We invite you to read the legal alert which refers to the new provisions of law concerning control over foreign investments in Poland. Please find below a description of the most important issues relating to the new regulation, as well as answers to some typical questions, which may arise in connection with the new regulation. If a planned investment raises any doubt as to whether it is subject to the limitations introduced by the Shield 4.0, we encourage you to take part in the question chart which will answer your questions as to whether the investment is subject to notification to the Polish Competition Authority or not.
Temporal scope. On 24 June 2020 the Act on Subsidies for Interest Rates on Bank Loans Granted to Entrepreneurs Struck by Effects of COVID-19 and on Simplified Settlement Proceedings in the Context of the COVID-19 Outbreak (the “Shield 4.0” or the “Act”) entered into force. The Act introduces domestic scheme of screening foreign investments in Poland in order to protect the domestic market against hostile acquisition by entities taking advantage of the COVID-19 outbreak. The screening mechanism comes into force within 30 days from the publication of the Act, that is on 24 July 2020 and it would remain in force for 24 months (until 24 July 2022).
Existing screening mechanism. First of all, one should remember that the administrative control over investments in some strategic businesses is not a new concept in Poland and it existed before adopting the EU Regulation 2019/452. Such a system has already been introduced by the Act of 24 July 2015 on the Control of Certain Investments (“2015 Act”). The 2015 Act empowers the minister of state assets, the minister of defence and the minister of maritime economy to veto investments which result in acquiring 20% or more shareholding in some strategic industries such as energy, explosives, chemical, telecommunications. The entities protected under the legislation in force are enumerated in the Regulation of Council of Ministers. The 2015 Act is applicable to all acquisitions irrespective of investor’s nationality.
Entities under control. The Shield 4.0 introduces significant amendments to the 2015 Act, namely some investments in Polish businesses from non-EEA/OECD entities which would require the approval of the Polish Competition Authority (“PCA”). It should be noted that the initial proposal of the drafters provided the exemption from the requirement of the approval of the PCA only for EEA entities. However, this exemption was extended to OECD in the course of the legislative process in the Senate (upper chamber of the Parliament). The country affiliation of the purchaser would be determined by reference to the citizenship or corporate seat of the ultimate parent. This means that the Polish subsidiary of non-EEA/OECD entity would be treated as a foreign entity.
Transactions under control. The jurisdiction of the PCA would cover two types of transactions:
- acquisition of dominance which is (in general) tantamount to acquisition of control as defined by the applicable merger control legislation (exercising decisive influence over another entity),
- acquisition of significant participation which is defined as holding at least 20% of shares (this also covers increase of participation to 40% or higher shareholding which is also subject to PCA’s review).
It should be noted that the screening mechanism is also applicable to asset deals such as agreements resulting in gaining the effective control over facilities operating in Poland. Moreover, any operations giving non-EEA/OECD entity the right to income of the protected business would also be caught by the Shield 4.0.
The PCA would be competent to review both direct and indirect operations, so foreign-to-foreign transactions are also caught. The screening mechanism also covers any legal events resulting in dominance or significant participation, e.g. redemption of shares resulting in the increase of participation to the minority shareholder, de-merger or privileging shares of a minority shareholder (ex post acquisitions).
The Shield 4.0 also contains the circumvention clause which empowers the PCA to review transactions aimed at escaping the screening mechanism.
