Business Transfer: Risks from the SRS?

Especially in today’s economic crisis, entrepreneurs must consider how to restructure their business operations to continue functioning once the COVID-19 crisis subsides. Often, in such restructuring processes, which are frequently undertaken due to objective circumstances, entrepreneurs overlook a very important aspect: ‘business transfer’ and 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 performance deadline or condition 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, a business transfer is identified and utilized by the SRS for the recovery of unpaid taxes from the acquiring company, which is often an unpleasant surprise for entrepreneurs. A business transfer can practically be identified in the following cases if a combination of circumstances is met:

• The acquiring company is registered at the same address as the original company;
• The acquiring company conducts its economic activities in the same premises and in the same industry as the original company;
• The acquiring company has the same ownership structure and board;
• The acquiring company has retained the same identity, including the website, trademark, and public publications, as the original company;
• Most employees have transferred to the acquiring company;

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