New Corporate Code
Foreign Investment Law
Law on Acquisition of Real Estate by Foreigners
Other Statutory Restrictions
This overview reviews current and proposed regulations with respect to mergers and acquisitions (M&A) in Poland, except for tax issues. Several acts regulate various aspects of M&A activity, but the fundamental law in this regard is the Commercial Code (June 27 1934).
Pursuant to the Commercial Code, there are two basic methods by which companies may merge. The first involves the transfer of all the property of one company (target company) to another company (bidding company) in exchange for shares allotted by the bidding company to shareholders of the target company. The second method involves the formation of a new company. The property of the merging companies forms the capital of the new company, and in exchange the new company issues shares to the merging companies' shareholders.
The Commercial Code provides that mergers are permissible only when they involve either a limited liability company merging with another limited liability company, or a joint stock company merging with another joint stock company.
Resolutions and registration
Irrespective of the method by which companies merge, general meetings of shareholders of both merging companies must adopt resolutions approving the merger. Shareholder resolutions require a supermajority of 75% of the votes cast. The merger resolution must specify the following:
- the amount by which the bidding company's capital will increase;
- the number of shares taken up by the shareholders of the target company;
- the manner and date of allotting shares;
- any additional payments for shares that are issued by the bidding company;
- the balance sheets of both companies on the date the merger takes place;
- the kind and number of shares allotted to shareholders of the target company (eg, registered shares or bearer shares);
- the date from which newly issued shares may receive dividends; and
- the deadline for applying to the court to register the merged company.
It would seem from these requirements that companies may merge only if there is an increase in the bidding company's share capital. However, this is not so. If the bidding company holds shares in the target company or in itself (not exceeding 10% of its own share capital), then the merger will be allowed even though the share capital of the bidding company will not increase.
The merger becomes legally effective when the relevant court enters the newly merged company in the register. Upon registration, the bidding company becomes a legal successor of the target company.
The valuation of each merging company is important as valuations will determine the exchange value of the shares to be issued to the target company's shareholders. Disputes between shareholders with regard to this issue are, in practice, the most frequent reasons for suing with respect to resolutions. With regard to valuation, a decree of the Polish Supreme Court issued on October 1 1998 states that either fair market value or net assets value is admissible. It also held that the transfer of target company property to the bidding company is not an in-kind contribution.
The property of each of the merging companies must be managed separately until the creditors of each are satisfied. The claims of these creditors must have arisen before the merger and the creditors must demand payment (in writing) within six months of the proposed merger being announced.
According to Article 466 of the Commercial Code, the management board of the bidding company must announce the intention to merge in a daily newspaper for three consecutive days.
Not only share acquisitions are permitted in Poland. The bidder may also purchase an entire enterprise, a part of an enterprise or individual assets of an enterprise.
While bearer shares in a join stock company are fully transferable and may not be restricted, the transfer of ownership of registered shares may be subject to restrictions. Generally, the company's governing body (the supervisory board) must approve the sale. If a company's statute requires the company's permission to transfer ownership of shares but the company body that should make this decision is not stated, then this responsibility will be that of the management board. If a company does not approve a proposed sale of shares, it must indicate another purchaser who would be acceptable. The company statute must indicate the time limit for indicating an alternative purchaser and the means for determining the purchase price.
If a time limit is not indicated, registered shares may be freely transferred.
The transfer of the ownership of bearer and registered shares is legally effective when the share certificate is delivered to a purchaser.
The regulations regarding acquisitions of shares in limited liability companies are very similar. However, one important difference is that if a company refuses to allow a shareholder to transfer ownership of his shares, the shareholder can request that the register court permit him to do so (due to important reasons). In such a case, the company may, within the time limit indicated by the court, introduce another purchaser. If the parties cannot reach an agreement regarding the terms and conditions of the purchase price, the register court may do so upon a motion by the shareholder or the company. If a purchaser indicated by the register court fails to pay the purchase price within the time limit indicated by the court, the shareholder is allowed to dispose of the shares at any time.
In cases concerning the increase in share capital, if (i) the acquired company issues new shares directly to the acquiring entity and (ii) the acquired company is a joint stock company, then a resolution on the increase in share capital must be adopted by the shareholders.
The Polish Civil Code regulates the acquisition of an entire enterprise, a part of an enterprise or certain assets of an enterprise. According to Article 55, an 'enterprise' is a complex of material and non-material components, whose purpose is to perform definite economic tasks. In particular an enterprise consists of:
- the business name, trademarks and other marks that identify the enterprise;
- books of accounts;
- real estate and movable property, including products and materials;
- patents, utility models and design patents;
- obligations and burdens connected with running the enterprise; and
- rights resulting from leasing premises under tenancy agreements.
If an entire enterprise is acquired, normally all of the assets and liabilities are acquired as well (unless otherwise stipulated). Acquisitions can be made with the exchange of cash or in-kind contributions.
