The condition of the Polish M&A market depends on many factors, such as the economic and political situation in the country and the legal and tax environment for businesses. But another significant element impacting the size and structure of investments in Poland is the legal restrictions on conducting transactions. They affect both share deals and asset deals.
These restrictions may involve the obligation to obtain approvals of various kinds. This might mean the consent of the relevant body of a company, a public administrative body, or a third party. Below we describe the most common instances where approvals are required to carry out transactions, as well as the consequences of failing to obtain them.
Approvals of corporate authorities
The Commercial Companies Code provides for the possibility of restricting the alienability of shares in a limited-liability company in the articles of association, as well as limiting the disposal of registered shares in a joint-stock company in the company’s statute. Such limitation may consist of a requirement to obtain the consent of the management board or other authority of the company: the supervisory board, the shareholders’ meeting or the general meeting. Such restrictions are “relative” in nature, meaning that they apply only when the company’s articles of association or statute contains provisions on this issue. An exception is the transfer of registered shares in a joint-stock company which are linked with an obligation to provide recurring in-kind consideration. In that instance, disposal of the shares is mandatorily conditioned on obtaining the consent of the company.
Mandatory restrictions on alienability also apply to disposal of certain elements of the company’s assets. This applies among other things to sale of a company’s enterprise or an organised part of its enterprise, which occurs in the case of asset deals. Then there is a statutory restriction requiring the approval of the shareholders’ meeting or the general meeting, in a resolution adopted by a two-thirds majority of the votes (in the case of a limited-liability company) or three-fourths of the votes (in the case of a joint-stock company), although the company’s articles of association or statute may impose more demanding conditions for adoption of such a resolution.
The consequence of failure to obtain corporate consent to conduct the transaction depends on the source of the requirement. If the approval is required by law, the transaction is invalid. If the approval is required by a provision of the company’s articles of association or statute, the transaction is still valid, but should be ratified through subsequent consent.
Approvals of public administrative authorities
Another type of approval for carrying out a transaction is the consent of public administrative authorities. An example is approval of a concentration, issued by the president of the Office of Competition and Consumer Protection (UOKiK) in the form of an administrative decision, after an undertaking notifies the intended concentration and the president of UOKiK finds that the concentration will not significantly restrict competition on the market. It should be pointed out that not every intention to carry out an M&A transaction requires notification of the president of UOKiK. This obligation arises when the combined turnover of the undertakings participating in the transaction in the year preceding the notification exceeded the values specified in the regulations and there are no “exonerating” conditions applicable in the case. The consequence of carrying out a concentration without obtaining the required approval of the president of UOKiK may be imposition of a fine on the undertaking. Additionally, in certain circumstances, the president of UOKiK may order the demerger of the merged undertaking or sale of assets or shares, among other sanctions.
Another example of an approval from an administrative authority which must be obtained during the course of the transaction is a permit from the minister for internal affairs. This will be necessary if, as a result of the transaction, a foreigner would acquire or take up shares in a company with its registered office in Poland which is the owner or perpetual usufructuary of real estate in Poland. The need to obtain such a permit arises firstly if, as a result of acquisition or taking up of shares, the Polish company becomes a “controlled company” (i.e. controlled by a foreigner), or secondly, if the Polish company is already a controlled company and the shares are to be acquired or taken up by a foreigner who is not an existing shareholder of the company. A permit from the minister for internal affairs will also be required when ownership or perpetual usufruct of real estate in Poland would be acquired in the acquisition of an enterprise or an organised part of an enterprise.
The regulations do provide for certain exceptions to these instances, involving foreigners who are citizens or undertakings of countries that are members of the European Economic Area or Switzerland, but these exceptions do not apply to real estate in zones close to the national border or agricultural land with an area greater than one hectare. It should be stressed that when such a permit from the minister for internal affairs is required, acquisition of real estate or shares without obtaining a permit is invalid.
There is also a danger of the sanction of invalidity in the case of acquisition of real estate in violation of the limitations arising out of a statutory right of pre-emption. This right may be vested in the local commune (for example if undeveloped real estate is sold which the seller previously acquired from the State Treasury or a local governmental unit), in the State Treasury represented by State Forests (for example when property is designated as forest land, not owned by the State Treasury), and in certain instances in the tenant of agricultural real estate or the National Support Centre for Agriculture (KOWR) acting for the State Treasury (in the case of sale of agricultural real estate).
Under the prevailing position of the courts, restrictions involving the right of pre-emption of real estate also apply to transactions in the form of asset deals, where the subject of the transaction is an enterprise that includes real estate. KOWR also holds a right of pre-emption in the case of disposal of shares in a company that is the owner of agricultural real estate. An unconditional sale of shares in this situation is void by operation of law.
Approvals of third parties
In certain transactions the consent of third parties may also be required. For example, if a married individual is a party to an asset deal or share deal, for safety’s sake it is advisable to obtain the consent of the individual’s spouse. The situation is similar in a case where several persons share the right to disposal of the item which is the subject of the transaction. Then the approval of the joint holders is required. Other examples of approvals that may prove necessary when carrying out a transaction include the consent of counterparties with whom the company that is the subject of the transaction has concluded commercial agreements. This is because such agreements may contain change-of-control clauses, which in the case of a change in the ownership structure of the company require notification and consent of the other party for the agreement to remain in force.
Approvals as legal restrictions on conducting transactions
The obligation to obtain approvals of various types to carry out transactions may be perceived on one hand as a restriction on the freedom of investment, but on the other hand may be justified by the need to protect certain rights and values. It should be added that apart from such approvals, there are also other legal limitations on carrying out transactions in Poland, such as the specific form required for an agreement to sell shares, an enterprise, or an organised part of an enterprise, as well as certain notification requirements provided for in the regulations (including post-transaction notifications).
Thus the M&A area illustrates the Polish proverb “Concord builds, discord destroys.” Obtaining the approvals required to carry out a transaction is a condition for its success, while failure to obtain approvals may invalidate the transaction, which could prove ruinous to the parties.
Julia Dolna, M&A and Corporate practice, Wardyński & Partners