– selected legal consequences

In the light of the regulations in force in Poland, there is no legal obligation to recapitalize a limited liability company whose balance sheet shows a negative value of net assets (equity is negative). Blocking an economically justified and permissible recapitalization of the company by one of the partners may, however, be treated by the other partners (also by the company itself) as a lack of the required partner’s loyalty to the company and, consequently, in extreme cases may lead to claims against the partner. For obvious reasons, in the case of a sole company, this last issue has no significant practical significance.

When equity capital is negative:
a) It is possible to arise an obligation for the company’s management board to convene a shareholders’ meeting in order to adopt a resolution on the continued existence of the company or its liquidation (in accordance with art.233 of the Commercial Companies Code, if the balance sheet prepared by the management board shows a loss exceeding the sum of supplementary and reserve capital and half of the share capital, the management board is obliged to immediately convene the meeting partners in order to pass a resolution regarding the continued existence of the company). When deciding on the continued existence of the company, the partners are not obliged to recapitalize the company, regardless of whether they adopt a resolution on its continued existence or a decision to open its liquidation.
b) There may be an obligation to file a petition for bankruptcy of the company – if the company becomes insolvent, including both if the insolvency results from loss of liquidity and if it takes the form of excessive indebtedness. Excessive indebtedness occurs when a company’s liabilities exceed the value of its assets, and this condition persists continuously for a period exceeding 24 months. It should be remembered that not all liabilities are included here, in particular, future liabilities and liabilities towards the partner due to loans and certain other activities with similar effect are omitted.

The company in liquidation
In the course of liquidation, as already indicated above, the situation does not change substantially – there is no legal obligation to recapitalize a company whose equity is negative. It should be added, however, that (apart from the insolvency of the company), the liquidation may be completed only when the liquidated company secures its unmatured liabilities (including towards the shareholder) by submitting the necessary amounts to the court deposit (or will satisfy them). If it does not, decommissioning should continue.
If the creditors of a limited liability company in liquidation are partners, the solution that allows the end of existence of a company whose equity is negative may be in particular:
a) cancellation of shareholders’ claims against the company, which entails negative taxation consequences (the value of canceled liabilities is income for the company),
b) conversion of shareholders’ claims against the company (with the consent of all partners) into (only conditionally returnable)additional payments (with the obligation to pay PCC 0.5%)
c) bringing to a situation in which (after the liquefaction of the company’s assets) the liability of the company to its partners becomes due (as already mentioned above, the mere existence of the company’s obligations to the partner under a loan or other legal transaction with similar effects, even exceeding the value of the company’s assets, is not the basis for bankruptcy), the company will have more than one creditor and the company’s bankruptcy is declared in court (you cannot declare bankruptcy if the company has only one creditor)
d) bringing to a situation in which (after the liquefaction of the company’s assets) liability of the company towards its partners becomes due, filing a petition for bankruptcy of the company, but the bankruptcy will not be published by a court (the bankruptcy petition is dismissed) due to the lack of the company’s assets necessary to cover the costs of bankruptcy proceedings; in such a situation, it is possible (after meeting the conditions of the conditions) to apply for the removal of companie from the register of entrepreneurs by the court ex officio, without formal analysis, or the liquidation process may be carry out / completed without satisfying the claims of the partners of the company.

The above remarks are a general outline of the subject and should not be considered either as an exhaustive discussion of it or as legal advice on a specific factual state.