Transfer of part of the plant and its legal pitfalls

Author of the article: JUDr. Vladimír Janošek, ARROWS law firm (office@arws.cz, +420 245 007 740)

The transfer of a part of a plant (branch) is a relatively common but legally complex process in business practice. The most recent decision of the Supreme Court, Case No. 33 Cdo 2383/2023, dated 29 January 2025, emphasises that if a part of a plant is not a separate organisational unit, the transfer of such an "entity" does not trigger the legal consequences that are otherwise associated with the disposal of a branch, which may cause considerable difficulties for entrepreneurs in practice. What exactly does this mean for entrepreneurs and what steps are necessary to ensure that the transaction is legally flawless?

1. What is a part of a factory from a legal perspective?

The Civil Code (§ 2183) provides that only a part of a plant that constitutes a separate organizational unit may be transferred. This means that the part of the plant must be:

• Economically and functionally independent - it must not be a random collection of assets or debts, but a coherent unit capable of independent functioning.
• Designated as a branch by the decision of the business - must be formally recognized as a separate part of the business.
• Recorded in the accounts and organisational structure - if there is no clear delineation of its assets and liabilities, there may be problems with its transfer.

In practice, it is therefore not enough to transfer, for example, just a particular set of contracts or receivables - the overall continuity of operations must be ensured.

It should therefore not be a purposeful disparate grouping of unrelated items created before the contract is concluded. In such a case, it would not be the purchase of a part of the plant, but the purchase of individual items of the plant under a general sales contract (relating to movable or immovable property), which, however, is subject to a somewhat different legal regime.

2. How to ensure the effectiveness of the transfer?

The Supreme Court emphasised in its judgment 33 Cdo 2383/2023 that if a part of a factory is not properly specified and designated as a separate organisational unit, it cannot be transferred as a whole together with its debts and claims. In order for the transfer to be effective, it is necessary:

• Clearly define the subject matter of the transfer in the contract (e.g., identify specific assets, liabilities, employees, contracts, etc.).
• Ensure accounting and organisational continuity - the transferred part of the plant must continue to operate independently after the change of ownership.
• Publish the transfer in the collection of deeds of the Commercial Register - according to Section 2180 of the CC, the transfer of the part of the plant must be published in the collection of deeds, otherwise the transfer of ownership of the part of the plant will not take place.

Entrepreneurs should therefore have the transfer documentation prepared carefully by lawyers to avoid any doubt about the entire transaction. Indeed, an inappropriate definition of the branch may lead to completely different legal consequences than the parties originally intended.

3. Risks of an ineffective transfer

If the transfer is not carried out correctly, serious legal consequences may arise:

• Disputes over the nature of the contractual relationship - it will not be clear between the contracting parties what rights and obligations govern their contractual relationship.
• Ineffectiveness of the transfer vis-à-vis third parties - there may be no transfer of claims and debts to the transferee of part of the plant at all.
• Liability claims - the failure to transfer any of the items of 'part of the plant' to the transferee may, depending on the circumstances of the case, generate liability claims against the transferor in the form of liability for defects, damages or liquidated damages.

For example, in that judgment, it was held that the receivables actually transferred may not have effectively passed to the transferee in legal terms, which created considerable legal uncertainty in the contractual relationship.

4. Recommendations for entrepreneurs

To make the transfer of part of the plant seamless:

• Consult with lawyers to ensurethe transaction is properly documented.
• Specify exactly the branch to be transferred - avoid legal disputes.
• Ensure that the part of the plant is truly separate - don't just make it a random "grouping of contracts".
• Comply with legal formalities - especially publication in the register of deeds and notification to third parties.

The Supreme Court has made it clear that inaccuracies in the definition of a part of a plant can result in the ineffectiveness of the transfer of its individual items.

If you are planning to transfer a part of a factory (branch), do not expose yourself to the risk of legal complications and have it professionally assessed.

Are you planning to transfer part of a plant? Do you need legal certainty? If you need advice, please contact us and we will be happy to advise you.