Practical M&A Guide

Contents
Stages of the process ............................................................................................. 3
Introduction .......................................................................................................... 4
Preliminaries ......................................................................................................... 4
Due diligence ....................................................................................................... 4
Negotiation and drafting of transaction documentation ............................................. 5
Closing ................................................................................................................ 5
Post-closing actions ............................................................................................... 6
Selection of transaction structure .............................................................................. 7
Introduction .......................................................................................................... 7
Share deal ............................................................................................................ 7
Asset deal............................................................................................................. 9
Management buyout (MBO) ................................................................................. 10
Leveraged buyout (LBO) ...................................................................................... 12
Merger ............................................................................................................... 13
Division .............................................................................................................. 14
Conversion ......................................................................................................... 15
Specific conditions concerning the parties ............................................................... 17
Introduction ........................................................................................................ 17
Partnerships ........................................................................................................ 17
Joint ventures ...................................................................................................... 20
Acquisition of a significant stake in public companies ............................................. 22
Transaction vehicles (SPV) .................................................................................... 25
Specific transaction conditions ............................................................................... 27
Introduction ........................................................................................................ 27
Environmental issues ........................................................................................... 27
Employment law issues ........................................................................................ 30
Issues under finance and banking law ................................................................... 33
Competition law issues ........................................................................................ 34
Real estate issues ................................................................................................ 36
Issues of administrative approvals ......................................................................... 38
Legal restrictions in the transaction ......................................................................... 40
Introduction ........................................................................................................ 40
Corporate and other internal approvals ................................................................. 40

2
 Notification of concentration to the president of the Office of Competition and
Consumer Protection ....................................................................................... 41
Consent of the Minister of the Interior and Administration........................................ 44
Restrictions on transactions in strategic sectors ....................................................... 44
Change-of-control clauses ................................................................................... 46
Other restrictions................................................................................................. 47
Tax aspects of the transaction ................................................................................ 49
Introduction ........................................................................................................ 49
Share deals ........................................................................................................ 51
Asset deals ......................................................................................................... 52
Merger ............................................................................................................... 53
Division .............................................................................................................. 54
Exchange of shares ............................................................................................. 55
Conversion ......................................................................................................... 55
State aid issues ................................................................................................... 55
M&A Practice ...................................................................................................... 57
Wardyński & Partners ........................................................................................... 58

This publication does not constitute legal advice or a basis for making business decisions.

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Warsaw, 1 March 2017

3
Stages of the process
Introduction be governed by a separate non-disclosure agree-
ment.
When approaching the legal side of an M&A trans-
action, management will typically already have com- The letter of intent should expressly provide that it
pleted the stage of taking a strategic decision to buy does not impose any obligations on the parties to
or sell the specific unit or set of assets. conclude the final agreement (but may contain other
obligations, such as an obligation to maintain confi-
As a model, transactions may be broken down into
dentiality, or exclusivity of negotiations), and even-
the following stages:
tual conclusion of the agreement between the par-
 Preliminaries ties will require negotiation of all material aspects of
 Due diligence the deal. The letter of intent may also include bind-
 Negotiation and drafting of transaction doc- ing provisions with respect to choice of law, the
umentation manner of dispute resolution, and the controlling
language version of documents. The legal effect of
 Closing (conclusion of the operative agreement
signing a letter of intent in this form is limited to
or agreements)
liability for the party’s out-of-pocket costs in the
 Post-closing actions.
case of bad-faith negotiations (culpa in contra-
Preliminaries hendo).

Once a decision has been taken to conclude a spe- At the preliminary stage, the parties will also typi-
cific transaction, the parties will often sign a letter of cally decide whether it is necessary to enter into
intent. This is a form of expression of the intention a framework agreement. In transactions with a com-
of entering into a contract in the future. The actual plicated structure, a framework agreement will iden-
contract will be concluded only following negotia- tify and organise the actions that must be under-
tions. taken as part of the transaction in order to achieve
the purposes of the parties and compliance with le-
A letter of intent (also referred to as a “letter of un- gal requirements. It thus serves as a roadmap for the
derstanding,” “protocol,” “heads of agreement” or transaction.
“memorandum of understanding”) is not a concept
specifically defined in Polish law, but is widely used Due diligence
in current market practice.
The stage of legal analysis of the target, commonly
The parties sign a letter of intent in order to establish referred to in Polish by its English name “due dili-
procedures for going forward with the transaction, gence”, derives from the Anglo-Saxon common law
scheduling, the goals they seek to achieve, and the tradition and the ancient principle of caveat emptor. As
conditions for negotiations toward signing of the the buyer proceeds at its own risk, the buyer should
operative agreement and any related agreements. examine the target “with due diligence” before de-
The letter of intent will often include provisions ciding to acquire it.
concerning conduct of legal, tax and financial due
In Poland, due diligence is typically conducted by
diligence of the target prior to conclusion of the op-
the buyer in order to assess the degree of risk asso-
erative agreement, as well as provisions addressing ciated with the planned acquisition and to determine
situations in which negotiations are broken off. It the value of the assets, enterprise, organised part of
may also address confidentiality issues, or these may an enterprise, or shares being acquired.

4
But increasingly often, the seller itself prepares a due which ownership of the target will pass to the
diligence report (known as a “vendor’s due diligence buyer).
report”), which is then typically verified during due A frequently encountered model is to sign an under-
diligence by the buyer. taking or conditional agreement which defines the
The subject of due diligence will vary depending on conditions that must be fulfilled before signing of
whether the transaction involves the sale of shares the final agreement transferring ownership of the
(a share deal). target to the buyer or direct passage of the target to
the buyer. In practice the parties often decide to sign
In the case of a share deal, analysis of the target’s
a preliminary agreement. If it meets the require-
corporate documents is critical, but the company’s
ments for the validity of the final agreement (for ex-
enterprise is also examined. Because the transaction ample, in the case of a share sale agreement, if it is
involves the shares (rather than the enterprise as made in writing with notarised signatures), and one
such or its assets), it is necessary to: party refuses to conclude the final agreement, the
 First, confirm the existence of the shares and de- other party can enforce conclusion of the final
termine the rights attached to the shares agreement through the courts.

 Second, verify that the seller owns the shares and Conditions may include, for example, obtaining
whether there are any encumbrances on the permission for a concentration or for acquisi-
shares or restrictions on selling them. tion of real estate by a foreigner, or failure to ex-
ercise a right of pre-emption by an authorised au-
In either of the main types of transaction, the scope thority in the case of agricultural and forest land.
of due diligence typically includes, in addition to cor- Other conditions may arise under the business terms
porate matters, an analysis of documents concern- agreed between the parties, e.g. prior restructuring
ing: of employment or financing of the business.
 Real estate (land, buildings and other structures)
Closing
 Movables and encumbrances established for the
company or on the company’s assets Depending on the nature of the agreement signed
 Rights to intangible assets before (e.g. preliminary, conditional or promissory
agreement, final agreement subject to a condition,
 Financial matters
or the like), the transaction is carried out by the par-
 Employment matters
ties signing the operative agreement, in the form re-
 Environmental issues quired by law, together with enclosures (e.g. list of
 Judicial and non-judicial proceedings and the sta- documents disclosed to the acquirer during due dil-
tus of receivables and other claims igence, price adjustment mechanisms, entities sub-
 Shares and other securities owned by the com- ject to non-competition) and any related documents
pany under which the title to the target is finally trans-
 Fundamental operations of the company (e.g. ferred to the buyer (referred to as “closing” or
contracts with suppliers and customers, adminis- “completion”). Often this will be accompanied by
trative contracts and the like) conclusion of an agreements governing the future
 Competition issues cooperation of the parties, e.g. a shareholders’ agree-
 Regulatory matters (licences, permits, other ad- ment (typically in the case of a joint venture or
ministrative issues, and the like). agreements specifying the terms for dividing the op-
erations. It may also be necessary to prepare docu-
Negotiation and drafting of transaction ments connected with the changeover in manage-
documentation ment or laying down the rules for continuing
cooperation with the existing management or key
After gaining information about the target, the par-
employees.
ties begin negotiations toward a mutually satisfac-
tory price (or mechanism for calculating the price) If it is a deal involving shares in a joint-stock com-
and transaction structure (i.e. the terms under pany, it will also be necessary to transfer possession
5
of the share certificates (in the case of registered Sometimes the mechanism for calculation and pay-
shares) or deliver share certificates to the buyer (in ment of the price provides for an adjustment, de-
the case of bearer shares). pending on certain events or results achieved by the
target after the closing. Then the operative agree-
Post-closing actions ment transferring title to the target will define how
After the closing the buyer is required to pay taxes the parties are required to cooperate and report on
due and to file the relevant declarations with the tax the financial results. This also determines how the
authorities. The share ledger must be updated, as transaction will impact the operations of the target
well as public registers affected by the transaction and how the parties will make their final settlement.
such as the National Court Register, the land and
mortgage register, etc.
After the closing, the buyer may conduct follow-up
due diligence, particularly if at the time of the origi-
nal due diligence, prior to the transaction, certain
confidential items were not disclosed.

