Enforcement proceedings against a shareholder’s shares in a limited liability company

A creditor’s pursuit of claim satisfaction can involve various enforcement methods. One of them is the seizure of a debtor’s shares in a limited liability company for the purpose of enforcement. This can involve both the benefits the shareholder receives from participation in the company and the shares themselves. Shares may be seized by a court bailiff in ongoing enforcement proceedings. These proceedings are initiated at the creditor’s request, based on a final and enforceable court ruling. Upon receiving such a request, the bailiff issues a decision to seize the shares, notifies the company, and informs the registry court maintaining the company’s records.

How to find out about share seizure in enforcement proceedings?

In practice, the fact that shares have been seized often goes unnoticed, even by the company’s contractors. This is because the seizure is typically not disclosed in the publicly available National Court Register. To access this information, one must visit the court where the company’s registration files are held and review them. These files are public, and anyone has the right to inspect them. While it is accepted that the registry court may decide to include a note on the KRS extract about the share seizure, this is not a common practice.

How does enforcement against shares proceed?

Typically, the creditor is satisfied from the income the shares generate for the shareholder. Any dividends or return of contributions that would otherwise be paid by the company to the shareholder must, due to the seizure, be redirected—via the bailiff—to the creditor until the debt is fully repaid.

If this form of satisfaction proves insufficient, the next step may involve the sale of the shares. In principle, enforcement sale of shares requires a valuation by an expert, which significantly increases enforcement costs. These costs must initially be advanced by the creditor.

Once the shares are seized, the debtor loses all property rights associated with them. Upon seizure, these rights are transferred to the enforcing creditor. However, it is important to note that there are limitations: the creditor may not exercise the corporate rights of the shareholder, such as participating in or voting at shareholders’ meetings.

How to protect the company from unexpected share sales?

From the perspective of a company which shares may be sold through enforcement, it is crucial to include in the company’s articles of association a clause that limits the ability of shareholders to transfer their shares without the company’s consent. This can protect the company from an uncontrolled change in ownership by enabling the shareholders to present the bailiff with a willing buyer approved by the company. This gives the remaining shareholders a degree of control over who will acquire the shares and whom they will be doing business with going forward.

Since amending or adjusting the articles of association may raise legal uncertainties, it is advisable to consult a lawyer to help the company find the most suitable solution.