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Conversions of companies and cooperatives

On 13 January 2023, the Ministry of Justice of the Slovak Republic submitted to the legislation process a draft act on the conversions of companies and cooperatives and on amendments and supplements to certain acts (hereinafter as "Draft Act").

The Draft Act reflects the obligation of EU member states to transpose the Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers, and divisions (hereinafter as "Directive") into their national legislation. The aim of the Directive is to create a unified, coherent, and transparent legislation of the process of conversions of companies and change of legal form across EU market.

The Draft Act is introduced in the form of a new law exempt from the Slovak Commercial Code. It contains a comprehensive regulation of conversions and changes of legal form separately for individual legal forms of companies.

The Draft Act introduces the following new forms of conversions of business companies and changes in their legal form.

  1. spin-off - an institute corresponding to a partial division when a company being divided does not cease to exist and its part is separated into another company. The legislation will apply to both national and cross-border divisions;
  2. cross-border division – division of a company where the successor company is a newly established company in the presence of a cross-border element in the form of at least one participating or successor company registered in another EU member State; and
  3. cross-border change of legal form – the company changes its registered office from one EU member State to another and at the same time changes its legal form in accordance with the law of the State of the new registered office.

The terms and conditions of the conversion of companies will be newly addressed by the conversion project and will thus replace the merger agreement, which regulates the terms and conditions of the conversion of companies according to the currently applicable legislation. Similarly, to the merger agreement, the conversion project will be subject to the approval of the authorities of the company involved.

The new legislation also introduces various changes in the process of companies' conversions. One of the changes is the shortening of the deadline for notifying the tax administrator and the pledge creditor of the drafting of the conversion project, which is reduced from 60 to 30 days prior to the general meeting that is to decide on the approval of the draft conversion project.

The new law also brings changes into the current regulation of an audit report that must be prepared once the merger agreement or a project on division has been approved. According to the Draft Law, an auditor will just investigate and confirm the admissibility of the conversion, i.e. there are no such conditions preventing the conversion, in particular the company is in bankruptcy or restructuring. The auditor will no longer assess the status of the assets and liabilities of the successor company after conversion. This obligation will pass to the statutory bodies of the participating companies.

There is also a change in the legislation concerning the drafting of an auditor's report on the examination of the draft conversion project, which will replace the current independent expert's report. An important change is the introduction of a 15-day period for appointment of an auditor by the respective court, which is currently absent.

The Draft Act regulates the procedure of change of legal form, including cross-border change of legal form, in a comprehensive manner. It contains limitations on when a change of a legal form will not be admissible, for example, a change of the legal form of a cooperative. Similarly, to the conversions, the terms and conditions of the change of a legal form will be regulated in the conversion project.

The Draft Act introduces a new institute of the so-called relocation of companies from the Slovak Republic to another EU Member State with a change of legal form. The cross-border change of legal form will only be allowed for limited liability companies and public limited companies.

The new legislation should become effective as of 1 June 2023. However, as it has not been submitted to the parliament, we expect that the effective day will be postponed.

Given the significance of the changes in the area of company conversions, we will keep you informed about the legislative process.

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