5.4 Certain Specific Topics

In the context of facilitating structural change, the author further discusses four specific topics: the transfer of assets and liabilities under a universal title of succession, fraudulent conveyance rules, cross liabilities upon demerger, and re-solving a dissolved partnership.

All legal positions held by a legal entity can be considered part of the entity’s assets and liabilities which are transferable by way of merger or demerger, with two exceptions. The first exception relates to legal positions pertaining to the identity or organisation of the entity (e.g., the corporate law relationship between a company and its director). The second exception is about legal positions of a highly personal nature. The nature of a legal entity brings about that third parties must accept that the persons involved in the entity (e.g. shareholders or directors) may change from time to time. The own identity of a legal entity has limited importance; by nature, a legal entity is highly impersonal. Therefore, a legal position held by a legal entity is less likely to have a highly personal character than a legal position held by a natural person.

The type of transfer under universal title of succession is relevant for determining whether a legal position is transferable. A person can become the heir of a sole trader without his (express) consent, whilst it can be uncertain if he wishes to continue the deceased business activities. That is different from a merger of companies, which requires deliberate and well-prepared steps by those involved. The position of a partner in a partnership is generally not capable of being automatically transferred to a heir. As a general rule it will, however, transfer on the occasion of a statutory merger.

If partnership is understood to mean ‘the partners from time to time, as such’, as is the case for certain German partnerships and as proposed by the author for certain Dutch partnerships, the admission of a new partner and the resignation of a partner will result in an automatic transfer of partnership assets and liabilities from the ‘old’ partner group to the ‘new’ partner group. Such transfer will occur without changing the partnership’s own identity as an entity with legal capacity. Under these circumstances, it can hardly be expected that a legal position in the name of the partnership is ‘highly personal’ and therefore unable to transfer from the old to the new partner group. A similar situation is at hand in the event a partnership with legal capacity converts to a legal person (e.g. a BV company). In that case, the partnership assets and liabilities will transfer from the partner group as such to the legal person.

The Dutch Supreme Court has ruled that general fraudulent conveyance rules (the actio pauliana) do not apply to statutory mergers and demergers. The author recommends to provide for the contrary by amending the law. In the author’s view, legal acts effectuating a merger or demerger, and the legal consequences of such acts, are not sufficiently specific to justify an exception to the general fraudulent conveyance rules. These rules provide broader protection than the special creditor protection rules applicable to mergers and demergers. Also, the consequences of invoking fraudulent conveyance rules in a merger or demerger context would be the same as in other transaction structures. The consequences of annulment of a fraudulent transaction (based on the actio pauliana) are limited: the invalidity only works for the person having invoked it and no further than necessary to undo that person’s loss. In the author’s view, invoking the fraudulent conveyance rules should also apply to the new forms of transfer he proposes, such as the transfer of ZBA assets and liabilities (see above).

With respect to the statutory demerger of a company, Dutch law currently provides for a creditor opposition procedure and in addition thereto: cross liability. A demerging company which continues to exist will remain liable for the liabilities transferred, and an acquiring company in a demerger will become liable for the debts not transferred by the demerging company. The author proposes to terminate this mandatory accumulation of creditor opposition procedure and cross liability, following the French example. The current combination of said rules brings about undesirable complexity to business transactions, is not mandatory under the Sixth EU Company Directive and is not urgently required. The author recommends that it be left to those involved in a demerger to make their own choice: application of either the creditor opposition procedure or the cross liability rules.

Under Dutch law, a dissolved company can be re-solved ex nunc, provided that it has not ceased to exist, the resolution to re-solve the company has been validly adopted, legal certainty and third-party interests are not jeopardized and a competent court has approved the re-solution. This was decided by the Dutch Supreme Court in the matter of a dissolved BV company, which according to a filing with the Commercial Register had ceased to exist (but in reality still existed). With respect to partnerships, it may be assumed that re-solution ex nunc is possible as well. The above conditions set out by the Supreme Court can be applied by analogy to the dissolved partnership with legal capacity, if according to a Commercial Register filing it has ceased to exist. In the author’s opinion, in the event such filing has not yet occurred, a dissolved partnership can be re-solved by a unanimous decision of the partners. In the prospective law he proposes, the risk of unintentionally dissolved partnerships is reduced, as the retirement of the penultimate partner will not necessarily imply dissolution.