Poland: Corporate Law Measures To Control The Reactivation Of Dormant Companies

Over the past 20 years we have observed a phenomenon of reactivating dormant, mainly pre-war companies in Poland – which for many decades existed only on paper. This is possible since historical entries in registers are still binding, which means that pre-war companies formally exist, even when inactive, and may thus be brought back to life. The purpose of a reactivation is often connected with claims, such as for damages for once lost assets owned by the company (eg, taken over by the state after the war). But this practice may entail some malfeasance. The reactivation process is often driven by new shareholders of dormant companies who have little to do with the original stakeholders.

The Giesche S.A. case

Before World War II, company Giesche S.A. owned a large property in Silesia, including mines and housing neighbourhoods for miners. In 2006 the company was reactivated. "Shareholders" acquired under unclear circumstances historical company shares issued before WWII and available on the collector's market. "Shareholders", who had at their disposal a package of collector's shares sufficient to hold a general meeting, brought the company back to life. The general meeting was held and supervisory board appointed, which appointed the management board, which filed a motion for the company to be entered into the current register. (Before WWII the company was registered at the commercial register, whereas entries are now made in the electronic, centralised register of entrepreneurs).

The company commenced an action to regain the prewar property covering a large area of the city of Katowice. The case became more complex as it turned out that in the 1960s, pre-war shareholders had already been awarded damages for lost nationalised assets. The case ended with prosecutions and arrests. Those who wanted to reactivate the company were accused of attempting to obtain property of considerable value under false pretences to the detriment of the state and the city of Katowice.

The HESA S.A. case

Before WWII, company HESA S.A. ran a renowned hotel in the centre of Warsaw. During the war the building was extensively damaged. After the war HESA S.A. was removed from the commercial register. The land below the hotel was taken over by the state and the hotel rebuilt and run by the state. During the 1990s the heirs of former shareholders reactivated HESA S.A. by filing an appeal against the decision under which the company had been removed from the register. After successful reactivation, the shareholders/heirs initiated an action to have the pre-war company property returned in the form of a plot of land with a rebuilt hotel on it. HESA S.A. won court cases and took ownership of the land and hotel.

New measures

As a result of the increasing number of similar cases to reactivate dormant pre-war companies, which then lodge claims for damages or to have former property returned, it became obvious that, while just claims should not be blocked, the procedures should be put under closer scrutiny to exclude abuse. Many sometime spectacular reactivation cases led Polish legislators to amend the registration law. The law is meant to guarantee that the reactivation process is based on effective legal title and that claims are lodged only by entitled persons.

The amendment limits the possibility of using old documents for purposes other than dormant company registration at the current commercial register. Public administration bodies, courts, banks, bailiffs and public notaries must inform the registry court of cases when copies, extracts or certificates of entities registered at previous registers are used, and of circumstances indicating that business is carried on by entities entered in the previous registers.

The amendment grants more power to the registry court to examine applications for a new registration of a dormant company. When examining a reactivation case, the court now verifies the correctness of convening the shareholders' meeting, appointing new company bodies and assuming shareholders' rights. Moreover, it informs the public prosecutor about the reactivation application. The prosecutor must join proceedings regarding a company formed before 1 September 1939. The prosecutor may also request the reopening of registration proceedings if circumstances indicate an invalid shareholders' resolution by which the company was registered. Under the amendment, entries in old registers will remain in force until 31 December 2013.

The new legal measures strike a good balance between protecting the rights of ownership and restitution claims and limiting the possible abuses of institutions where, for historical reasons, many restitution proceedings are yet to be seen. The application of these new rules is likely to bring many new interesting cases.

This article was originally published in the schoenherr roadmap`11 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.

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