The division of a company (or cooperative) is one of the possibilities of transformation of a company as described in Act No. 125/2008 Coll., the Act on Transformations (hereinafter the “Transformations Act”), in addition to amalgamation, transfer of assets to a shareholder and change of the legal form of the company. According to the type of division we distinguish between three basic types of division, namely demerger by spin-off, split-off and carve-out. In the case of a spin-off, company ‘B’ is separated from the existing company ‘A’ and a new company is thus created alongside the existing company. If an existing company ‘A’ is dissolved and two new companies ‘B’ and ‘C’ are created in its place, it is a division by split-off. In the last-mentioned case, the Act on Conversions provides for the possibility of allocating part of the assets of company ‘A’ to an existing or newly formed successor company ‘B’, whereby the company being divided becomes a shareholder of the successor company.

The consequence of a division of a company is that assets are transferred from the company being divided to the successor company. In addition to assets, liabilities, including debts, are transferred to the successor company. This results in a possible threat to creditors, as without their consent there may be a change in the person of the debtor, which entails a risk of deterioration of the creditor position. For this reason, the Act on Conversions provides for the institute of statutory liability of the participating companies, the purpose of which is to ensure the recoverability of creditors’ claims even after the conversion.

In particular, the provisions of Section 257(1) of the Act on Conversions state that in the event of a division of companies, each of the successor companies is jointly and severally liable with the other successor companies for the debts transferred as a result of the division from the dissolved or divided company to the other successor companies or retained by the divided company in the case of a spin-off or carve-out, up to the amount of the valuation of the assets to be transferred to it according to the project of division as stated in the expert’s report.

But what if the debt is incurred after the company has been dissolved?

The Italian company SNIA caused environmental damage in connection with its activities in the chemicals sector through its subsidiaries. As a result, the Italian Ministry of the Environment filed a lawsuit against the company. As a result, SNIA was found guilty and fined just under EUR 500,000,000. However, between the filing of the lawsuit and the judgment, SNIA was split into SNIA and LivaNova.

The Italian courts have thus begun to address the question of whether, in addition to liabilities of a certain maturity and amount, the nature and existence of which are beyond doubt, the liabilities which pass to the successor company may also include liabilities which are indefinite or do not yet exist. Since the issue arises under Article 3(3)(b) of Sixth Directive 82/891 (“the Directive”), the Italian authorities have referred a question to the Court of Justice of the European Union (“CJEU”) for a preliminary ruling.

The essence of the question referred by the referring court was therefore whether the provision of the Directive must be interpreted as meaning that the rule of joint and several liability of the successor companies laid down in that provision applies not only to liabilities of a certain nature but also to liabilities of an indeterminate nature, such as remediation costs and damage which have been identified, quantified or consolidated after the division in question and which are the result of the conduct of the divided company.

As a general rule, the draft division must include, inter alia, a precise description and allocation of the assets and liabilities to be transferred to each successor company. It follows that the transferable liabilities must have arisen before the division in question. However, the CJEU held that, in the case of remediation costs and damage, the rule must be interpreted as meaning that the unlawful act or fact giving rise to the damage occurred before the date of apportionment, and not as meaning that the damage was identified or quantified on that date. Thus, based on the decision of the CJEU, in the present case LivaNova is liable to the extent of its assets, as determined by the expert at the time of the division, for the damage caused by SNIA, since the decision to pay for the damage or remediation took place after the split.

The CJEU argued that if such an interpretation of the concept of “liabilities” within the meaning of Article 3(3)(b) of the Directive were not adopted, the distribution could constitute a way for the company to avoid the consequences of the infringements it had committed at the expense of third parties. For that purpose, it would be sufficient for the undertaking concerned to carry out a division before the quantification of the remediation costs and the damage resulting from the conduct that took place before the division. The aim of the Directive is precisely to prevent a company from avoiding its obligations towards its stakeholders as a result of a demerger.