When acquiring or restructuring a running business, one issue that must be considered is the transferability of environmental permits. Addressing this issue in advance will help to avoid ending up with a business that cannot be operated upon completion of the purchase or restructuring.

Although transferability of environmental permits is usually considered an issue in asset deals, it can also be a problem in share deals. This might be the case if the target owns a plant and the plant is operated by a third party that belongs to the target group and that holds the environmental permit. If the third party stops operating the plant after completion of the acquisition, transfer of the permit should be considered.

Polish environmental protection law

The Polish environmental protection law links the provisions relating to permits to the concept of installations, i.e., stationary technical equipment or buildings whose operation can cause emissions. According to the Polish environmental law, operation of an installation that causes certain emissions is allowed only after the relevant environmental permit has been obtained.

An entity interested in obtaining the legal title to an installation may apply for the transfer of existing permits from the current operator. However, the transfer is not automatic and is possible only when the purchaser warrants that it will duly perform the obligations resulting from such permits. It is also possible that the relevant authority will request a security for claims relating to a possible degradation of the environment. Once consent to transfer the permit is obtained, the consent is valid for one year. If legal title to the installation is acquired within that period, the permit becomes legally effective after the acquisition.  

Besides the above transfer mechanism, permits transfer automatically in case of restructurings, such as mergers and spin-offs. In case of a spin-off, the company that takes over the installations takes over the relevant permit.  

Potential difficulties

Although the above provisions may look straightforward, there are situations in which transferring a permit is difficult or impossible; for example, if only part of an enterprise is transferred on the basis of a sale of assets or a spin-off, and if the seller has an integrated environmental permit that covers all of its installations (i.e. including both the retained and the sold/spun-off installations). Since it is not possible to divide a permit between companies, it would not be possible to transfer only part of the permit.

This means that for the sold or spun-off installations, new permits must be obtained and the ones in force for the remaining installations must be modified. Since obtaining a new permit is time consuming (approximately one month to prepare the technical documentation and one to two months for the authority to grant the permit), it is essential that the parties consider the above period when structuring a transaction, especially when the permit is to be obtained between signing and completion. Also, it is important to keep in mind that the entity planning to take over the installation must apply for the permit; no other entity may apply on its behalf.  

The above must be taken into account, for example, in case of a transfer of rights and obligations relating to a business purchase agreement between signing and closing to a newly created SPV, as the application for the permit may be filed only after the creation of the SPV.