6
Selection of transaction
structure
Introduction tors of the economy and hold a diversified invest-
ment portfolio. Investors also choose a share deal
It is crucial for the success of any transaction to de- when the target conducts regulated activity and an
termine the optimal structure in advance, often re- asset deal would entail the need to obtain new con-
flecting not only the interests of the parties, but also cessions, licences or permits. However, the greatest
the interests of the company whose shares are being significance for investors is their lack of liability for
sold. This depends not only on the discretion of the the debts of the target, because while the investor
investor, but also on the current legal and tax solu- obtains control over the operations of the target, it
tions and other external circumstances (such as the is not individually liable on this basis. The investor
fulfilment of certain conditions, obtaining the re- is generally at risk only up to the amount it pays for
quired permits, or carrying out certain preliminary the shares.
or restructuring measures to prepare the company
When deciding to conduct a share deal, it is im-
or enterprise for ownership changes).
portant to be aware that the warranty arising out of
The transaction structures most often encountered public reliance on the land and mortgage register
in practice are: does not apply with respect to real estate held by the
 Share deal target. Thus, in such transactions due diligence with
respect to real estate should be more detailed than
 Asset deal
in the case of an asset deal.
 Management buyout (MBO)
 Leveraged buyout (LBO) Transferability of shares
 Merger The rule of transferability of shares is an important
 Division feature of capital companies. The articles of associ-
 Conversion ation of a limited-liability company or the statute of
a joint-stock company (in the case of registered
Share deal shares) may, however, limit transactions in the com-
A share deal is defined as a transaction involving ac- pany’s shares, e.g. by requiring the shareholder to
quisition of shares in a capital company—which in obtain consent to the transfer from one of the com-
Poland means a limited-liability company (sp.z o.o.) pany’s authorities.
or a joint-stock company (SA). As a result of the Form
transaction, the buyer becomes the owner of the
Transfer of the shares in a limited-liability company
shares, but (apart from the right to participate in any
must be made in writing with notarised signatures.
distribution of the company’s assets or liquidation
In a joint-stock company, the form of transfer of
of the company) does not obtain direct rights to the
shares depends on whether they are registered
assets or enterprise of the target, which remains the
shares or bearer shares. Transfer of registered shares
property of the target.
must be made in writing, by making a declaration on
This type of transaction is of particular interest to the share certificate or in a separate document, and
financial investors, who invest funds in various sec- requires transfer of possession of the share certify-

7
cate. Transfer of bearer shares does not require any dom of contract the parties have great latitude in es-
specific form; the shares are transferred by transfer- tablishing contractual liability principles to suit their
ring possession of the share certificates. Shares of needs and the conditions of the given transaction.
joint-stock companies that are listed on the stock ex-
The sale of shares is also covered by the statutory
change (public companies) are dematerialised (i.e.
warranty on sales under the Civil Code. The statu-
do not take the form of a paper document) and are
tory warranty provisions are an important instru-
transferred by making the relevant entries in the par-
ment to protect the buyer in a share deal, supple-
ties’ securities accounts.
menting the buyer’s general claims for breach of
Administrative notification and consent contract.
The permissibility of a share deal may depend on A legal defect in shares may occur more specifically
fulfilment of certain notification requirements or when the shares sold are encumbered by a right of
obtaining certain administrative approvals or deci- pre-emption, or if the shares were created through
sions, if one or both parties, or the company, has a capital increase that was not entered in the Na-
certain relevant features or conducts a specific type tional Court Register before the date of the sale. It
of business. should be pointed out in this respect that in a share
deal, unless otherwise agreed, the seller’s statutory
For example, a party or parties may be required to:
warranty liability is directly connected solely with de-
 Provide notice of a concentration of undertak- fects in the shares, which are the immediate subject
ings to the Polish competition authority (the of the transaction, and does not immediately extend
president of the Office of Competition and Con- to any defects in the enterprise or specific assets held
sumer Protection), if the entities participating in by the target company. However, because the shares
the transaction have achieved a certain level of and their value are closely connected with the assets
turnover on the Polish or worldwide market of the company, it cannot be entirely excluded that
any defects in the company’s assets could have an
 Obtain a permit from the Minister of the In- effect on the legal status and value of the shares.
terior and Administration for a foreign com-
pany to acquire or take up shares in a company For this reason, the parties to a share sale agreement
with its registered office in Poland which is the commonly include provisions in the seller’s repre-
owner or perpetual usufructuary of real estate in sentations and warranties concerning the condition
Poland of the company’s assets, designed to protect the
buyer’s interests. The parties usually also provide for
 Obtain the position of the Agricultural Prop- sanctions if the representations prove false or mis-
erty Agency due to the right vested in the leading.
agency of pre-emption in the case of sale of
shares of a company holding agricultural real es- Corporate notification requirements
tate. Following a share deal and acquisition of the shares,
It should also be mentioned here that some specific the company must be notified of:
laws (such as the Gambling Act) impose restrictions  change of shareholder
on acquisition of shares in companies conducting
certain regulated activity. - in a limited-liability company, any of the par-
ties may notify the company of the transfer
Seller’s warranty against defects in the of shares, by presenting appropriate evidence,
shares which is a condition for the company to re-
The seller may bear liability to the buyer arising un- gard the buyer as the holder of the shares (un-
der the law or the provisions of the transaction doc- der Commercial Companies Code Art. 187.);
uments. In the latter case, this will for the most part - in a joint-stock company, only a person who
mean liability under a contractual warranty or quasi- is entered in the share register or has posses-
warranty, although in line with the principle of free- sion of a bearer share (subject to provisions

8
 on securities trading) is deemed a share- Subject of transaction
holder; the relevant entry in the share register
The subject of the transaction in an asset deal is an
is made (under Commercial Companies Code
enterprise or an organised part of an enterprise, or,
Art. 341 and 343) at the request of the buyer,
less often, specific assets of the enterprise.
who is required to submit a document to the
company justifying the entry; Under Civil Code Art. 55¹, an enterprise is defined
as an organised set of tangible and intangible assets
and
intended for conducting economic activity. An en-
 Establishment of control by the investor over terprise includes more specifically the enterprise
the target company, as under Commercial Com- name (distinguishing designation of the enterprise
panies Code Art. 6 the new parent is required to or distinct parts of the enterprise), ownership of real
notify the subsidiary within two weeks after ob- estate and movables, including equipment, materi-
taining control (otherwise, the parent will not be als, goods and products, and other in rem rights to
authorised to exercise voting rights to shares rep- real estate or movables, rights under lease and ten-
resenting more than 33% of the share capital of ancy agreements for real estate or movables, and
the subsidiary). rights to use real estate or movables under other le-
gal grounds, claims, rights to securities and cash,
Asset deal concessions, licences and permits, patents and other
An asset deal means a transaction in which the en- industrial property rights, economic copyright and
terprise of a company is acquired, or an organised related rights, trade secrets, and books and records
part of the enterprise. The sale of specific assets may connected with the conduct of economic activity.
also be referred to as an asset deal, but M&A trans- It should be borne in mind that unlike in the case of
actions generally involve an entire enterprise or line a corporate merger, conversion or division, where
of business, rather than a few individual assets. rights and obligations held by the company are
Asset deals enable the buyer to expand or comple- transferred through “universal succession,” transfer
ment its existing business to include the business of an enterprise results in “singular succession.” In
previously conducted by the seller. In an asset deal the case of singular succession, the ability to assign
each right or assume each obligation is examined in-
it is possible to divide out certain elements of the
dividually, in light of specific regulations or contrac-
enterprise and acquire only defined parts.
tual provisions which may prevent or restrict trans-
In an asset deal, corporate matters are not examined ferability to a third party.
because title to the company’s shares is not the sub-
Under Civil Code Art. 551, a transaction involving
ject of the transaction and the buyer will not join the
an enterprise covers everything included in the en-
seller’s corporate structure. The party to the trans-
terprise unless otherwise provided in the transaction
action is not the shareholders but the company it-
or by specific regulations. Thus, under an agreement
self, which is the seller of the enterprise, an organ-
selling an enterprise, concessions, licences and per-
ised part of the enterprise, or specific assets. In this
mits pass to the buyer, unless otherwise provided by
case, however, the assets being acquired require
mandatorily applicable regulations, decisions of
a more thorough analysis.
competent authorities, or the terms of the agree-
This is not the case with real estate, however, be- ment. It should be borne in mind in this respect that
cause in an asset deal the acquirer is protected by the in the case of sale of an enterprise, succession ap-
warranty of public reliance on the land and mortgage plies only to assets and not obligations. If a transac-
register, which essentially means that if the seller of tion involving an enterprise includes contracts, ef-
the property is entered in the land and mortgage reg- fective transfer of the obligations arising under the
ister as the rightful owner, the seller may effectively contracts requires the consent of the other party (the
transfer title to the property to a good-faith pur- creditor) under each contract. If the seller of the en-
chaser even if the seller is not in fact the rightful terprise wishes to transfer to the buyer only certain
owner. elements of the enterprise, it is necessary to include

