The Commercial Companies Code contains rules facilitating mergers of companies where there are few owners and little risk of harm to stakeholders, and thus the law allows certain provisions to be waived. But it is essential to apply the regulations properly so that the merger is carried out effectively and can be entered in the National Court Register.
Permissibility of simplified merger
Polish law allows companies to merge in various configurations. The Commercial Companies Code regulates the merger process in detail so that the interests of each entity participating in the merger are protected. However, it is not difficult to imagine a merger of companies where, due to their limited composition, the interests of stakeholders will not be threatened at all, or only to a minimal extent. Applying the standard merger procedures to such situations would excessively and unhelpfully formalise the process.
Under current law, it is possible to disregard certain provisions of the Commercial Companies Code for mergers in the following configurations:
- If the acquiring company, which is not a public company, holds shares whose aggregate nominal value is not less than 90% of the share capital of the acquired company, but does not include all of its capital
- If limited-liability companies whose shareholders are exclusively natural persons are merged, and their number in all merging companies does not exceed ten persons
- If the company acquires its wholly owned subsidiary.
In this article, we will address mergers under the last of these configurations: acquisition of a wholly owned subsidiary.
In this scenario, use of the simplified merger procedure is possible once two conditions are met:
- The acquirer is a non-public company
- The target is a company in which all shares belong to the acquirer.
If the situation allows for a simplified merger, the first step is written agreement of the merger plan by the management boards (or possibly by the board of directors in a simple stock company). The merger plan is the result of arrangements made by the management boards of the merging companies, and often the result of arrangements made with the shareholders of the merging companies (A. Kidyba, Revised Commentary to Art. 301–633 of the Commercial Companies Code, Lex 2022, Art. 498). The mandatory elements of the merger plan are listed in the provisions regarding merger (specifically, Art. 499 of the Commercial Companies Code), but the scope of the merger plan may be broader. Before agreeing on the merger plan, the management boards of the merging companies should consider adopting an appropriate management board resolution, if required by the company’s articles of association or the management board bylaws, or if in the opinion of the management board the action is outside the ordinary course of business. For such a simplified merger, the mandatory elements of the merger plan will be:
- Corporate form, business name, and registered office of each of the merging companies, and the method of merger
- Rights granted by the acquirer to shareholders and persons enjoying special rights in the target (if any)
- Special benefits for members of the bodies of the merging companies and other persons involved in the merger (should any such benefits be granted).
The following should be attached to the merger plan:
- Drafts of the merger resolutions
- Draft amendments to the articles of association of the acquirer (if any changes are planned)
- A valuation of the assets of the target as of a certain date in the month preceding the filing of the application for announcement of the merger plan
- An accounting statement with information on the accounting status of the acquirer and the target prepared for purposes of the merger as of the same date for which the value of the assets of the target was determined, using the same methods and in the same layout as the last annual balance sheet.
After the merger plan is signed by the boards of both merging companies, the duty of each merging company is to report the merger plan to the competent registry court (although some commentators say it is sufficient to report the merger plan to the registry court for the acquirer, e.g. A. Opalski, Commercial Companies Code: Commentary, vol. 4, Warsaw 2016). Also, the merger plan should be announced in Monitor Sądowy i Gospodarczy or made available on the website of each of the merging companies, and in the latter case, the plan must be available continuously and free of charge (in the legal literature, it is also stated that it is sufficient for one of the merging companies to announce the plan or make it available, ibid.)
The simplified merger rules speed up the entire process by providing that the announcement or release of the merger plan must take place at least one month before filing of the application for registration of the merger, rather than one month before the date of the shareholder meeting at which the merger resolution is to be adopted, as in other mergers. However, the simplified merger procedure does not exempt the management boards of the merging companies from the obligation to notify the shareholders twice, in the manner prescribed for convening shareholder meetings, of their intention to merge with another company. The first notice should be given no later than one month before the scheduled date for adoption of the merger resolution, and the second notice no less than two weeks after the first notice. As a consequence, although the merger plan should be announced or made available at least one month before filing of the application for registration of the merger, which in theory should expedite the entire merger procedure, the management boards of the merging companies are still required to give shareholders at least one month’s notice of the shareholder meeting, which in turn may prolong the entire process.
No management report or audit of the merger plan
In a simplified merger, the management boards of the merging companies do not have to prepare a report justifying the merger, which would include the legal and economic basis for the merger and the share exchange ratio (in a simplified merger, there will be no share exchange, as the only shareholder of the target will be the acquirer). Also, the management boards of the merging companies do not have to report any material changes in assets and liabilities occurring between the date of preparation of the merger plan and the date of adoption of the merger resolution. The companies’ merger plan is also not subject to examination by an auditor for correctness and reliability, so no auditor’s opinion will be issued on the merger plan.
Notice to shareholders
As mentioned above, the management boards of the merging companies must notify the shareholders twice of the intended merger, in the manner provided for convening shareholder meetings. The first notice should be given no later than one month before the scheduled date for adoption of the merger resolution, and the second notice at least two weeks after the first notice.
At minimum, the notices must identify:
- The issue of Monitor Sądowy i Gospodarczy in which the merger plan was announced, unless the notice is the subject of the announcement
- The place and date when shareholders may examine the documents listed in Art. 505 §1 of the Commercial Companies Code—in the case of a simplified merger, the documents must be made available at least one month prior to filing of the application for registration of the merger.
Unlike an ordinary merger, a simplified merger requires a resolution of the shareholders only of the acquired company. Thus the law waives the need for adoption of a resolution by the shareholders of the acquirer, only requiring notification of the acquirer’s shareholders of the intention to merge. At the same time, the law requires notification to shareholders at least one month before adoption of a merger resolution by the acquirer, even though there is no obligation to adopt such a resolution in a simplified merger. Thus, to meet the foregoing deadline and avoid any doubts on the part of the registry court when registering the merger, it would be advisable to consider the possibility of adoption of a merger resolution by the acquirer, even though the law waives this requirement in the case of the acquirer.
Simplified merger—our assessment
Undoubtedly, the simplified merger procedure constitutes a significant convenience for companies where the ownership structure is uncomplicated and the chances of infringing stakeholders’ interests are negligible. The regulations exclude many of the mandatory elements of a merger for companies (e.g. no obligation to have the merger plan audited), but the way these rules were drafted can sometimes make them difficult to apply in practice.
Wiktor Zborowski, adwokat, Adam Strzelecki, M&A and Corporate practice, Wardyński & Partners