REmarks #34 For avoidance of doubts

In February, a draft amendment to the Act on the Formation of the Agricultural System was submitted to the Parliament. The aim of the amendment is to clarify the provisions relating to the trading of agricultural property on the private market and to streamline the application of these provisions in relation to entrepreneurs. The authors of the draft bill state in its explanatory memorandum that the Act on the Formation of the Agricultural System (“UKUR Act”) does not contain its own definition of an entrepreneur. Consequently, in their view, doubts have arisen in practice as to whether this concept should be understood narrowly – exclusively as a natural person conducting a sole proprietorship, or broadly, to include commercial companies as well.

As stated in the justification to the draft, it is necessary to clarify the wording of the provisions concerning the rules for applying the restrictions arising from the UKUR Act to factual situations involving the transformation of an entrepreneur whose assets include agricultural property. The first of the provisions to be amended, article 2a(3)(14) of the UKUR Act constitutes one of the exceptions, inter alia, to the fundamental principle of this Act, according to which the purchaser of agricultural property may only be an individual farmer. The second provision to be amended under the draft act, Article 4 of the UKUR Act, introduces a right similar to the pre-emption right the event of the acquisition of agricultural property on the basis of legal events other than a contract of sale. The draft provides that in both aforementioned articles, the reference to the transformation of an entrepreneur will be explicitly limited to an entrepreneur who is a natural person carrying out business activity in their own name, or a civil law partnership being transformed into a commercial company.

As the authors of the draft themselves indicate in its justification, in the case of the conversion of commercial companies into other commercial companies, there is no ‘acquisition’ of agricultural property at all. This stems from the principle of continuity provided for in Article 553 of the Commercial Companies Code (“CC Code”). The transformed company is entitled to all the rights and obligations of the company being transformed, and the entity retains its identity – only its legal form changes. Commercial law doctrine emphasises that the transformed company operates under the same corporate regulations as the company being transformed, under the same name, based on the same assets, and exercising the same scope of administrative and legal powers with the same personnel.
This is therefore not universal succession, i.e. the legal successor stepping into the predecessor’s entire legal position. The transformed company is not the legal successor of the company being transformed, but “the same, but not the same” company. Consequently, the amendment, which will apply the above-mentioned regulations only to natural persons, is intended to be purely clarifying.

Let us, however, examine the literal wording of the provisions set to be amended under the draft in question. Article 2a(3)(14) of the UKUR Act provides that the restrictions on entities and land area in the trading of agricultural property do not apply to the acquisition of agricultural property resulting from the conversion of an entrepreneur or a civil law partnership into a commercial company under the CC Code. Pursuant to rticle 4(1)(4)(C) of the Act, if the acquisition of agricultural property occurs, inter alia, as a result of the conversion of an entrepreneur or a civil law partnership into a commercial company under the CC Code, the National Centre for Agricultural Support (“KOWR”), acting on behalf of the State Treasury, may submit a declaration of acquisition of that property against payment of its price.With regard to Article 4 of the UKUR Act, i.e. the equivalent of the pre-emption right applicable to the acquisition of real estate on the basis of legal events other than a sale agreement, the clarification introduced by the amendment (together with the justification) is reasonable in the view of declared aim of the amendment. Even if the conversion of commercial companies is not mentioned in the scope of this provision, it will still be clear (as has been the case hitherto) that the KOWR’s right to acquire the property does not apply.

However, the situation is different with regard to Article 2a(3) of the UKUR Act, which is of an exceptional nature and specifies the cases in which the restrictions of the UKUR do not apply. Given that, in accordance with the principle of continuity referred to above, the conversion of a commercial company into another commercial company does not constitute an ‘acquisition’ of real estate, it is difficult to see a real problem here requiring legislative ‘clarification’. The proposed amendment in this regard may therefore – contrary to the legislator’s stated intention – `suggest that the legislator’s intention was precisely to subject the transformation of an entrepreneur other than a natural person to the restrictions set out in Article 2(1) and (2) of the UKUR Act, since it will not be explicitly included within the scope of the exemption.

In terms of the stated rationale behind the subject draft bill, there are good intentions. However, its justification does not constitute a source of law and, over time, will increasingly rarely serve as a point of reference when interpreting the provision in question. If the draft enters into force in its proposed form, introduced amendment (at least with regard to Article 2a of the UKUR Act), if interpreted literally, may in practice contribute to generating new doubts rather than limiting existing ones.