9
appropriate provisions in the agreement for sale of sale of the enterprise or an organised part of the en-
the enterprise. terprise requires the consent of all the general part-
ners, or is invalid. Consent of the general meeting of
Transfer of an enterprise or organised part of an en-
terprise also results by operation of law in transfer shareholders is also required for the transaction to
of the employees of the enterprise (or the employees be valid, because regulations concerning the general
whose work is connected with the part of the enter- meeting of shareholders of a joint-stock company
prise that is being sold). also apply directly to a joint-stock limited partner-
ship.
Buyer’s liability for obligations
In the case of other types of partnerships governed
A very important issue for the acquirer is the liability by the Commercial Companies Code, sale of the en-
imposed on it by operation of law for the obligations terprise without the required corporate approvals
arising out of the operations of the enterprise. Upon is valid, but may (and most often does) result in lia-
acquisition of the enterprise, as a rule, the acquirer bility of the partners who signed the sale agreement.
becomes jointly and severally liable with the seller
also for past obligations, up to the value of the ac- Management buyout (MBO)
quired enterprise. This liability also applies, for ex-
A management buyout is a transaction in which the
ample, to employment obligations.
current managers of the company (not necessarily
For this reason, an agreement on sale of an enter- members of the management board as such) take
prise will typically contain provisions allocating the control over the company by buying out a control-
risks and liabilities between the parties, under which ling stake in the company’s shares—either inde-
the acquirer may seek recourse against the seller for pendently, out of their own funds, or in cooperation
amounts necessary to satisfy past obligations in- with investment funds, such as a private-equity
curred by the seller, and providing that if the ac- fund. Because an MBO involves the current manag-
quirer itself pays such obligations it can pursue re- ers, it should be distinguished from a “management
course claims against the seller. buy-in” (MBI), in which the buyout is conducted
Form from “outside”, by persons other than the current
management who plan to assume management of
Sale of an enterprise must generally be made in writ-
the company in the future, or a “buy-in management
ing, with notarised signatures, but if the enterprise
buyout” (BIMBO), which combines the features of
includes real estate, the agreement must be made in
an MBO and an MBI.
the form of a notarial deed.
Financing
Seller’s liability under warranty for defects
The first essential characteristic of MBO transac-
The statutory warranty on sales applies as relevant
tions is the manner in which they are financed and
to the sale of an enterprise or organised part of an
the source of the financing.
enterprise. The statutory warranty provisions are an
important instrument to protect the buyer in an as- Although an MBO is basically understood as a buy-
set deal, supplementing the buyer’s general claims out of the shares of a company by managers com-
for breach of contract. mitting their own funds, in practice the managers are
rarely in a position to put together enough capital to
Corporate approvals
buy out the company. Reviewing MBOs over the
The sale by a limited-liability company or joint-stock past few years, the average equity put up by the man-
company of its enterprise (or an organised part of agers themselves is perhaps 10–20%, and most of
the enterprise) requires consent of the shareholders’ the funds come from bank loans.
meeting. If the appropriate shareholders’ resolutions
Because the main security for repayment of the bank
are not obtained, the sale of the enterprise is invalid.
loans in an MBO is the shares that are bought out,
In the case of a joint-stock limited partnership (SKA) and the obligation to repay the debt is shifted to the

10
acquired company, realistically the main factor ena- MBOs are sometimes regarded as non-transparent
bling the managers to obtain financing for the acqui- and may raise suspicions that they involve insider
sition is the creditworthiness of the target company trading, because the acquirers, as managers, know
itself. Before making a credit decision, banks review more about the target even than the seller, i.e. the
MBO proposals very cautiously, checking all aspects owner of the company.
of the sectors in which the target of the buyout cur-
Legal aspects
rently does business, the company itself, and the
membership and quality of the management team. MBOs raise the issue of “financial assistance” from
The last factor is crucial, as the managers are ex- a joint-stock company to third parties—in this case,
pected to present a carefully thought-out business the managers—in acquiring or taking up shares is-
plan for the target, together with a timeframe for the sued by the company.
investment and a repayment schedule. The manag-
Prior to the June 2008 amendment (Journal of Laws
ers also need to be aware of the financial limitations
No. 118 item 747) to the Commercial Companies
the company will operate under during the debt re-
Code, Art. 345 of the code generally prohibited
payment period, such as the inability to take on ma-
a joint-stock company from providing this kind of
jor investments, incur new loans for current activity,
financial assistance, directly or indirectly, specifically
or issue shares.
when it involved providing loans, advances or secu-
Thus the practice shows that banks look more fa- rity. This rule was intended to protect the sharehold-
vourably on managers who are supported in the ers and creditors of a joint-stock company. In effect,
transaction by capital partners, such as private-eq- the assets of a joint-stock company taken over by
uity funds. The presence of capital partners in- the managers could not serve as security for repay-
creases the credibility of the projects presented by ment of credit granted to the SPV, and thus the bank
the managers, because of the prior review by the could not expect to obtain security for repayment
funds deciding to invest in them and the commit- against the assets of the target until the SPV was
ment to carry out restructuring following the trans- merged with the target.
action. Support from a fund also reduces the
amount of debt financing and thus the risk of insol- Under current law, a joint-stock company may fi-
vency nance acquisition or taking up of shares issued by
the company, but the financing must be made on
Transaction structure — use of SPV
market terms and the shares must be acquired or
Another feature of an MBO is the use of a special- taken up in exchange for fair market value. The
purpose vehicle (SPV) company as the entity car- company may finance acquisition or taking up of
rying out the acquisition of the target company. The shares issued by the company if a capital reserve has
funds for purchasing the shares are contributed by first been created for such purpose. Financing by the
the managers to the SPV, which then acquires the company of acquisition or taking up of shares issued
shares from the current shareholders of the target. by the company requires adoption of a resolution of
After the SPV acquires the shares of the target, the general meeting of shareholders by a two-thirds
a “debt push-down” is carried out, in which the debt majority, but if at least half of the share capital is
is shifted to the target, so that the company itself can represented at the meeting, an ordinary majority is
repay the debt incurred to purchase the shares. The sufficient.
debt push-down is carried out by merging the target Art. 345 §8 of the Commercial Companies Code ex-
company and the SPV. cludes these requirements (except for the require-
The managers have a thorough understanding of the ment to create a capital reserve) with respect to ben-
business and the financial condition of their own efits provided within the ordinary course of business
company, and in practice they will decide to conduct of financial institutions, as well as benefits provided
an MBO when they believe that the company is un- to employees of the company or an affiliated com-
dervalued by the market, compared to its true po- pany. The exclusions referred to in Art. 345 §8 do
tential and growth prospects. not apply to managers, however, unless a member

11
of the management board is also an employee of the  Stable financial condition (proven steady cash
company. flow) and a low level of debt
If the target of an MBO is a limited-liability com-  Holding assets (such as real estate and produc-
pany, there are only modest limitations on financial tion equipment and machinery) that may be used
assistance by the company. Restrictions arise chiefly as additional security for credit
under Commercial Companies Code Art. 189 § 2,
which prohibits the company from making pay-  Capacity for reduction of operating costs after
ments to shareholders out of the assets of the com- restructuring
pany that would reduce the assets needed to fully  Individual characteristics of the new manage-
cover the share capital. Thus an MBO would be im- ment team who are capable of exploiting the po-
permissible if financing were provided to sharehold- tential of the target
ers (and only shareholders) out of funds necessary
to cover the share capital. (This particularly con-  Undervaluation by the market.
cerns a situation where coverage of the share capital Financing
was reduced as a result of losses incurred by the
company.). LBO transactions are mainly financed by an invest-
ment partner (such as a bank or private-equity fund),
Leveraged buyout (LBO) whose contribution represents about 75–85% of the
transaction value, with the strategic investor putting
A leveraged buyout is a transaction in which an out-
up 15–25%. Financing by the investment partner re-
side investor acquires a controlling stake of the
quires a positive assessment of the proposal.
shares of the target, using chiefly borrowed funds,
with an equity investment of perhaps 15–25%. Because the shares of the target are the main security
A key feature of this type of transaction is that the for repayment of the loan, and the obligation to re-
shares in the target serve as security for the bor- pay the loan is shifted to the company itself, assess-
rowed capital. An LBO is very similar to a manage- ment of an LBO proposal is based on an analysis of:
ment buyout. Unlike an MBO, however, the acquir-  The market sector of the target
ers behind an LBO are outside investors, who,
unlike the managers of the target, do not have spe-  The target itself, including its current and pro-
cific inside knowledge about the condition of the jected cash flows
company.
 The quality of the new management team
A management buy-in (MBI) is a combination of the
 The plan for restructuring the target
LBO and the MBO, in other words, a secondary
management buyout. An MBI is instigated by man- Legal aspects
agers who are not connected with the target, but
As with MBOs, LBOs are connected with the issue
have special knowledge about the condition of the
of financial assistance granted to the investors by the
target or, at least, the sector in which the target op-
target company for acquisition of its own shares.
erates.
If the target is a joint-stock company, the issue of
Subject of LBO
financial assistance is governed by Commercial
An LBO involves shares of capital companies of any Companies Code Art. 345. This provision generally
size, operating in any sector of the economy. Inves- allows the company to finance the acquisition of its
tors are interested in LBOs particularly in the case own shares, if certain conditions are met:
of companies with hidden potential, where the
 The financing of acquisition of the shares is
shares may be resold at a profit after restructuring
made on market terms, after review of the sol-
the target. In an LBO, the features of the target that
vency of the debtor.
are most important for the investors and the part-
ners providing financing include:  The shares are acquired at a fair value.

