessary to protect the public interest.
The court also addressed the Polish government’s argument that the regulations were aimed at preventing abusive practices. But the court found that the mere fact that a company moves its registered office from one member state to another cannot justify a general presumption of abuse restricting the exercise of the fundamental freedom of establishment guaranteed by the EU treaties. “Since a general obligation to implement a liquidation procedure amounts to establishing a general presumption of the existence of abuse,” the court held that the Polish regulations in question are disproportionate.
This judgment by the Court of Justice is of great relevance for Polish companies intending for various reasons to move their statutory registered office to another country within the EEA, as the court held that the freedom of establishment prohibits imposition of mandatory liquidation of a company as a condition for moving to another EEA member state. Consequently, in similar cases, when companies apply for removal from the commercial register, the Polish courts will have to ignore the liquidation requirement. This essentially means that such a company will be permitted to retain its legal existence when moving abroad and continue its existing operations without interruption.
This conclusion is consistent with the resolution of a seven-judge panel of the Supreme Court of Poland of 19 January 2017 (Case I KZP 17/16). There the court recognised that under the conflict of laws principle set forth in Art. 91(3) of the Polish Constitution, when provided by a treaty ratified by Poland establishing an international organisation, the law established by the organisation applies directly, with precedence over conflicting Polish statutes. This ranks EU law higher than national statutes within the Polish legal system.
In that case the Supreme Court went on to cite the judgment of the Court of Justice in Simmenthal SpA (Case 106/77), which held that “any provision of a national legal system and any legislative, administrative or judicial practice which might impair the effectiveness of Community law by withholding from the national court having jurisdiction to apply such law the power to do everything necessary at the moment of its application to set aside national legislative provisions which might prevent Community rules from having full force and effect are incompatible with those requirements which are the very essence of community law.”
A conflict between national law and EU law may result not only in effectively substituting the provisions of EU law for the provisions of national law, but also exclusion of the application of national law by a directly applicable principle of EU law (such as the freedom of establishment set forth in Art. 49 TFEU).
In light of these principles, it should be recognised that the ruling by the Court of Justice in Polbud–Wykonawstwo clears the way for Polish companies to transfer their registered office to other member states of the European Economic Area without first undergoing liquidation in Poland.
Agnieszka Kraińska, legal adviser, EU Law practice, Wardyński & Partners
Dr Kinga Ziemnicka, legal adviser, Krzysztof Libiszewski, legal adviser, M&A and Corporate practice, Wardyński & Partners