During the implementation of the status change, it is possible to endanger the rights and interests of different categories of persons. The interests of the members of the transferring company (shareholders), the interests of the creditors of the companies participating in the status change, and the interests of third parties that do not fall into any of these categories are recognized.
Protection of the Rights of Members of the Transferring Company
Right to Additional Payment
The member of the transferring company who deems that he is a damaged by the determined ratio of the exchange of shares, i.e. stocks in the transferring company for the shares, i.e. stocks in the recipient company, may file an action with the competent court against the recipient company within a term of 30 days from the day of publication of the notification to the members of the company about the time and place at which they may inspect the documents and by-laws referred to in Article 490 of the Companies Act, and seek payment of the pecuniary compensation. If more than one action were filed, the proceedings are consolidated.
If the court, deciding upon the action, establishes that the market value of the shares, i.e. stocks which the member of the transferring company acquired in the recipient company is lower than the market value of the shares and/stocks in the transferring company that were subject to exchange, it shall pass a ruling to obligate the recipient company to pay out to that person a pecuniary compensation which may not exceed 10% of the par value of his exchanged shares, i.e. stocks in the transferring company.
In the proceeding under the action, the court shall, in case it appoints an expert witness to determine the market value of shares, i.e. stocks, instruct the respondent recipient company to advance the costs of such expertise.
If, in the proceeding under the action, the court obligates the recipient company to pay out the pecuniary compensation, the recipient company shall pay to all the members of the transferring company whose shares, i.e. stocks of the same type and class have been exchanged for the shares, i.e. stocks of the recipient company, a proportionate amount in form of an additional payment.
Right to Payment
A member of the transferring company who dissented from the decision on status change in terms of Article 483 of the Companies Act has the right referred to in Article 474 of the Companies Act, whereas the buy-back price of his stocks is determined by the decision on status change.
If a member of the transferring company deems that the purchase price determined by the decision on status change does not correspond to the market value of these stocks, or if that price is not paid to him, he has the right to file an action with the competent court in compliance with Article 476 of the Companies Act.
The shares, i.e. stocks purchased in compliance with this Article become own shares, i.e. stocks of the recipient company, except in case of division by incorporation when they are distributed to members of the companies that are being incorporated.
A member of the transferring company may not raise any other claims towards the recipient company.
Third Party Protection
Protection of Creditors
A creditor of a company undergoing a status change whose claim incurred prior to the registration of status change in accordance with the registration act who deems that the status change wherein his debtor participates would compromise the satisfaction of his claim, may, within a term of 30 days from the day of the notification to the members of the company about the time and place at which they may inspect the documents and by-laws referred to in Article 490 of the Companies Act, seek the relevant protection.
Creditor protection is provided in the following manner:
- By providing security in the shape of a pledge, surety and the like
- By amending the terms of the contract where under the claim was incurred or by terminating that contract
- By separate management of the assets of the transferring company until the settlement of the claim
- By taking such other actions and measures which place the creditor in a position which is not less favourable than the position he enjoyed prior to the process of status change.
Conditions for Providing Protection
The creditor of the transferring company, i.e. recipient company, is entitled to seek the protection from his debtor or from the recipient company, i.e. transferring company only if the financial standing of the companies participating in the status change is such that the implementation of the status change compromises the satisfaction of his claim, and therefore, the provision of such protection is necessary for placing the creditor in a position which is not less favourable than the position he enjoyed prior to the process of status change.
The right to seek the protection is not enjoyed by:
- The creditors whose claims belong to the first or second rank of payment priority in terms of the law governing bankruptcy
- The creditors whose claim is secured.
Court Protection
A creditor, who, within a term of 15 days from the day of filing a motion for the provision of protection, is not provided with the relevant protection, is entitled to file an action against its debtor with the competent court seeking the provision of relevant protection, as previously stated.
The creditor is entitled to protection only if he proves that the satisfaction of his claim is compromised due to the status change.
At the request of the company, the court may impose an injunction banning the implementation of the status change if it finds it necessary and justified for the purpose of providing the relevant protection for the creditor who filed the action.
Protection of Holders of Bonds and Other Debt Securities
Protection of lawful holders of bonds and other debt securities issued by the transferring company, unless otherwise stipulated by a decision on the issue of such securities, or unless otherwise agreed with their holders shall be realized in the same way and under the same conditions as the protection of creditors.
Protection of Holders of Special Rights
The lawful holders of convertible bonds, warrants and other securities carrying special rights except stocks, issued by the transferring company which dissolves as a result of a status change, acquire at least equal rights towards the recipient company unless:
- Otherwise stipulated by the decision on the issue of such securities or
- Otherwise agreed with such a holder or
- The recipient company undertook by a status change agreement, i.e. division plan to repurchase those securities at their market value at the request of those persons.
In the case referred to in paragraph 1 item 3), the repurchase price shall be determined by the status change agreement, i.e. division plan according to the market value of such securities determined by mutatis mutandis application of Article 57 of the Companies Act, which shall also be confirmed by the auditor in a status change audit report.
The lawful holders of convertible bonds, warrants and other securities carrying special rights except stocks, issued by the transferring company which dissolves as a result of a status change are entitled to seek, within a term of 30 days from the day of publication of the notification to the members of the company about the time and place at which they may inspect the documents and by-laws referred to in Article 490 of the Companies Act, that the competent court, in a non-contentious proceeding, determines the repurchase price of the relevant securities, if they deem the value thereof determined in the status change agreement, i.e. division plan to be inadequate.
Liability for Damage
The directors, i.e. members of the supervisory board, if the company has a two-tier management system, of a company participating in a status change are jointly and severally liable to the members, i.e. stockholders of that company for the damage caused intentionally or by gross negligence during the preparation and implementation of the status change. The directors, i.e. members of the supervisory board, if the company has a two-tier management system, are not liable for the damages if a controlled company is acquired by its sole member.
An action for the compensation damages may be filed within a term of three years from the day of publishing of the registration of the status change in accordance with the registration act.
Read more:
Decision on status change »
Status changes according to the Law on Business companies – concept and types »
Company’s own shares – acquisition and disposal »