12
 The financing of acquisition of the shares is  A company in liquidation that has begun distri-
made from the company’s capital reserves. bution of its assets, or a company in bankruptcy,
may not be involved in a merger
 The financing is conducted on the basis of prior
consent of the shareholders, in the form of a res- Forms of merger
olution.
There are two distinct forms of merger:
If the target of an LBO is a limited-liability com-
 Merger by acquisition—the company or compa-
pany, there are only modest limitations on financial
nies being acquired transfer all their assets to an-
assistance by the company, mainly under Commer-
cial Companies Code Art. 189 §2, which prohibits other company, the acquirer, in exchange for
shares in the acquirer, which are taken up by the
the company from making payments to sharehold-
shareholders of the target.
ers out of the assets of the company that would re-
duce the assets needed to fully cover the share capi-  Merger by establishment of a new company—
tal. a new capital company is established to which
the assets of all the merging companies are trans-
Merger ferred in exchange for shares in the newly
The decision to conduct a corporate merger is typi- formed company, which are taken up by the
cally made because of the economic or market con- shareholders of the merging companies.
dition of the companies, in order to optimise admin- Rights and obligations after the merger
istrative costs (bearing in mind the tax aspects) or
for reasons related to restructuring within the capital As of the merger date, the rights and obligations of
group. the company being acquired or the companies merg-
ing by forming a new company pass to the acquirer
Permissibility of merger or the newly formed company by operation by law.
The Commercial Companies Code regulates what More specifically, concessions, exemptions and en-
types of entities may merge: titlements that are part of the assumed assets pass to
the acquiring or newly established company (unless
 Capital companies (i.e. joint-stock companies otherwise provided by law or by the decision estab-
and limited-liability companies) may merge with lishing such rights).
one another or with commercial partnerships,
The merger date is the date the relevant entry is
but the partnership may not be the acquirer or
made in the National Court Register. The entry is
the company newly formed pursuant to the mer-
a technical matter, and for organisational or tax rea-
ger. sons companies often request registration on a spe-
 A capital company or a joint-stock limited part- cific date. The court is not bound by such request,
nership may merge with a foreign company es- but generally will comply.
tablished under the laws of another member The acquirer or the new company formed through
state of the European Union or the European the merger assumes all tax-law rights and obligations
Economic Area with its registered office, central of each of the merging entities.
administration or principal place of business in
Main stages of merger
the EU or EEA (cross-border merger), but a
joint-stock limited partnership may not be the  Preparation stage
acquirer or the company newly formed pursuant - Preparing documentation needed for the
to the merger. merger (merger plan and enclosures)
 Commercial partnerships may merge with one  Decision stage
another only by establishing a capital company.
- Adoption of merger plan by the shareholders
 More than two companies may participate in and management boards of the merging com-
a merger. panies

13
 - Preparation by the management boards of  Only capital companies (i.e. a joint-stock com-
the merging companies of reports justifying pany or a limited-liability company) may be di-
the merger and its legal and economic vided.
grounds, in particular the share exchange ra-
tio  A joint-stock company may not be divided if its
share capital has not been fully covered.
- Application to appoint an auditor to examine
the merger plan  A company in liquidation may not be divided if
it has begun to distribute its assets or is in bank-
- Filing of merger plan with the National Court ruptcy.
Register and publication of the merger plan
 Commercial partnerships may not be divided.
- Notice to shareholders of the merging com-
panies (twice) Forms of division
- Adoption of merger resolution There are several distinct forms of division:

 Registration stage  Division by acquisition—all of the assets of the

divided company are transferred to other com-
- Filing of motion to register the merger
panies in exchange for shares in the acquiring
- Registration of the merger. companies, which are distributed to the share-
In practice, apart from an ordinary merger, an ac- holders of the divided company.
quirer which is the sole shareholder of the company  Division by establishment of new companies—
being acquired or holds at least 90% of the shares of the shareholders establish new companies, tak-
the target may conduct a simplified merger, not re- ing up all their shares, and in exchange transfer
quiring: to the new companies all of the assets of the di-
 Preparation of a written report justifying the vided company.
merger  Division by acquisition and establishment of
 Review of the merger plan by an auditor new company—the assets of the divided com-
pany are assigned to an existing company and to
 A resolution of the shareholders’ meeting ap- a newly formed company or companies.
proving the merger
 Division by split-off (division by separation)—
A simplified merger may be conducted in a shorter part of the assets of the divided company are
time, i.e. within about 3 months. (By contrast, the transferred to an existing or newly formed com-
standard merger procedure typically takes about pany or companies
6 months.).
Division of a company requires a shareholders’ res-
Division olution of each of the companies involved in the di-
vision, passed by a ¾ majority of votes representing
Generalnie The decision to conduct a corporate di-
vision is typically made because of the economic at least half of the share capital (unless the articles of
condition of the company, in order to optimise cost association or statute provides for a more stringent
management (bearing in mind the tax aspects) or requirement).
for reasons connected with the global strategy of the The division date is the date of deletion of the com-
group. pany from the National Court Register. The deletion
is a technical matter, and for organisational or tax
Permissibility of division
reasons companies often request that the division be
The Commercial Companies Code regulates what registered on a specific date. The court is not bound
types of entities may be divided: by such request, but generally will comply.

14
Division by establishment of a new company occurs Conversion
as of the date of its entry in the register. In the case
of transfer of part of the assets of the divided com- The decision to change the corporate form is made
pany to an existing company, the division occurs as in connection with the economic condition of the
of the date of entry in the register of the increased entity, in order to optimise the management (bearing
share capital of the acquirer (the division date). in mind the tax aspects). The converted company
continues to hold the same rights and obligations
Rights and obligations after the division and continues the business, but under a new legal
As of the division date, or separation date, the ac- form.
quirers or the companies newly created in connec- The decision to convert the legal form may also be
tion with the division assume the rights and obliga- dictated by a desire to limit liability, because in com-
tions of the divided company as specified in the mercial partnerships the partners may be personally
division plan. More specifically, concessions, ex- liable for the debts of the partnership, but in capital
emptions and entitlements that are connected with companies the shareholders’ liability is generally lim-
the assets allocated to the given acquirer or newly ited, and they are at risk only for the consideration
established company pass to that company (unless they have provided for the shares. Moreover, con-
otherwise provided by law or by the decision estab- version into a capital company may be tied to
lishing such rights). growth in the scale of the business or an intention
The acquirer or the new companies formed in con- to float the company on the stock market (which is
nection with the division assume all tax-law rights possible only in the case of a joint-stock company or
and obligations of the divided company connected joint-stock limited partnership).
with the assets allocated to them under the division Companies are sometimes converted into partner-
plan. ships in order to reduce tax liabilities. A company is
an income tax payer, and thus income tax is paid at
Main stages of division
the level of the company as well as the shareholders.
 Preparation stage: But in the case of a partnership, income tax is paid
only at the level of the partners. An exception is the
- Preparing division documentation (division
joint-stock limited partnership, which, like compa-
plan and enclosures)
nies, is an income tax payer..
 Decision stage:
Permissibility of conversion
- Preparation by the management boards of
The Commercial Companies Code regulates what
the company being divided and each of the
types of entities may undergo conversion:
acquiring companies of reports justifying the
division and its legal and economic grounds,  A registered partnership (s.j.), professional part-
in particular the share exchange ratio nership (sp.p.), limited partnership (sp.k.), joint-
- Filing of division plan with the National stock limited partnership (SKA), limited-liability
Court Register company (sp.z o.o.) or joint-stock company (SA)
(pre-conversion) may be converted into another
- Application to appoint an auditor to examine form of commercial company or partnership
the division plan (post-conversion).
- Notice to shareholders of the company being  An ordinary partnership (s.c.) may be converted
divided (twice) into any commercial company or partnership;
- Adoption of division resolution however, in the event an ordinary partnership is
converted into a registered partnership, a differ-
 Registration stage: ent legal regime applies.
- Filing of motion to divide the company
 The business of a sole trader (i.e. business con-
- Registration of the division. ducted pre-conversion by an individual on his or

15
 her own account) may be converted into a single- partnership, subject to taxation under the rules ap-
shareholder capital company. propriate to them (personal income tax or corporate
income tax, as the case may be).
A company in liquidation that has begun to distrib-
ute its assets may not undergo conversion, nor may Main stages of conversion
a company in bankruptcy.
 Preparation stage:
Forms of conversion
- Preparing conversion documentation (con-
There are two main forms of conversion: version plan and enclosures).
 Conversion of a partnership into a capital com-  Decision stage:
pany
- Filing of conversion plan with the National
 Conversion of a capital company into a partner- Court Register
ship
- Application to appoint an auditor to examine
Rights and obligations after conversion the conversion plan
As of the conversion date, the post-conversion en- - Notice of the conversion to the sharehold-
tity assumes all of the rights and obligations of the ers/partners of the entity being converted
pre-conversion entity, specifically including conces- (twice)
sions, exemptions and entitlements (unless other- - Adoption of conversion resolution
wise provided by law or by the decision establishing
such rights). - Declaration of the shareholders on participa-
tion in the converted company, submitted
The conversion date is the date when the post-con- within one month after adoption of the con-
version entity is entered in the National Court Reg- version resolution
ister. The entry is a technical matter, and for organ-
isational or tax reasons parties often request that the  Registration stage:
conversion be registered on a specific date. The - Filing of motion for conversion
court is not bound by such request, but generally will
comply. - Registration of the conversion

In the case of conversion into a company, the com- In the case of conversion of a company into a part-
pany assumes all tax-law rights and obligations of nership, it is important to examine the tax aspects of
the pre-conversion entities. the conversion carefully. If the company has undis-
tributed profit or profit assigned to capital other
A partnership arising as a result of conversion of a
than share capital, upon conversion it will be taxable
company enters into the totality of the tax-law rights income of the partners.
and obligations of the converted company. After the
conversion, the taxpayers are the partners of the

