The Government of the Slovak Republic has introduced a draft law on the conversions of companies and cooperatives (the Draft Law) that implements EU Directive 2019/2121, amending Directive 2017/1132 with regard to cross-border conversions, mergers and divisions (the Directive).
Introduction
The Draft Law aims to create a unified, comprehensive and clear legal framework for both domestic and cross-border mergers, divisions and changes of legal form, which should completely replace the current legal framework contained in the Slovak Commercial Code.
The Draft Law, which is proposed to take effect 1 March 2024, is currently in the early stage of the legislative procedure, and therefore the final wording of the legislation may differ from the submitted draft.
The aim of this article is to summarise the main changes that the Draft Law proposes with regard to domestic conversions of Slovak companies and to point out the main benefits and obstacles we perceive in connection with the proposed new legislation.
New instruments
The Draft Law introduces several new instruments:
(i) conversion (in Slovak: premena) as a new common term for a merger and division;
(ii) conversion project (in Slovak: projekt premeny) as a term replacing merger agreement (in Slovak: zmluva o zlúčení/splynutí) and division project (in Slovak: project rozdelenia);
(iii) partial division (in Slovak: odštiepenie) as a new instrument allowed only for limited liability companies and joint-stock companies;
(iv) cross-border division as a new instrument to support the cross-border mobility of companies within the European Union;
(v) cross-border change of legal form as a new instrument required by the Directive.
Key benefits and possible obstacles
From our point of view, the main benefits and possible obstacles of the Draft Law are
Benefits:
- Unification and creation of a comprehensive legal framework, as opposed to the current fragmented legal framework in the Commercial Code.
- The possibility to terminate an approved conversion project (this option is unclear under current law).
- Retaining the possibility to simplify the conversion process by agreement of the shareholders or in conversions within the group.
Obstacles:
- The auditor preparing the report on a draft conversion project of a joint-stock company must be approved by the court (which will most likely result in a prolongation of the process and additional costs);
- Stricter formal requirements for draft conversion projects and the decision on their approval, i.e., the prescribed form of a notarial deed in case of limited liability companies, joint-stock companies and cooperatives.
- “Gold plating” – in a number of cases, the Draft Law goes beyond the minimum requirements of the transposed EU Directives and imposes stricter requirements on joint-stock companies as well as on simpler company forms.
Simple step-by-step plan outlining the main steps in relation to the conversion process for Slovak companies under the Draft Law
Required step
- Preparation of the draft conversion project.
- Publication of the draft conversion project in the Collection of Documents / Commercial Journal.
- Notification of the tax administrator.
- NEW - Notification of the pledgee on the preparation of the draft conversion project – obligation of the shareholder.
- NEW - Court approval of the auditor.
- Auditor's report
- Statutory body's report
- Supervisory board's report
- Disclosure of documents to shareholders.
- Approval of the draft conversion project
- Registration in the Commercial Register
- NEW - Termination of an approved conversion project
Additional note
- Notarial deed required for limited liability companies, joint-stock companies and cooperatives.
- Each dissolving company must notify the tax administrator at least 60 days prior to the approval of the draft conversion project.
- If the ownership interest in the dissolving company is subject to a pledge.
- Current legislation imposes this obligation on the company and not its shareholders.
- Applicable only in case of joint-stock companies.
- May be excluded if all shareholders agree.
- May be excluded if all shareholders agree.
- May be excluded if all shareholders agree.
- May be fulfilled by publishing the documents on the company's website.
- Notarial deed required for limited liability companies, joint-stock companies and cooperatives.
- The conversion becomes effective upon its registration in the Commercial Register.
- Possible until the application for the registration of the conversion in the Commercial Register is filed.
By Dominika Bajzathova, Counsel, and Michaela Strakova, Associate, Kinstellar
