Success of our client – legally binding security granted for a claim for conversion of a sole proprietorship into a limited liability company.

As a result of the conversion, the spouse attempted to transfer the main assets of the joint estate, i.e. numerous properties and a controlling stake in a manufacturing company worth approximately PLN 1 billion. In view of this, the security granted to the law firm’s client consisting in:

• prohibiting the converted company from disposing of or entering into any agreement obliging it to dispose of a controlling interest in a company in the manufacturing sector,
• prohibiting a spouse from increasing the share capital in a converted company or merging that company with any other entity,
• prohibiting the spouse from disposing of any shares in the transformed company or entering into any agreement obliging the spouse to dispose of those shares.

At the same time, the court threatened the spouse or the transformed company represented by the spouse with payment of the sum of PLN 2,000,000 for each infringement.

In the grounds for the order, the Court of Appeal stated:

“The entitled person has in fact substantiated with the documents attached to the said application that a transformation of the sole proprietorship conducted by a natural person on the basisof Article 551 § 5 of the Code of Commercial Partnerships and Companies has been carried out on the basis of an enterprise consisting of assets covered by the statutory marital community (including real estate, perpetual usufruct rights), which constitutes a legal act leading to the disposal of this enterprise and the real estate and perpetual usufruct rights included in it, within the meaning of Article 37 § 1 items 1 and 3 of the Code of Civil Procedure, and therefore requiring the consent of the other spouse. Thus, in the present case, the entitled party alleged that we are dealing with a unilateral legal act – submission of a declaration on transformation (Article 584(5)(2) of the Code of Commercial Partnerships and Companies), without the consent of the spouse, required pursuant to Article 37 § 1(1) of the Code of Commercial Partnerships and Companies, and therefore invalid (Article 37 § 4 of the Code of Commercial Partnerships and Companies in connection with Article 58 of the Civil Code). The invalidity of this act as an obligatory element of the conversion procedure (referred to in Article 584(5) of the Code of Civil Procedure) means, in turn, that the conversion has not taken place and this is not remedied by the entry made in the register“.

The freezing order is final and the main proceedings are pending.

This position has been shared by more than twenty decisions of the land and mortgage register courts, which refuse to register the limited liability company as the owner of the property.

The arguments of the attorneys of the alleged company, also on LinkedIn saying that, based on the final entry, should therefore be treated in humorous terms: “the incorporated company will continue its business based on the assets covered by the transformation of the spouse’s form of business“. An additional humorous touch is added by the fact that the attorneys bragged about the ruling before the reasons for the order of the registration court appeared. In the reasons for the order, the registration court instead pointed out: “In particular, there are no grounds for the conclusion that the mere existence of a registered company cures any defects related to its acquisition of rights to real estate, precluding the assertion of the corresponding claims by way of litigation (see, e.g., the justification of the Supreme Court’s decision of 27 November 2003, III CK 131/02, LEX No 183753). This issue was also pointed out by the Court of Appeal in Gdańsk in the justification of the decision …, indicating that the possible invalidity of the spouse’s act referred to in Article 5845(2) of the Code of Commercial Partnerships and Companies, which may lead to the failure of the entire transformation procedure, is not cured by the entry made, and the assertion of this fact may be demanded by the applicant in a ruling issued on the basis of Article 189 of the Code of Civil Procedure.

The client in the matters in question is represented by attorney-at-law Krzysztof Brysiewicz, attorney-at-law Wojciech Bokina, attorney-at-law Piotr Bordakiewicz from a law office in Słupsk with the assistance of apl. counsellor Bartosz Knyt. Bartosz Knyt.