16
Specific conditions
concerning the parties
Introduction sued. These partnerships operate under the partner-
ship name. The partners (in this respect much like
Depending on the type of parties actively involved the shareholders of a capital company) undertake to
in the transaction, in many situations it is necessary pursue a common purpose by making their contri-
to reflect additional legal considerations related to butions to the partnership and, as provided by the
their involvement in the transaction. Four such partnership agreement, by cooperating in other
types of parties whose specific nature must be taken ways.
into consideration at the planning, negotiating and
One common feature of all partnerships is the ne-
documentation stages of the transaction are dis-
cussed below: cessity to include the name of at least one of the
partners in the name of the partnership.
 partnerships
Transfer of rights and obligations
 joint ventures
 investment funds A partner may not join a partnership by buying
 special-purpose vehicles shares or leave the partnership by selling shares, be-
cause shares do not exist in a partnership (with the
Partnerships exception of shares of stock in a joint-stock limited
partnership). A change in the membership of a part-
The distinction between commercial partnerships
nership essentially consists of transferring the total-
(referred to in Polish law literally as “personal com-
panies”—other than ordinary partnerships operat- ity of the rights and obligations of a partner. All
ing under the Civil Code)—and other commercial rights and obligations of a partner in a partnership
companies is based on the joint action of the owners may be transferred to another person only where the
of these entities, i.e. the partners. Unlike capital partnership agreement so provides. Unless the part-
companies, which may have a single shareholder, it nership agreement provides otherwise, all rights and
is not possible to form a partnership which has only obligations of a partner in a partnership may be
one partner. transferred to another person only after the written
consent of all of the remaining partners has been
A partnership is also characterised by the personal obtained. In case of a professional partnership, the
liability of the partners (or least some of them) for Commercial Companies Code provides for a re-
the debts of the partnership, and the partners’ direct quirement that a new partner hold certain profes-
handling of the affairs of the partnership, which var-
sional qualifications.
ies in scope depending on the specific type of part-
nership and may be governed to a certain extent by In the case of assumption of an existing partner’s
the partnership agreement. These partnerships do rights and obligations by a new partner, the new
not have legal personality, but it is clear that they are partner is jointly and severally liable with the former
legal entities in the sense that they have the capacity partner for the partner’s obligations related to the
to acquire certain rights in their own name, including business of the partnership as well as the obligations
real estate and other property rights, and to incur of the partnership itself arising prior to the new part-
obligations, as well as the capacity to sue and be ner’s joining the partnership.

17
Purpose and features of specific types of the remaining partners so decide. In such event,
commercial partnerships a partner leaving the partnership is reimbursed in an
amount equivalent to the partner’s capital participa-
1. Registered partnership (s.j.)
tion in the partnership.
A registered partnership is the basic form of a com-
2. Professional partnership (sp.p.)
mercial partnership, and the regulations governing
the functioning of a registered partnership apply to A professional partnership may be established only
other types of commercial partnerships as well, if by individuals, for the purpose of practising one of
not otherwise provided by specific regulations appli- the free professions specified in the Commercial
cable to the other types. Companies Code or other statute.

The partners, who may be either natural or legal per- Unlike in a registered partnership, the partners of
sons, or entities with no legal personality but with a professional partnership are not liable for the ob-
legal capacity granted by law, enter into a written ligations of the partnership connected with practice
partnership agreement, which must specify the of the profession by other partners or the employees
name and registered office of the partnership, the who are their subordinates. They may provide in the
contribution of each partner and its value, the scope partnership agreement which of the partners shall be
of the partnership’s business, and the duration (if liable for the debts of the partnership on the same
limited). basis as a partner in a registered partnership.

The partners may make contributions to the part- If not otherwise provided in the partnership agree-
nership in cash or kind, including ownership or usu- ment, each partner may represent the partnership in-
fruct of property. A partner may also contribute his dividually. The partners may also provide in the
or her labour. No minimum value of contributions partnership agreement that the management board
is established by law, but the amounts are deter- of the partnership will conduct the affairs of the
mined by the partnership agreement. As a rule, even partnership and represent the partnership.
partners who have made the minimum contribution As in the case of a registered partnership, leaving
have rights and obligations equal to the other part- a professional partnership requires notice six
ners and share in the partnership’s profits and losses months prior to the end of the financial year. A part-
equally. A partner in a registered partnership may ner who has lost the required professional qualifica-
not be deprived of the right to profit. tions is required to leave the partnership at the latest
Each of the partners has the right and duty to con- at the end of the financial year in which he or she
duct the affairs of the registered partnership and to lost the right to pursue the profession.
represent the partnership without compensation. In addition to obtaining the consent of all the part-
These actions may not be assigned to third parties ners, a new partner must demonstrate that he or she
to the exclusion of the partners. The partners of holds the appropriate professional qualifications in
a registered partnership are secondarily liable for the order to join the partnership.
debts of the partnership. This means that if execu-
tion against the assets of the partnership is ineffec- In other respects, the regulations concerning regis-
tive, the creditor may execute against the assets of tered partnerships apply.
the partner. 3. Limited partnership (sp.k.)
If the partnership has been formed for an undefined A limited partnership operates an enterprise in its
period, the partnership agreement of a registered own name. A limited partnership must include at
partnership may be terminated upon six months’ least one general partner, who bears unlimited liabil-
notice, effective at the end of the financial year. Ter- ity to the creditors of the partnership, and at least
mination of the partnership agreement leads to the one limited partner, whose liability to the creditors
dissolution of the registered partnership; however, of the partnership is limited to a fixed, agreed
the partnership continues among the remaining amount, sometimes referred to in English as the
partners if the partnership agreement so provides or “commandite sum” or the “commendam sum.” The

18
limited partner’s contribution may be made in control over the partnership. The share capital must
a value lower than the commandite sum, unless oth- be at least PLN 50,000.
erwise provided in the partnership agreement.
A joint-stock limited partnership conducts an enter-
Operating in the form of a limited partnership, in prise under its own name. In this form of partner-
which the partners have a varying range of liability, ship, at least one partner (a general partner) has un-
contributions and authority, allows the general part- limited liability for the debts of the partnership, and
ners to bring new members into the partnership, there is at least one partner who is a shareholder.
who as limited partners generally make an invest- The shareholders are not liable for the debts of the
ment in the partnership but have limited authority partnership.
to act for the partnership and also limited liability
for the debts of the partnership. The name of a joint-stock limited partnership must
contain the name of one or more general partners
A limited partnership is represented by the general and the suffix “spółka komandytowo-akcyjna” (ab-
partners. A limited partner basically has no right or breviation “SKA”), identifying the legal form. It may
duty to conduct the affairs of the partnership, unless not contain the name of a shareholder. Persons
otherwise provided in the partnership agreement.
whose names are included in the name of the part-
The limited partner may represent the partnership
nership are liable to the creditors like a general part-
under a power of attorney. Unless otherwise pro-
ner, regardless of their status in the partnership.
vided in the partnership agreement, a limited partner
participates in the profits of the partnership in pro- The rules governing a registered partnership apply
portion to the actual contribution. to the relations of the general partners between one
The name of a limited partnership must contain the another and to the partnership, the shareholders and
name of one or more of the general partnership and third parties.
the suffix “spółka komandytowa” (abbreviation In other matters, particularly involving share capital,
“sp.k.”), identifying the legal form. The partners shareholders’ contributions, shares, the supervisory
may be either natural or legal persons or entities with board (if appointed) and the general meeting, the
no legal personality but with legal capacity granted regulations concerning a joint-stock company apply.
by law. If a general partner is a legal person, its name
The statute may provide for establishment of a su-
may be included in the partnership name, together
pervisory board, and it is mandatory if there are
with a designation of its legal form. The partnership
more than 25 shareholders.
name may not contain the names of the limited part-
ners. Persons whose names are included in the name The general partners have the right and duty to con-
of the partnership are liable for the partnership’s duct the affairs of a joint-stock limited partnership
debts to creditors like general partners, regardless of and represent it externally. The statute may provide
their actual role under the partnership agreement. that such right is vested in one or more general part-
The partnership agreement is concluded in the form ners. A shareholder may represent the partnership
of a notarial deed, stating the name and registered only on the basis of a power of attorney. Unless oth-
office of the partnership, the subject of its business, erwise provided in the statute, the general partners
the duration (if limited), and the contributions made and the shareholders participate in the profits of the
by each of the partners, as well as the commandite partnership in proportion to their actual contribu-
sum. tions.
In other respects, a limited partnership is subject to Authority reserved to the general meeting is ex-
the regulations governing a registered partnership. cluded from the authority of the general partners
4. Joint-stock limited partnership (SKA) managing the affairs of the partnership, such as:

A joint-stock limited partnership is a partnership  Review and approval of the general partners’ re-
that has share capital, which enables it to raise capital port on the business of the partnership and the
by selling shares, while the general partners retain annual financial report

19
 Granting a release to the general partners for In a partnership structured in this way, the manage-
their management of the affairs of the partner- ment board of the company that is the general part-
ship in the prior year ner acts for the partnership. To be certain of the rep-
resentation of such a partnership, it is necessary to
 Granting a release to the members of the super- review the National Court Register for both the
visory board. partnership and the company that is the general
Some resolutions of the general meeting (e.g. con- partner.
cerning distribution of profit attributable to the
shareholders, or sale of real estate belonging to the Joint ventures
partnership) require the consent of all of the general The term “joint venture” covers a broad range of
partners. different forms of cooperation between individuals
The statute is signed in the form of a notarial deed or other entities, aimed at achieving the purposes de-
by the founders, who must include, at a minimum, fined by the participants—typically profit-making or
all of the general partners. organisational. All the participants in a joint venture
need not have the same purposes in mind. A joint
The statute must state: venture may be aimed at achieving an end result, or
 Name and registered office of the partnership pursuing a process of continuing cooperation. In the
first variant, the joint venture typically has a fixed
 Subject of the business end date, after which the parties will end their coop-
 Duration (if limited) eration or change it into a different form of cooper-
ation. In the second variant, the joint venture may
 Contributions made by each general partner have no fixed term, but may be terminated by either
of the parties under certain agreed conditions.
 Amount of the share capital
Polish law does not contain specific regulations gov-
 Number, type and par value of the shares erning joint ventures as such. Thus any agreement
for pursuing projects as a joint venture may be con-
 Names and addresses of the general partners
cluded as an unclassified type of agreement, gov-
 Organisation of the general meeting, and the su- erned by the Civil Code. Additionally, if upon con-
pervisory board if provided for in the statute. clusion of a joint-venture agreement a company is
established in which the parties to the joint venture
Only a general partner has a right to terminate the
become shareholders, the joint-venture agreement is
partnership agreement, and then only if permitted
governed by the Commercial Companies Code with
by the statute.
respect to the corporate relations between the share-
5. Limited partnership or joint-stock limited holders.
partnership with a capital company as
Consideration provided by the parties to
a partner
a joint venture to carry out the project
The structure of a limited partnership or joint-stock
limited partnership in which the general partner is The basis for carrying out a joint-venture project or
a limited-liability company or joint-stock company transaction is for each of the participants to provide
is most often formed through conversion of a capi- specific consideration for the project. More specifi-
tal company into a commercial partnership, with the cally, this may involve provision of certain assets for
capital company as the general partner and an indi- use in the project, labour, capital, knowhow and the
vidual as the limited partner, where the individual is like. It is assumed that through joint action, the con-
also a shareholder of the capital company, or by sideration provided for the joint venture by its par-
a capital company joining a commercial partnership ticipants will release synergies and enable achieve-
as a general partner. The purpose of this structure is ment of their common goal.
to achieve limited liability for the partners while A joint-venture transaction may take the form of
maintaining the tax transparency of a partnership. a greenfield project, i.e. implementing the project

