Due diligence and disclosure

Scope of due diligence

What is the typical scope of due diligence in your jurisdiction? Do sellers usually provide due diligence reports to prospective buyers? Can buyers usually rely on due diligence reports produced for the seller?

Due diligence provides the buyer with the opportunity to verify the legal, tax and financial position of a company, business or assets, and to evaluate the risks associated with a planned acquisition. Typically, due diligence in Poland is conducted by the buyer, but due diligence reports prepared by the seller (‘vendor’s due diligence reports’) are becoming increasingly common on the Polish market. In the case of a share deal, the following areas are usually covered in the due diligence process:

  • legal structure;
  • title to shares;
  • corporate governance and compliance;
  • finances;
  • material contracts and their transferability;
  • tangible and intangible assets;
  • intellectual property rights, pending and closed court proceedings;
  • tax issues;
  • title to real estate
  • employment arrangements; and
  • regulatory matters.

In asset deals, corporate matters are not scrutinised in such detail, as the legal title to the company’s shares is not the subject of the transaction. Moreover, in the case of real estate being the subject of transfer, the buyer can rely on the Land and Mortgage Register, according to which an unauthorised person who is entered into the Land and Mortgage Register can effectively transfer the title to the property to a buyer acting in a good faith, even if the seller is not in fact the rightful owner.

Liability for statements

Can a seller be liable for pre-contractual or misleading statements? Can any such liability be excluded by agreement between the parties?

Polish law imposes a general duty to negotiate in good faith (see question 10). Moreover, if, after the transaction, the buyer finds out that some of the pre-contractual seller’s statements are not true, this may constitute grounds for claiming that an agreement is voidable for defects of will provided for in the Civil Code that are a basis for withdrawal from agreements. Nevertheless, with exception to fraudulent misrepresentation, it is very common to exclude a seller’s liability for pre-contractual statements in sale and purchase agreements.

Publicly available information

What information is publicly available on private companies and their assets? What searches of such information might a buyer customarily carry out before entering into an agreement?

The corporate files of companies, including the articles of association, are kept in the NCR of the district court where the company has its registered office. As the NCR was established to provide the public with information concerning the legal situation of the registered entities, anyone has access to the registered entities’ corporate files and can obtain legalised extracts concerning data entered in the register. For limited liability and joint-stock companies, the NCR provides online information on the name, seat, management board, supervisory board, representation rules, value, and total number of shares and paid-in share capital of the company.

For a limited liability company, the NCR also provides information on shareholders with a shareholding of more than 10 per cent and, for joint-stock companies, information on the sole shareholder (if applicable). The legal status of a print-out electronic extract with the above-mentioned information has the same legal force as a sealed document obtained at the NCR. Details of the ownership of real property, mortgages and other encumbrances are available in the Land and Mortgage Register, which may also be reviewed online. Prior to a transaction, the buyer should file motions to the Polish Pledge Register and Central Register of Tax Liens in order to receive information about whether the shares or assets are subject to a pledge. Details of registered intellectual property can be obtained from the Polish Patent Office, which is Poland’s sole office for granting of patents for inventions, utility models, designs, registering of trademarks, topographies of integrated circuits and geographical indications.

From a tax perspective, both the local value added tax (VAT) number as well as the European VAT number (PL VAT) can be verified electronically so that the active VAT taxpayer status of the target can be checked.

Also, as of June 2018, the Polish Ministry of Finance has been publishing a list of the biggest taxpayers whose income exceeded €50 million per year. Should the target company be on this list, information on its revenues, costs, income, tax base and tax due are publicly known.

On 13 July 2018, the Polish Anti-Money Laundering and Anti-Terrorist Financing Act (AML Act), dated 1 March 2018, came into force and implemented Directive (EU) 2015/849 on the prevention of the use of the financial system for purposes of money laundering or terrorist financing. The AML Act introduces the Central Ultimate Beneficial Owner Register, which will be operational in Poland from 13 October 2019. Companies will need to provide to the register information on their ultimate beneficial owners within seven days from the moment of entering the company into the NCR or applying changes thereto. An ultimate beneficial owner under the AML Act is considered a natural or legal person, who directly or indirectly controls a company by holding rights that allows influence over the company. This means, in particular, a person: holding at least 25 per cent of shares; exercising at least 25 per cent of the votes in the managing body; and exercising control over a legal person or persons, who hold over 25 per cent of shares or votes. The register will be non-confidential and publicly accessible.

Impact of deemed or actual knowledge

What impact might a buyer’s actual or deemed knowledge have on claims it may seek to bring against a seller relating to a transaction?

Under Polish warranty law, the seller is liable to the buyer if an object being sold has a physical or legal defect. The buyer’s knowledge about the object of transaction when entering into a sale and purchase agreement is crucial in terms of any potential warranty claims against a seller. If the buyer knew about the defect in question, the seller is released from liability for a defect covered by a statutory warranty. It is assumed that the buyer agreed to buy the object for an agreed price based on knowledge gained prior to entering into agreement: for example, knowing that it is defective. It is important to note that this does not relate to what the buyer should have known or noticed, as a buyer is not obliged to examine the object sold, but to the buyer’s actual knowledge. The burden to prove the buyer’s knowledge lies on the seller. The parties may extend, limit or exclude the liability under a warranty; however, the exclusion or limitation of the liability under a warranty is ineffective if the seller fraudulently concealed the defect from the buyer.