Business Transfer – Is there really a risk from the SRS, and is everything lost?

Especially in today’s economic crisis, businesses must consider how to restructure their operations to continue functioning once the drastic impact of inflation on economic processes subsides and economic growth resumes. Often, in such restructuring processes, which are frequently undertaken due to objective circumstances, entrepreneurs overlook a very important aspect – something called a “business transfer” – failing to understand it and not accounting for the consequences it can entail.

Business transfers are regulated by Article 20 of the LR Commercial Law, which states:

• If an undertaking or an independent part thereof is transferred to the ownership or use of another person, the acquirer of the undertaking is liable for all obligations of the undertaking or its independent part. However, for those obligations that arose before the transfer of the undertaking or its independent part to the ownership or use of another person, and for which the term or condition of performance occurs within five years after the business transfer, the transferor and the acquirer of the undertaking are jointly and severally liable.
• In the event of a transfer of an undertaking or an independent part thereof, the claims and other rights included in the undertaking or its part are transferred to the acquirer of the undertaking.
• An agreement contrary to the provisions of this Article is not valid with respect to third parties.

In practice, business transfers are increasingly identified and utilized by the SRS to supplement the state treasury, especially in budget deficit conditions, for the recovery of unpaid taxes from the acquiring company. This often comes as an unpleasant surprise to entrepreneurs who have not previously evaluated or considered it. We recommend taking this very seriously, as in most cases, it is only realized after the SRS has made its determination. A business transfer can practically be identified in the following cases if such a set of circumstances, or similar, is met:

• The acquiring company is registered at the same address as the previous company;
• The acquiring company conducts business operations in the same premises and in the same industry as the previous company;
• The acquiring company has the same ownership structure or a structure of close relatives, and the same board;
• The ownership and board structure of the acquiring company becomes the same as the previous company after some time (six months to three years), which means that the acquiring company was effectively registered under “straw men,” incurring legal liability;
• The former owner or board member has entered into an employment relationship with the acquiring company, seemingly even in an insignificant position that does not involve decision-making;
• The acquiring company has retained the same identity, including the website, trademark – even by concluding a lease agreement for it and continuing public publications made by the previous company;
• Most employees have transferred to the acquiring company;
• The acquiring company collaborates with the same or at least a large portion of the same buyers and suppliers;
• Shortly after commencing operations, the acquiring company purchases a portion of assets – even at market prices, including inventory balances from the previous company;
• Arbitration court judgments suddenly appear, justifying various of the above-mentioned circumstances in favor of the acquiring company;

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