20
from the ground up by providing the consideration Withdrawal may also be tied to introduction of
indicated above, defining the legal, organisational a new participant to take the place of the party exit-
and asset structure, and further cooperation in the ing the joint venture, in which case the project will
joint investment. A joint venture may also involve continue with a new team. The options are most of-
further pursuit of a project using an existing legal ten established with respect to the shares in the SPV
and organisational structure. When new partners conducting the venture. Nonetheless, other ap-
join an existing venture, together they may develop proaches to framing the rights and obligations of the
the project more quickly, based on the existing asset participants, also in the nature of an option, may also
structure. be used.
Transaction structure — creation of SPV Transaction stages
and options The overall picture of a joint-venture transaction is
Most joint ventures include two main elements that generally as follows:
are the basis for carrying out the project: the
 Organising a group of investors and agreeing on
knowhow, innovative solution or market position of a preliminary plan for carrying out the transac-
one participant, and the capital or fixed assets of the tion, including identification of the assets needed
other participant. A concession or licence to con- to carry out the project
duct a specific type of business may be an additional
element. In order to carry out a joint venture, in  Drafting a business plan
practice, the parties may commit other components  Conducting legal, economic, technical and other
at their disposal or obtained from external sources. analyses of the assets earmarked for carrying out
These elements are typically combined through es- the project, a legal analysis of the administrative
tablishment of an enterprise based on them, which requirements to be met before starting the pro-
may take the form of a company or a partnership. ject and during implementation, and an analysis
Thus an SPV company is a frequent instrument for of the sources of financing
carrying out a joint venture.
 Conclusion of the joint-venture agreement (this
But before establishing an SPV, the parties will usu- may be done at an earlier stage and include con-
ally enter into one or more agreements generally ditions for carrying out subsequent actions)
governing their cooperation and implementation of
the project. A principal agreement serving as the ba-  Establishment of the special-purpose company
sis for further agreements is also a characteristic fea- or transaction vehicle (SPV) to carry out the pro-
ture of a joint-venture project or transaction. It will ject
cover such terms as the grounds for the parties’ co-  Main project implementation phase
operation, the assets to be devoted to realisation of
the project, the necessary organisational instruments  Completion of the project or converting it into
(including the SPV), the duration of the project, the another form of operation or cooperation by the
rules for financing, decision-making authority, and parties
the plans for winding up the cooperation. Legal aspects
This last element may involve another aspect typical Although joint-venture agreements have been used
for joint ventures, namely bilateral or unilateral op- in Poland since the start of the economic transfor-
tions for transferring the shares in the joint-venture mation in the late 1980s, they are not governed by
structure and clauses for exiting the project. Such specific regulations in the Civil Code or other legal
options are essentially agreements for purchase or acts. Nonetheless, their permissibility is undoubted,
sale of specific rights, creating rights or obligations based on the principle of freedom of contract. Com-
connected with taking over or changing the control mercial entities established for the purpose of imple-
over the project, or increasing or reducing the level menting joint-venture projects are governed by the
of participation in the project by specific parties, or applicable regulations of the Commercial Compa-
a party’s withdrawal from the project altogether. nies Code and other acts.

21
A fundamental and fairly common issue is the cor- reporting obligations, i.e. financial data and infor-
relation between the main joint-venture agreement mation material to investors and the market that
and the articles of association or statute of the SPV. does not constitute inside information.
The joint-venture agreement tends to be a multi-fac-
Another characteristic of transactions in shares of
eted agreement. The corporate charter of the SPV,
listed companies is that in the case of a significant
on the other hand, generally deals with a narrower
stake of shares, a brokerage must be involved in the
set of issues, with the main purpose of establishing
process.
the SPV that will carry out the venture and the rules
for functioning of the SPV, reflecting the general Acquisition of a significant stake of shares
rules for the project set forth in the joint-venture
Investors can freely carry out transactions involving
agreement.
shares of public companies (i.e. listed on the Warsaw
The charter of the SPV contains provisions govern- Stock Exchange) only when the transaction will not
ing the rights and obligations of the founders and result in increasing the investor’s share in the total
shareholders or partners of the SPV, who are typi- number of votes by more than 33% or 66%.
cally the parties to the joint-venture agreement, but
Crossing the threshold of 33% of the total votes in
the scope of regulation of their cooperation in the
the company may occur only as a result of voluntary
corporate charter is typically narrower than in the
announcement of a tender offer for sale or exchange
case of the joint-venture agreement because of the
limitations imposed by corporate law. of the shares in a number ensuring achievement of
66% of the total votes, and crossing the threshold
An additional issue often arising with respect to the of 66% of the total votes in the company may occur
rules governing a joint-venture project, and increas- only as a result of voluntary announcement of a ten-
ing the degree of complication in its structure, may der offer for all of the remaining shares of the com-
be the desire to choose foreign law to govern the pany.
joint-venture agreement, while the charter of
a Polish SPV must be governed by Polish law; like- An investor who has crossed the 33% threshold
wise with the transfer of ownership of its shares, through indirect acquisition of shares (i.e. as a result
even if provided for in a joint-venture agreement of a public offering, by in-kind contribution of the
governed by foreign law. shares to a company, merger or division of a com-
pany, as a result of a change in the company’s stat-
Acquisition of a significant stake in public ute, expiration of share privileges, or occurrence of
companies a legal event other than a transaction or taking up of
newly issued shares) is required within 3 months to
Unlike transactions involving private companies, ac- announce a tender offer for sale or exchange of
quisition of shares of public companies is subject to shares (compulsory tender) in a number resulting in
a number of special requirements, particularly con-
achievement of the threshold of 66%, or to sell the
cerning the procedure for the transaction, depend-
shares so that the holdings fall below the threshold
ing on the size of the acquired stake and reporting
of 33%.
obligations referred to in the Public Offerings Act
(the Act on Public Offerings, Introduction of Finan- Similarly, crossing the threshold of 66% for the fore-
cial Instruments into an Organised System of Trad- going reasons results in an obligation to announce
ing, and Public Companies). a tender offer for all the remaining shares of the
company within 3 months, unless during that time
It should also be pointed out that any due diligence
the total number of votes falls to no more than 66%.
prior to the transaction must be conducted in a lim-
ited scope, due to the obligation of a public com- The tender offers referred above are conducted by
pany to protect inside information that could affect brokerages after the acquirer provides full financial
the price. Due diligence can cover information that security for the transaction in the form of cash or
the company releases to the public pursuant to its a bank or insurance company guarantee.

22
In assessing whether an investor intending to ac-  The average market price for the 3 months of
quire shares is bound by the obligation to conduct a trading in the shares on the regulated market pre-
tender offer, the shares held by its affiliates should ceding announcement of the tender, in the case
also be counted, as well as the number of votes held of a tender seeking to exceed the threshold of
by entities acting in concert with it or holding 66% of the total votes in a public company
a proxy to vote for it at the general meeting.
The acquirer may agree with the seller on a lower
The obligation to announce a tender offer does not price in the tender, but only in relation to a mini-
arise if: mum of 5% of all shares in the company that will be
 The shares acquired are listed on the NewCon- acquired in the tender.
nect market
Squeeze-out
 The transaction occurs between entities in the A tender offer for sale or exchange of shares also
same capital group affects the situation of shareholders who do not in-
 The shares are acquired under the procedure set tend to accept the offer. A shareholder who achieves
forth in the Bankruptcy Law or in an execution or exceeds the threshold of 90% of the votes has
proceeding, or a right to demand that the remaining shareholders
sell all of their shares. Fulfilment of this demand
 The shares are acquired pursuant to an agree-
does not depend on the consent of the minority
ment on establishment of financial security or
shareholders. This situation is referred to as an “in-
the shares are pledged to satisfy the pledgee un-
voluntary buyout” or “squeeze-out.” Under the
der the procedure of assuming ownership of the
same arrangement, the minority shareholder may
collateral
demand that its shares be bought out by the share-
Price specified in tender offer holder who has achieved or exceeded 90% of the
An investor who announces a tender offer cannot votes.
freely set the price but is bound by the following le- Reporting obligations
gal restrictions.
An investor who:
The price offered for the shares may not be lower
than:  Achieves or exceeds the threshold of 5%, 10%,
15%, 20%, 25%, 33%, 33⅓%, 50%, 75% or 90%
 The average market price for the 6 months pre-
of the total votes in a public company, or
ceding announcement of the tender
 Holds at least 5%, 10%, 15%, 20%, 25%, 33%,
 The average market price for a shorter period if
the company’s shares have been traded on the 33⅓%, 50%, 75% or 90% of the total votes in
main market for less than 6 months the company and as a result of a reduction in the
shares falls to 5%, 10%, 15%, 20%, 25%, 33%,
 The highest price paid for the shares during the 33⅓%, 50%, 75%, 90% or less of the total votes
12 months preceding the tender by the entity re-
quired to announce the tender, or entities con- is required within 4 business days from learning of
trolled by it, controlling it or acting in concert the change in percentage or within 6 trading days
with it from the date of the transaction on the regulated
market or alternative trading system to disclose this
 The highest value of the non-cash consideration information to the public, KNF and the company.
which the entity required to announce the tender
gave in exchange for the shares during the 12 A notification obligation also arises in the event of
months preceding announcement of the tender, acquisition or sale of a number of shares changing
or the existing share:

