The most recent amendment to the Joint Venture Act (ie, to Article 6), published in the Journal of Laws No 49/1999, item 484, imposes new restrictions on foreign investment in Poland. Foreigner investors or foreign-controlled companies intending to acquire shares in a Polish company should investigate each step of the transaction in order to ensure that all legal requirements are met.
As of June 15 1999 foreign investors who intend to acquire shares in a Polish company that uses state-owned property (upon agreement for a period of over six months) must obtain a permit form the minister of the State Treasury. Acquisitions of shares that are made without a permit are null and void.
The restriction covers all cases of acquisition of any number of shares, whether in a limited liability company or a joint stock company, regardless of (i) the number of votes at the general meeting of shareholders or (ii) whether the company is or becomes controlled by foreigners.
The Ministry of the State Treasury subsequently announced that a permit is not required for acquisitions made in public trading (ie, on the stock exchange).This is contrary to the expressed provisions of the amendment. It is doubtful therefore whether the ministry's interpretation is legally valid. Nevertheless, in most cases it will not be possible to invalidate a transaction made in public trading as it is not possible to determine the identity of the purchaser. Therefore, it may be assumed that the regulation will have the greatest impact on private investments.
The amended Joint Venture Act provides the following definitions:
- A 'foreigner' is a citizen of a foreign country, a company with its seat abroad or a Polish company controlled by foreigners;
- 'Control' means having a majority of votes at the general meeting of shareholders (individually or by virtue of agreements and settlements with other parties), or the right to appoint a majority of members to the governing body of a company; and
- 'State-owned legal person' means a state-owned enterprise or a company that is wholly owned by the State Treasury.
Certain problems arise in connection with defining 'use of property'. Polish civil law recognizes a number of legal relationships with respect to the use of property (eg, lease, tenancy, usufruct). In these cases the regulation applies.
There are also doubts as to whether the requirement applies to the right of perpetual usufruct of real estate, which is treated in the Polish legal system as 'imperfect' ownership rather than typical 'use of property'. Moreover, foreign trading in shares by companies that are perpetual usufructaries is restricted by the Act on Acquisition of Real Estate by Foreigners of March 24 1920. The Ministry of the State Treasury's official interpretation is that in this cases the right of perpetual usufruct of real estate is regarded as the use of property.
The expression 'for the period of over six months' may be interpreted in the following ways:
- The agreement was concluded for a period of over six months; or
- The use of property lasted for over six months; or
- The use of property will last for over six months.
As there are severe consequences for noncompliance, each of these interpretations should be taken into account and satisfied if possible.
The Polish company whose shares are to be acquired by a foreign investos must first apply for a permit. The amended Joint Venture Act therefore prevents hostile takeovers by foreign investors. Since the amendment to the Joint Venture Act was made recently, it is not yet known how long it will take to obtain this permit. The information and documents that should be submitted with the application have not been specified, so in each case a separate inquiry should be made.
For further information on this topic please contact Anna Luczynska at Beata Gessel Law Office by telephone (+48 22 960 6901) or by fax (+48 22 690 6931) or by e-mail ([email protected]).
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