Family and business: Why sibling companies may not automatically be “close persons”

The definition of a close person under section 22 of the Civil Code is not limited to family members such as spouses or siblings. The legal wording is deliberately broad so that other persons, including legal entities, can also be covered by this legal regime if there is an exceptional relationship between them. The laws impose certain restrictions on transactions between related parties, which are applied appropriately and analogously to relationships involving legal entities. The main purpose is to protect third parties – in particular creditors – from unfair property transactions that could occur within these close links.

In a recent judgment 29 ICdo 39/2024 of 31 March 2025, the Supreme Court addressed whether the sibling relationship between the owners of companies is sufficient for the companies to be regarded as close to each other and whether this relationship gives rise to special conditions for the protection of third parties within the meaning of Section 22 of the Civil Code. The dispute was initiated by the insolvency administrator, who challenged transactions between the bankrupt debtor (joint stock company) and its contractual partner (limited liability company). The key question was whether the two companies could be regarded as close persons, given that the owners of the companies were brothers. The insolvency administrator requested that the court declare the ineffectiveness of the companies’ mutual legal transactions vis-à-vis the debtor’s creditors. He based his argument on the assumption that these were legal transactions between related parties, which are subject to stricter requirements under the Insolvency Act in terms of the contestability of legal transactions.

The Supreme Court disagreed with the plaintiff’s reasoning and did not grant his petition. In its decision, the Court held that the sibling relationship between the owners was not in itself sufficient reason to regard their companies as close persons.

“The Supreme Court therefore concludes that the fact that a limited liability company is controlled by a natural person who is a close relative (sibling) of the natural person who controls the joint stock company does not make the limited liability company the one who substantially influences the joint stock company; the legal transaction between the joint stock company and the limited liability company cannot be regarded as a legal transaction between close persons for that reason alone (Section 22(2) of the Civil Code).”[1]

In doing so, it followed its earlier decision-making practice, which had already rejected the automatic creation of a close person relationship in similar situations – for example, between a son and his mother’s company or between a person and a company, in which his close person acts as a statutory body. The Court argues that if case law has previously ruled out the automatic creation of a close relationship in situations where the relationship was less distant (e.g., an individual’s connection to a relative’s company), this must be all the more true in the case of a more distant relationship – between two companies whose owners are linked by a sibling relationship. According to the Supreme Court, the material aspect of the case, which is the existence of actual control of the company by the same person, is also crucial. In the present case, just such an element is absent, since neither brother controls the other brother’s company or has any significant influence on its legal conduct.

The decision of the Supreme Court brings legal certainty to transactions between companies backed by natural persons who are closely related within the meaning of Section 22 of the Civil Code. It confirms the existence of a clear boundary between family ties and business autonomy. Company owners thus need not fear that the existence of a sibling relationship would automatically impose a stricter regime on their business for legal acts between closely related persons. However, the court does not rule out the possibility of such a relationship existing in these cases if it is proven that a person close to the owner has a significant influence on his or her company. The key is transparency and the ability to prove that the legal act was performed within the limits of standard market rules.

[1] Judgment of the Supreme Court of 31 March, file No. 29 ICdo 39/2024, published under No. 3/2026 of the Collection of Judicial Decisions and Opinions, Civil and Commercial Part (point 45)