The convocation procedure is related to the functioning of a joint-stock company. A joint-stock company is one of the two types of capital companies provided for in the Polish legal system. Each such company must have a share capital. The convocation procedure is a procedure held in a joint-stock company when its bodies decide to reduce the company’s share capital. There may be various reasons behind such decision, which may include some shareholders’ intention to withdraw from the company or which may be related to the company itself (e.g. the level of the share capital being too high). Below, we discuss the circumstances requiring the holding of the convocation procedure and explain its course.
General information on the reduction of share capital in a joint-stock company
A reduction of the share capital in a joint-stock company requires an amendment of its articles of association. As a rule, such amendment is made by a resolution of the general meeting, i.e. through a decision of the shareholders. A share capital reduction in a joint-stock company may be carried out in various ways, i.e. through redemption of some of the shares, a reduction of the nominal value of all shares, or through a division of the company into smaller entities.
For a share capital reduction to be effective, it needs to be notified to the registry court within 6 months from the date of the amendment of the articles of association and the adoption of the resolution to reduce the share capital.
What is a convocation procedure?
The convocation procedure is meant to protect the interests of the company’s creditors. The creditors are notified of the passing of the resolution on the reduction of the share capital before its registration with the National Court Register. This allows them to take measures to recover their claims against the company.
When does the convocation procedure begin?
Immediately after adopting a resolution on the share capital reduction, the company’s management board announces this fact in Monitor Sądowy i Gospodarczy (Court and Business Gazette). In the announcement, the company’s creditors should be summoned to file claims against the company within 3 months from its publication. Exceptionally, this time limit may be extended, if justified by the protection of the creditors. It is no longer possible to file an objection against the reduction of the share capital. According to legal scholars, the right to file claims may be assigned to other persons representing the creditors. The creditors’ tacit consent to the share capital reduction is also believed to be acceptable.
The announcement in Monitor Sądowy i Gospodarczy should inform about the adopted resolution, specify the amount and the form of the share capital reduction, as well as explicitly summon the creditors to submit their claims. Any claims filed after the lapse of the time limit specified in the announcement will not be taken into account in the convocation procedure.
What claims are settled in the convocation procedure?
Claims settled in the course of the convocation procedure are those which are due and which are filed within 3 months of the announcement.
The creditors may also request that their claims not yet due which emerged before the resolution on the share capital reduction be secured, provided that they prove not having received any security from the company, while the capital reduction poses a threat to such claims. As a rule, the payment under the claim in such circumstances is deposited by the court, although other ways of securing it are also available, such as establishing a mortgage on the company’s real property, creating a registered pledge and obtaining a bank guarantee or a surety.
When can a shareholder who is also a creditor recover their claim?
Under the convocation procedure, a company’s shareholder who is also a creditor may only recover their claim after 6 months from the date of announcement of the company’s share capital reduction.
When is the convocation procedure not held?
A reduction of the share capital does not always involve the convocation procedure. Polish law provides for situations in which this procedure is not required, namely:
- when the contributions towards the shares made by the shareholders are not returned to them, and the share capital, while being reduced, is also increased, at least to the original amount, by way of a new issue of shares which are fully paid,
- if the purpose of the share capital reduction is to balance losses sustained by the company or to transfer certain amounts to the reserve capital,
- in the event of redemption of the company’s own shares which were not transferred within the statutory time limit and whose value does not exceed 10% of the share capital;
- in the event of redemption of fully paid-up shares, when:
- the redeemed shares are the company’s own shares acquired for the purpose of their redemption;
- the shareholders whose shares are being redeemed will be satisfied from the company’s profit allocated for distribution (i.e. from dividends);
- the shares are redeemed without any consideration to the shareholders, except for utility certificates;
- the share capital reduction concerns a company that is being divided.
The exemptions referred to in points 1 and 2 above are only applicable if the value of the reserve capital does not exceed 10% of the company’s reduced share capital.
Summary
The convocation procedure is related to the reduction of the share capital in a joint-stock company. Its purpose is to protect the company’s creditors. However, it is not always held. In certain cases defined in the Code of Commercial Companies and Partnerships, the convocation procedure is not required. Nevertheless, its proper handling determines the effectiveness of the share capital reduction. It is therefore important to individually analyse in each case whether the obligation to carry out the convocation procedure applies. To do so, do not hesitate to contact Radkiewicz Lawyers Poland. We will support you through the entire share capital reduction process to ensure it is carried out in a timely and effective manner.
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