Company transformation and the principle of continuity

Pursuant to Article 553 of the Commercial Companies Code, the principle of continuity is expressly stated, according to which the transformed company acquires all rights and obligations of the transforming company. Moreover, in § 2 of the said provision, the legislator additionally indicated that the transformed company remains the holder, in particular, of permits, licences, and reliefs that were granted to the company prior to its transformation, unless a statute or the decision granting the permit, licence, or relief provides otherwise.

In its judgment of 13 September 2017, case file no. IV CSK 603/16, the Supreme Court held that the transformation of a commercial company constitutes a continuation of the existing company, albeit in a new legal form, which means that it is still the same, though not the identical, company. As the transformed company, it becomes the holder of all rights and obligations of the transforming company, of both a civil-law and organisational nature (Articles 551 § 1 and 553 of the Commercial Companies Code). This is similar, but not identical, to universal succession, which arises as a result of a merger or division of commercial companies, because in the case of transformation there is no successor (as in the case of inheritance) and no transfer of rights to another entity. This results from a change of the company’s organisational and legal structure while maintaining the identity of the entity, and it is neutral with regard to the rights and obligations of which the company remains the holder throughout.

In view of the above, it should be noted that the principle of continuity referred to in Article 553 of the Commercial Companies Code precisely provides that a company undergoing transformation remains the same entity, with only the legal form of its business activity changing as a result of the transformation. The Supreme Court, in its decision of 30 June 2020, case file no. I CZ 15/20, indicated that transformation therefore means a change in the type of company while preserving its legal identity in respect of its rights and obligations. Consequently, in the case of transformation there is no succession of rights and obligations; there is no legal predecessor and successor, but rather the same company continues to exist in a changed legal form as another statutory type of company. The identity of the companies means that the transformed company does not step into the rights and obligations of a civil-law nature vested in the transforming company; instead, as of the date of transformation, all rights and obligations of the transforming company vest in the transformed company (Article 553 § 1 of the Commercial Companies Code). This applies both to private-law rights and obligations (Article 553 § 1) and to public-law rights and obligations (Article 553 § 2).

Therefore, as a result of the transformation, the content of the legal relationships between the company and other entities does not change; the situation of its creditors remains unaffected; and in the sphere of procedural law, the transformation does not result in a change of parties to pending proceedings. Any rulings that were binding on the transforming company remain binding on the transformed company. In other words, the content of all legal relationships that existed between the transforming company and other entities remains unchanged. In such a case, the addressee of decisions also does not change, as it is still the same entity. This principle applies to all administrative decisions, not only to reliefs, permits, or licences, unless a statute or the decision granting such relief, permit, or licence provides otherwise.