Poland's legislators are drafting a new Corporate Code. Parliament will probably adopt the new code by the end of the second or the third quarter of this year. It is expected to come into force on January 1 2001.
The new code will make several changes to the regulation of M&A. For example, it will provide for different types of companies to merge (eg, a registered partnership with a limited liability company). Also, prior to the shareholders adopting a resolution, the management of each company will be required to prepare a merger plan, outlining all of the details of the merger. The merger plan may be examined by a court expert who would give his opinion to the shareholders about the plan's accuracy and fairness. Finally, it is proposed that a merger resolution by shareholders should require 75% of the votes representing a minimum of 50% of the share capital.
Foreign investors may acquire equity interests in limited liability companies and joint stock companies. Under the Companies with Foreign Shareholdings Act, 'foreign investor' includes any individual domiciled abroad, a legal entity with its head office abroad, and partnerships of individuals or legal entities.
Both foreign investors and Polish legal entities that are controlled by foreign investors must obtain a permit from the State Treasury to acquire shares in a joint stock company or limited liability company with its seat in Poland if such company uses a state-owned legal entity's property. The Polish legislators did not indicate the type of state owned property that, when used, gives rise to this obligation. It is hoped that the new code will specify that this property is limited to real estate or an organized part of an enterprise capable of performing specific economics tasks. In the meantime, any share acquisition that requires this permit, but such permit is not obtained, is null and void.
Law on Acquisition of Real Estate by Foreigners
A 'foreigner', as defined by the Acquisition of Real Estate by Foreigners Act (March 24 1920, as amended), is a person without Polish citizenship, a legal entity with its head office abroad, or any Polish legal entity that is controlled by one of these.
Under this act, the acquisition of shares by a foreigner in a Polish company that owns real estate requires a permit from the Ministry of Interior and Administration if, as a result of such acquisition, the company becomes a controlled company. A permit is also required if the shares are acquired by a foreigner that is not already a shareholder in the company.
The acquisition of shares without the required permit is null and void.
Certain proposed mergers and acquisitions are subject to notification to the president of the Office for Protection of Competition and Consumers (Antimonopoly Office). The Antimonopoly Law (February 24 1990) requires notification of the following:
- mergers of businesses that during the previous year had total sales greater than 25 million euros;
- the acquisition of shares of another business that would give the acquirer more than 25%, 33% or 50% of the votes at a meeting of shareholders, if the total value of annual sales of both businesses in the preceding calendar year exceeded 25 million euros;
- short-term investments of financial institutions that enable the financial institution to obtain 25%, 33% or 50% of the votes at a meeting of shareholders, if the total value of annual sales of the acquired business in the preceding calendar year exceeded 25 million euros. An exception to this rules is that notification is not required if the shares are acquired with the intent to dispose of them within one year and the acquirer abstains from exercising its rights except for the right to receive dividends and to dispose of the shares; and
- directly or indirectly taking control of another business by any other means if the total value of annual sales of the business in the preceding calendar year exceeded 25 million euros.
Unlike the Acquisition of Real Estate by Foreigners Act or the Companies with Foreign Shareholdings Act, failure to notify the Antimonopoly Office of the intention to merge does not result in the merger being invalid. However, the Antimonopoly Office may impose a fine.
The Antimonopoly Office may, within two months from the date of filing the notification, prohibit or propose certain conditions of the intended merger or acquisition, if such merger or acquisition would allow one of the parties to achieve a dominant position in the market. If the Antimonopoly Office has no reservations concerning the intended merger or acquisition, it will notify the parties within two months of the notification and the proposed merger or acquisition may take place. If the Antimonopoly Office fails to make a decision within this two-month period, then the proposed merger or acquisition may also take place.
On December 28 1999 a new ordinance regarding the details of notification and the bodies obliged to file notifications came into force. This ordinance imposes the obligation to file notifications on the managing bodies of entities that will directly participate in the intended merger or acquisition. Consequently, there is some doubt as to whether acquisitions made by subsidiaries or other controlled entities are subject to notification. The Counteracting Monopolistic Practices and Protection of Consumer Interests Act of February 24 1990 adds to this doubt as it does not provide that acquisitions made by controlled entities should be treated as acquisitions made by dominant entities.
According to Article 33 of the Act on the Privatization and Commercialization of State Owned Enterprises, the acquisition of shares from the State Treasury under a privatization programme takes place under a public tender process. However, that the Counsel of Ministers may approve a disposal of state owned shares without following this procedure.
Additional requirements may have to be fulfilled depending on the nature of the business in which shares are to be acquired. Additional requirements can be found in the following legislation:
- the Banking Law Act;
- the Insurance Activity Act;
- the Investment Funds Act;
- the Act on the Organization and Functioning of Pension Funds; and
- the Radio and Television Act.
For further information on this topic please contact Maciej Kotlicki at Beata Gessel & Partners by telephone (+48 22 960 6901) or by fax (+48 22 690 6931) or by e-mail ([email protected]).
The materials contained on this web site are for general information purposes only and are subject to the disclaimer.