Protected entities. In order to be subject to notification obligation, the target (direct or indirect) should meet the following criteria:
- have the corporate seat in Poland,
- its annual turnover exceeded EUR 10 million in the territory of Poland in any of two financial years preceding the notification,
- is the listed company or operates at least one of the following activities:
- management of assets qualified as the critical infrastructure,
- developing software for the following industries: energy, water supply or sewage disposal, Internet and telecommunications, banking and finance, medical and pharmaceutical, transport and logistics, food supply,
- providing cloud computing services,
- operating in one of the strategic sectors already covered by the 2015 Act, i.e. electricity generation, manufacture of petrol or diesel, pipeline transportation of crude oil, petrol or diesel, warehousing and storage of petrol, diesel or natural gas, underground storage of crude oil or natural gas, manufacture of chemicals, fertilizers or chemical products, production and trade in explosives, weapon, ammunition and products/technologies of military or police use, regasification and liquefaction of natural gas, crude oil transhipment in maritime ports, distribution of natural gas or electricity, transhipment in ports of primary importance for the economy, telecommunications, transmission of gas fuels, production of rhenium, extraction and processing of metal ores used for production of explosives, weapon and ammunition and products/technologies of military or police use,
- operating in one of strategic industries introduced by the Shield 4.0, i.e. manufacture of appliances, instruments and medical products, manufacture of medicines and other pharmaceutical products, cross-border trade in gas fuels and gas, generation, transmission or distribution of heat, trans-shipment in inland ports, processing of meat, milk, grain, fruits and vegetables.
The Council of Ministers – by way of regulation – is empowered to waive some protected entities from the scope of the screening mechanism.
Standstill obligation. As with merger control, the parties would have to refrain from finalising the transaction until the clearance is granted. Hence, as a general rule, the notification should be submitted before closing (for specific types of indirect acquisitions it is possible to file the notification after the event which brings about the transaction).
Review procedure. In general, the notification should be made by the active party directly involved in the transaction, e.g. direct purchaser (even if it is a subsidiary of non-EEA/OECD entity). The exception is ex post acquisition which should be notified by the target (protected entity).
In general, the notifying party is obliged to submit the following information:
- ownership structure of the target entity,
- acts bringing about the transaction,
- a business operated by the notifying party,
- composition of the purchaser’s group,
- economic and financial situation of the notifying party,
- criminal, civil and administrative record of the group companies and their managers,
- criminal and administrative proceedings pending against the group companies and their managers,
- acts already taken in order to acquire shares in Polish companies and financing of such transactions,
- notifying party’s intents related to the target business.
Having received the notification the PCA has 30 working days to conduct the initial review proceedings which could be closed with:
- a decision on the refusal to initiate inspection proceedings and non-opposition to the transaction,
- order to initiate inspection proceedings if the notifying party failed to submit all the requested information or documents or further investigation is necessary because of public safety or public order concerns.
The inspection proceedings (option (b)) should be closed within the statutory deadline of 120 days. It should be noted that the clock stops each time the PCA circulates RFI until the notifying party submits the response.
The decision to block the transaction may be issued if:
- the notifying party fails to submit complete information or documents within the deadline fixed by the PCA or fails to submit the information or documents required by the PCA,
- the notifying party fails to provide additional explanations in writing within the deadline set by the PCA,
- there is at least the potential threat for public order or public safety in Poland or public health in Poland,
- the country affiliation of the acquirer cannot be determined,
- the transaction may affect projects or programmes of European Union interest.
Similar to merger control regime, the PCA is also competent to initiate ex officio proceedings if non-EEA/OECD entity fails to notify the transaction. Such proceedings cannot be initiated after 5 years following the transaction.
The PCA decision may be appealed to the voivodship administrative court the judgement of which may be further appealed to the Supreme Administrative Court.
Sanctions. The transactions effected without the PCA’s clearance or in violation of prohibition decision are null and void. The nullity sanction is strengthened by the PCA’s power to appeal shareholders resolutions adopted in violation of the Shield 4.0.
Moreover, acquiring a significant participation or dominance without notification is subject to criminal liability. The fine up to PLN 50 million (over EUR 10 million) and/or imprisonment of 6 months to 5 years would be imposable on:
- a person who acquired significant participation or dominance without notification,
- a person who acquired significant participation or dominance on behalf or in the interest of third party,
- a person who exercised voting rights on behalf of the shareholder if Shield 4.0 notification had not been filed.
For entities which are not natural persons, the criminal liability is borne by the individuals who are obliged under statute or contract to conduct the affairs of the entity obliged to file the notification.