KEY MATTER IN DISPUTE
Reorganization of a legal entity (i.e. change of the legal form) means that the old company ceases to exist and a new one emerges in its stead. But how does it affect relations with counterparties and third persons?
GEOTECHS CASE BACKGROUND (А33- 19123/2013)
On 8 December 2016 Geotechs ZAO was reorganized in Geotechs OOO. And on 26 December the company filed a claim on determination of secured lender status as part of Yeniseyskiy Fanerniy Combinat bankruptcy process. The claim was filed on behalf of ZAO – apparently by mistake. To cure it, the creditor asked the court to procedurally substitute ZAO for OOO. But the courts rejected the motion. This was due to the fact that it was two weeks before the date of the claim that ZAO had terminated its activity.
MICHOURIN SKhP CASE BACKGROUND (А14-3915/2015)
Shall one have real estate re-registered if its legal form has changed? Rosreestr decided that one should and refused to simply change the name Michourin SKhP in the register (this agricultural co-operative was reorganized in a limited liability company in 2014). Court of cassation upheld this position. It also emphasized that name change is not enough since one legal entity ceased to exist and a new one appeared. Therefore, transfer of title from one company to another shall be registered.
ROSDORNII CASE BACKGROUND (А12-28076/2015)
Rosimouschestvo tried to recover lease indebtedness from a Russian road scientific institute, but court of three levels only awarded a part thereof. This was due to the fact that a unitary enterprise was reorganized in an autonomous enterprise, and the new entity was not obliged to pay under contracts made by the old one.
RULING BY SUPREME COURT
The Court stated that reorganization of a legal entity in no way affects its property sphere and its rights and obligations as against third parties (s. 5 Article 58 of the Civil Code). This led to substitution of Geotechs ZAO by Geotechs OOO; and in Michourin SKhP case it states that name change would suffice – no re-registration is required; at the same time RosdorNII shall repay all the debts under the lease despite the change of its legal form.
COMMENT BY S&K VERTICAL
In three case Supreme Court clearly stated that company transformation is a specific type of reorganization in which case only the legal form of an entity changes. Such an approach is based on the new provisions of the Civil Code related to company transformation. According to them, rights and obligations of a reorganized legal entity remain unchanged in what relates to third parties, and in case of transformation no transfer act is needed (s. 5 Article 58 and Article 59 of the Civil Code). Supreme Court, however, went further stating that transformation does not create a new legal entity and, therefore, does not lead to succession – and thus departed from the classic approach to reorganization.