Company Reorganization

Company reorganization is a complex and multi-stage procedure that involves changing the legal form or structure of a company.

Reorganization allows you to achieve many business goals:

• optimization of administrative and tax burden (spin-off, merger, consolidation);
• changing the company’s legal form to attract investment or increase confidentiality (conversion);
• consolidation of assets without selling goods (merger, consolidation);
• spinning off a business line for subsequent sale (spin-off);
• separating different business lines when a partnership ends (division, spin-off).

The following types of reorganization are distinguished:

1. Conversion
   – the company’s legal form is changed to another form
2. Merger (acquisition)
   – one or more companies fully transfer their rights and obligations to another company
3. Consolidation
   – two or more companies merge with each other and create a new company
4. Spin-off
   – one or more new companies are formed on the basis of an existing company
5. Division
   – one company ceases to exist and its rights and obligations are transferred to new companies

What matters for reorganization:

• the presence of long-term contracts (lease, installment payments, supplies with extended payment schedules), loans — during reorganization, the creditor may demand early performance or termination of the obligation and compensation for losses;
• the presence of licenses, accreditations, certificates — amendments to documents may be required;
• the presence of cash registers — re-registration may be necessary;
• employee consent to continue employment relations after reorganization — in case of refusal, the employee will have to be dismissed with severance pay;
• the status of a resident of the Hi-Tech Park, the Great Stone Industrial Park, or a Free Economic Zone;
• proper distribution of assets among companies;
• proper notification of creditors and fulfillment of their claims, otherwise the founders may be held jointly and severally liable;
• proper timing of the reorganization, since preparing the transfer deed or separation balance sheet may effectively require a suspension of the company’s operations.

The lawyers at Green Legal Law Firm are ready to provide full legal support for your company’s reorganization. During the initial consultation, we will offer our perspective on the situation and recommend the optimal tools to achieve your goal.

How to prepare for reorganization?

First of all, review contracts, hold negotiations with key creditors, verify the validity of licenses and certificates after reorganization, and hold a meeting with employees. The remaining steps depend on the specific situation: replacement of cash register equipment, preservation of FEZ / HTP / Great Stone resident status, etc.

How long does reorganization take?

The entire process takes a minimum of 5 weeks. This is because creditors are entitled to submit their claims within 30 days from the date the information on the commencement of reorganization is published in the Unified State Register.

However, the duration of the reorganization may also be affected by other factors:

• the size of the company,
• the time required for the inventory,
• the time required to prepare the transfer deed (separation balance sheet), etc.

Are there risks for the founders and directors of the company during reorganization?

As of November 19, 2024, if creditors are not notified of the reorganization and creditor claims are not satisfied, the founders and the director of the company may be held jointly and severally liable for creditor claims.

This means that lawsuits from creditors may be brought against both the company and its controlling persons. Therefore, special attention should be paid to the reorganization preparation process.

Is an inventory mandatory?

Yes, an inventory is mandatory during reorganization. The director must form an inventory commission and determine the objectives and timeline of the inventory. Based on the inventory, a transfer deed or separation balance sheet is drawn up.

Does reorganization allow avoiding debts?

Violations in drawing up the separation balance sheet, failure to notify creditors, ignoring creditor claims — all of this gives creditors expanded opportunities to protect their rights.

As of November 19, 2024, it has become much more difficult to use reorganization as a way to evade obligations to counterparties.

Useful articles on the topic

• How to organize work with creditors during reorganization
• Reorganization: spin-off and sale in the catering industry