Company transformation and creditor protection: the view of the Supreme Court

In its judgment ref. no. 29 ICdo 73/2023 of June 30, 2025, the Supreme Court dealt with the question of whether it is possible to successfully challenge the transformation of a company in insolvency proceedings as a legal that unfairly defrauds creditors. The court confirmed that transformations of commercial corporations pursuant to Act No. 125/2008 Coll., on Transformations, are not exempt from the control of insolvency law. If the transformation leads to the depletion of the debtor’s assets to the detriment of creditors, it is subject to insolvency review in the same way as other acts of the debtor.

The court considered the question of when to assess the debtor’s intention to shortchange creditors to be fundamental. According to the court, the preparation of a transformation project does not constitute a relevant legal act; only the approval of the project by the general meeting does. It is at this point that corporations make binding decisions on asset transfers, which may adversely affect creditors. The intention need not be directed towards a specific claim – knowledge that debts exist and the foreseeability that the transformation will make their subsequent satisfaction more difficult is sufficient.

The Supreme Court also emphasized that when determining who can be the addressee of an action to set aside, it is necessary to proceed from a material perspective. The formal position of the entity in the division project is not the only decisive factor. The key issue is who has actually been enriched, i.e. who has acquired the property that belonged to the debtor prior to the transformation. An action to set aside a transaction may therefore also be brought against persons who are only indirectly involved in the project.

Several important guidelines emerge from the decision, which are relevant for future consideration of transformations in insolvency proceedings:

1. Material approach to the assessment of transformation
   It is necessary to assess the actual economic result of the division, not just its formal compliance with the Act on Transformations.
2. The decisive moment – approval of the transformation
   The intention to shortchange creditors is assessed on the date of approval of the project, when there is a real manifestation of the will of the partners.
3. The broader concept of enrichment
   An action to set aside a transaction may be brought against any person who has gained financial benefit from the transformation, even outside the circle of formally designated successor companies.
4. Independence of the right to set aside a transaction from the Act on Transformations
   The fact that the transformation was carried out in accordance with the formal requirements of the Act on Transformations does not preclude its assessment as an objectionable act if it fulfils its characteristics under the Insolvency Act.
5. Temporal and economic context
   The proximity of bankruptcy approval, an increase in liabilities, or a deterioration in the debtor’s economic situation may be an indicator of intentional shortchanging of creditors.

In this decision, the Supreme Court relied on previous case law, in particular judgment No. 29 ICdo 133/2020, in which it had already admitted the general possibility of challenging transformations by means of an action to set aside. Together, the two decisions create a line that significantly strengthens the position of creditors in situations where the conversion is not for restructuring but to bring assets out of bankruptcy.

The new judgment thus makes it clear that conversions carried out in times of financial stress must have a genuine economic rationale and must not worsen the position of creditors. Formal compliance with the Act on Transformations alone is not sufficient if the actual result leads to a weakening of the debtor’s assets. When planning transformations, it is therefore essential to pay attention to their economic sense, timing and the way, in which the assets will be transferred, in order to withstand any insolvency proceedings.