23
 In the event of a share above 10%, a change of holders’ meeting of a financial institution, or the
at least 2% of the total votes in the case of a com- equivalent percentage of the share capital. The noti-
pany listed on the main market, or 5% if the fication requirement also applies to:
shares are admitted to trading on a regulated
 Situations in which the investor intends to obtain
market other than the official market, or
control over a financial institution, directly or in-
 In the event of a share above 33%, a change of directly, in some way other than acquiring or tak-
at least 1% of the total number of votes at the ing up shares or rights to shares giving it a ma-
general meeting. jority of the total votes
The notification obligation also applies to an entity  A pledgee or usufructuary entitled to vote the
that has achieved or exceeded a given threshold of shares
votes in connection with the occurrence of a legal
 Situations in which an entity obtains voting
event other than a transaction, e.g. gift or inher-
rights at a given threshold as a result of events
itance, or a change in the number of votes due to
other than acquiring or taking up shares or rights
a change in the structure of the shareholding as
to shares, particularly as a result of amendment
a result of redemption of a portion of the shares, and
of the statute or as a result of extinguishment of
in the case of indirect acquisition of the company’s
voting privileges or restrictions
shares.
 Situations where two or more entities act in con-
Consequences of violation of reporting ob-
cert to exercise voting rights.
ligation
KNF will declare its objection to acquisition or tak-
If these reporting obligations are not performed, the
ing up of shares or rights to shares or obtaining con-
shareholder cannot exercise the voting rights to the
trol over a financial institution, in the form of a de-
shares, and votes cast in violation of this prohibition
cision, if there are formal defects in the notification,
shall not be counted in calculating the result of the
if the deadline to submit additional information or
vote on a resolution of the general meeting.
documents is not met, or if justified by the need for
The ban on voting the shares also applies to all prudent and stable management of the given institu-
shares held by entities controlled by the entity that tion, the potential influence by the notifying party
acquired the shares in violation of these obligations. over the institution, or the assessment of the finan-
Acquisition of shares in financial institu- cial condition of the notifying party.
tions If the party intending to acquire the shares files the
notification with KNF with all the required docu-
The intention to acquire shares in a financial institu-
mentation and does not receive any response from
tion (i.e. a bank, insurance company, investment
KNF within 60 business days, KNF is deemed to
fund company or brokerage) requires notification of
consent to the acquisition.
KNF, as provided in the Banking Law of 29 August
1997, the Insurance and Reinsurance Act of 11 Sep- A duty to notify KNF also arises if an entity intends
tember 2015, the Act on Investment Funds and Al- to dispose of shares of a financial institution author-
ternative Investment Fund Management of 27 May ising it to exercise over 10% of the total votes at the
2004, and the Trading in Financial Instruments Act general meeting, as a result of which it would hold
of 29 July 2005. a stake of shares authorised to exercise less than
10%, 20%, one-third, or 50% of the total votes at
Notification of KNF
the general meeting. This obligation also applies to
A duty to notify KNF arises when the intended ac- an intention to sell bonds convertible into shares,
quisition of shares, direct or indirect, will result in depository receipts or other securities providing
obtaining or exceeding 10%, 20%, one-third or a right or obligation to acquire shares in a financial
50%, respectively, of the total votes at the share- institution.

24
Prohibition of exercise of voting rights to Shelf companies
acquired shares The investor can establish a new company and take
If these obligations are not met, the voting rights up the shares in the company. But given the time
under the acquired shares cannot be exercised. But required for the procedure of entering a newly es-
in specifically justified instances, KNF may waive tablished company in the commercial register, as an
this prohibition if required in the interests of the alternative to establishing a new SPV for the pur-
customers of a Polish bank, insurers, insureds, ben- poses of the transaction investors often decide to
eficiaries of insurance policies, participants in invest- acquire an existing “shelf company” and then par-
ment funds or collective securities portfolios, cus- ticipate in the transaction via the shelf company.
tomers of investment funds, brokerages or their This is a fully registered company, with legal person-
customers. ality and also holding:
KNF may also issue a decision prohibiting an entity
 National Court Register number (KRS), tax
from exercising voting rights to shares or rights
number (NIP), CIT and VAT registration, and
vested in the dominant entity, based on a justified
statistical number (REGON)
need for prudent and stable management of a finan-
cial institution, or evaluation of the financial condi-  Temporary registered office
tion of an entity that has directly or indirectly gained
 Minimum share capital (PLN 5,000 in the case of
voting rights or become the dominant entity or
a limited-liability company)
could influence the given financial institution.
KNF may also issue a decision ordering an entity to  Bank account holding the funds from the share-
divest shares within a designated period. holder’s payment to cover the share capital.
Shelf companies generally do not have an operating
Notification of financial institution of num-
history; that is, before being offered to a potential
ber of shares held
investor the company has not been used to conduct
An entity that has directly or indirectly acquired or any operations or business, and its activity has been
taken up shares or rights to shares in a Polish bank limited to carrying out accounting and reporting re-
which represent or together with shares already held quirements.
represent a block of shares reaching or exceeding
When a shelf company is used, the course of the
the threshold of 5%, 10%, 20%, 25%, one-third,
transaction does not depend on the length of the ju-
50%, 66% or 75% of the total shares at the general
dicial proceeding to register the company, and upon
meeting, or has obtained control over a Polish bank,
acquisition of the shares the SPV is ready to proceed
is required in each instance to notify the bank
with the planned venture. After acquiring a shelf
promptly, and the bank in turn will forward this in-
company, it may be necessary to amend the articles
formation to KNF.
of association to meet the buyer’s needs; these
A notification obligation also arises in the case of changes become effective upon entry in the Na-
acquisition, taking up or disposing of shares in a bro- tional Court Register. But in most instances a shelf
kerage, insurance company, or investment fund company can be used immediately after it is ac-
company. quired.

Transaction vehicles (SPV) It should also be pointed out that effective from the
beginning of 2012, the Commercial Companies
In the case of acquisition of shares in a Polish com- Code now provides for the possibility of quick es-
pany by investors (including foreign investors), it tablishment of a limited-liability company based on
will often prove necessary for the investor to use an- a standard online form for the articles of association.
other Polish company as the acquirer. To this end, As the practice develops in this respect, it will be
the structure used most often is a limited-liability possible to assess whether this express approach to
company serving in the transaction as a special-pur- establishing a company is a more practical alterna-
pose vehicle (SPV). tive to using shelf companies and streamlining of the
25
procedure for amending the standard articles of as- itself—which probably has a reputation and a rec-
sociation after formation of the company. ognised position on the market—but an empty
“shell” with no assets or operating history.
Capital increase of SPV
For this reason, the other party (e.g. the seller of the
Before using the SPV for the transaction it will typ-
shares that are the subject of the transaction) will
ically be necessary to add to its capital to provide the
typically demand that the investor guarantee the ob-
funds to carry out the planned acquisition of the
ligations taken on by the SPV in the transaction.
shares of the other entity.
Depending on the legal construction of the venture,
The capital of the SPV will usually be increased in
the guarantee will typically take the form of the in-
one of three ways:
vestor’s assumption of the SPV’s debt under the
 Contribution to cover the shares in the newly transaction documentation (becoming jointly and
created share capital (in the case of a new com- severally liable with the SPV, in which case the in-
pany) or the shares in the increased share capital vestor will become a party to the transaction) or by
of an existing company providing the other party with a separate document,
issued by the investor, in which the investor guaran-
 Surcharges (dopłaty) by the shareholders (if per-
tees the obligations of the SPV.
mitted by the articles of association of the SPV)
Control issues
 Loans to the SPV by its shareholders.
If the party interested in acquiring shares in a Polish
In the case of loans, however, the limitations arising
company is a financial investor (such as an invest-
under thin capitalisation rules must be observed.
ment fund or private-equity fund), unlike an indus-
Simply put, under the thin capitalisation rules, try investor it will typically not have its own mana-
a shareholder loan will be tax-neutral for the com- gerial team with knowhow in that specific industry.
pany so long as a company’s total indebtedness to
Thus, until closing, the management board of the
shareholders (including the value of loans) does not
SPV will be made up of the investor’s representa-
exceed the company’s share capital (1:1 ratio). For
tives, appointed temporarily, who then will be re-
this reason, a potential loan to the company by a
placed after closing by a management team, often
shareholder is preceded by an increase in the com-
coming from the company acquired in the transac-
pany’s share capital.
tion. Consequently, the same persons will often
It also happens in practice that a shareholder first serve on the management boards of both entities.
makes a loan to the company (in an amount not ex- Often the final element of the transaction is to sim-
ceeding the company’s equity), and then after some plify the capital structure by merging the Polish en-
time the parties agree to convert the loan into an in- tities, where the SPV is the acquirer of the company
crease in share capital. Such measures are mainly acquired in the transaction.
aimed at improving the company’s balance sheet.
In these situations, it is crucial to schedule the clos-
Shareholder guarantee ing activities properly.
If the investor uses an SPV, strictly speaking the en-
tity involved in the transaction is not the investor

26
Specific transaction
conditions
Introduction serious consequences, but the risk of environmental
impact of the target’s operations also arises in other
Depending on the subject of the transaction, it is transactions, particularly when real estate is in-
sometimes necessary to reflect additional legal as- volved.
pects related to the target or the scale of the opera-
Attention must also be paid to essential environ-
tions of the participants or the target.
mental issues in many transactions involving corpo-
The specific conditions most frequently encoun- rate merger, division or conversion, and in transac-
tered arise under environmental law, employment tions involving an enterprise (or organised part of an
law, regulations governing specific industries, regu- enterprise), real estate, or shares.
lations governing banking and finance, compe-
tition law and real estate regulations. The importance of detailed environmental due dili-
gence is increasing, as is visible in three aspects.
Environmental issues First, for several years there has been a visible trend
Issues under environmental law in an M&A transac- toward expanding the list of environmental require-
tion should be identified separately for transactions ments imposed on businesses. This has been accom-
in which there is a change of shareholder (share panied by imposition of more rigorous liability
deals) and for transactions involving an enterprise, standards. Examples include implementation into
an organised part of an enterprise, or other assets Polish law of the Environmental Liability Directive
(asset deals). The risks should then be appropriately (2004/35/EC) and the Environmental Crime Di-
addressed in the transaction structure and documen- rective (2008/99/EC). The Environmental Liability
tation. Directive imposes costly obligations to prevent and
remedy harm to the environment, and the Environ-
Identification of risks related to environ-
mental Crime Directive requires EU member states
mental impact of operations to punish perpetrators of environmental crimes.
In many situations, an expert understanding of the The trend toward expansion and stiffening of envi-
complex issues of environmental law and skill at ronmental laws is expected to continue in the up-
identifying risks and drawing the proper conclusions coming years.
on the basis of a thorough analysis of the operations Second, apart from criminal environmental liability
of the target and the findings of an environmental and liability with respect to remediation of environ-
audit are a condition for carrying out the transaction mental harm, businesses may also face administra-
properly. tive sanctions in the form of increased fees and
The risk arising from non-compliance with environ- fines. Significantly, these administrative sanctions
mental requirements is important not only in the are imposed on the basis of strict liability, without
context of transactions involving major industrial fa- regard to fault on the part of the persons conducting
cilities, or companies operating in the chemicals, the business. In order to impose administrative
mining or transport sector—in other words, entities sanctions, it is sufficient to prove a violation of the
with significant environmental impact. In such regulations, and as a result these are the sanctions
cases, irregularities may occur more often and entail most commonly imposed on businesses. And in

27
many instances there is no fixed upper limit for in- All of this will typically translate into major expend-
creased fees or fines, because the amount often de- itures, impacting the financial condition of the ac-
pends on the duration of the violation and the type quired company. Failure to identify environmental
of substances released to the environment. compliance issues and address them in the transac-
tion documents may result in the real value of the
Third, Poland’s history, the legacy of the former
company whose shares are acquired being much less
communist system, and a continuing low ecological
than the price established (or already paid) for the
awareness have resulted in widespread neglect of en-
shares.
vironmental compliance, which even many years
later may present a material risk for acquirers of This issue may be depicted using the examples of
businesses or brownfield sites. risks arising out of improper waste management and
risks arising out of failure to obtain required permits.
Evaluation of the environmental risk associated
with a planned transaction is thus extremely diffi- Improper waste management
cult. The lack of a highly developed legal culture in
The statutory model for waste management rules is
the area of environmental compliance significantly
complex, not very transparent, and subject to fre-
hinders contract negotiations. This awareness is rap-
quent changes. A business must comply with a large
idly growing, however, among parties to transac-
number of regulations spread across many different
tions and environmental enforcement authorities.
legal acts. This creates a risk of irregularities result-
This means that even if the enforcement authorities
ing in liability for improper waste management.
are not in a position now to identify a given viola-
tion, they may be in the near future. The most obvious examples would include situa-
In short, the importance of environmental legal is- tions in which a company conducts operations with-
sues in transactions is often underestimated. At the out a required permit or in violation of the terms of
same time, these issues are fundamentally important its permit. This may result in financial liability and in
to many foreign investors. This can cause a discon- certain instances may also lead the environmental
nect in risk assessment and difficulties in negotia- authorities to issue an order to shut down opera-
tions. But when environmental risks are identified at tions.
an early stage, this knowledge can be used as an ar- Another example of the risks connected with im-
gument in negotiations and in properly framing the proper waste management has to do with the classi-
transaction structure and documentation. This also fication of substances or items. Businesses that pro-
helps avoid incurring additional, often significant, duce or store certain substances or items often are
costs after the closing, or a claim by the acquirer that unaware that they are classified as wastes. Doubts
certain aspects of the transaction were not disclosed surrounding the definition of wastes increase the un-
thoroughly enough. certainty in this area.
Share deals A final example of irregularities that may have major
In share transactions, it is important to identify risks financial ramifications is neglect of requirements im-
arising out of violation of environmental regulations posed on entities dealing in electrical and electronic
because it enables an assessment of the potential equipment. The regulations lay down requirements
sanctions that could be imposed on the entity or its that such equipment must meet before being intro-
managers for environment violations. Violations duced onto the market, as well as rules for handling
could result in imposition of financial sanctions, and such equipment when it becomes waste. Businesses
in the case of environmental harm, a duty to reme- operating in this area are often not in a position to
diate (restore the prior state), and in extreme cases properly assess which regulations apply to them or
the environmental compliance authorities may also how they should comply with them. If they do not
issue a decision to shut down the operations of the do so properly, they may face fines that go as high
business. as PLN 500,000, depending on the degree of fault.

28
Failure to obtain required permits Asset deals
Exploitation of the environment by business entities Asset deals present some of the most complex legal
is regulated. This means that a business must often issues, particularly when they involve transfer of an
obtain permits specified by environmental laws or enterprise. Some of the risks described in the section
submit notifications to administrative authorities. involving share deals should also be addressed in the
Entities whose operations have significant impact transaction documents for an asset deal.
on the environment are required to obtain an inte-
Asset deals require a particularly cautious approach,
grated permit. however, because it is necessary to reflect additional
Fines and increased fees will be imposed on busi- conditions that are specific to transactions of this
nesses operating without obtaining a required per- type and which may have very serious consequences
mit or with a permit that is no longer valid. A permit for the acquirer of the enterprise or specific assets if
may cease to be valid not only because the period the risks are not identified.
for which it was granted has expired, but also for An excellent example of the risks arising out of non-
many other reasons. For example, a permit may ex- compliance with environmental regulations in asset
pire as a result of failure to conduct operations for deals is the issue of failure to make a proper assign-
a certain period. A permit may be withdrawn in cer- ment of rights and obligations under the administra-
tain circumstances because of environmental viola- tive decisions under which the operations are con-
tions, or invalidated because of gross errors in issu- ducted using the transferred assets. It should be
ance of the permit. The latter risk is often borne in mind that under the administrative law
overlooked, but practice provides numerous exam- governing issuance of environmental permits, the
ples of decisions that were issued in violation of ap- administrative authority controls the permit. With-
plicable law, for example by the wrong authority, out the appropriate legal basis, the parties to the
without the proper wording, or contrary to statutory transaction may not decide by contract that the
requirements. rights and obligations under the particular permit
Oftentimes an operator holding valid environmental will pass to the acquirer of specific assets. Such pro-
permits will still face financial liability, particularly visions will not be effective, and the acquirer of the
for failure to comply with the terms of the per- plant or installation will not become the holder of
mits—for example by releasing substances different the permits for the facility in question.
from those specified in a permit or in excessive It is somewhat simpler in the case of transactions
quantities. A business may also face financial sanc- involving transfer of an enterprise. The general rule
tions if, for example, it operates on the basis of is that the sale of an enterprise results in the ac-
a permit to discharge gas or particles into the atmos- quirer’s obtaining title to the assets that are part of
phere when under the environmental regulations it the enterprise. There are numerous restrictions on
should obtain an integrated permit instead, or when transfer, however. With respect to rights and obliga-
it holds an integrated permit but it is no longer valid tions under administrative decisions, such as deci-
(e.g. as a result of improper assignment of the permit sions on environmental conditions, the regulations
during an earlier transaction involving the installa- allow for only a limited ability for assignment to the
tion for which the permit was issued). acquirer of the enterprise. This means that adminis-
If it is found in an inspection that the conditions set trative succession is the exception and requires an
forth in a permit are being or have been exceeded, express legal basis.
financial sanctions should be expected, and the Environmental harm
amount of the sanctions will generally depend on
the quantities of substances unlawfully released into Regardless of whether the deal is for shares or assets,
the environment and the duration of the violation. if it involves real estate one of the fundamental risks
In the worst case, the company may face withdrawal is environmental harm—such as soil contamination.
of the permit or shutting down of operations, which Analysis of this risk typically requires cooperation
in practice may put the company out of business. between lawyers and environmental consultants, as

29
well as particular caution. This is especially im- Employment law issues
portant with respect to harm to the earth’s surface,
i.e. contamination, as real estate is very often in- Employment issues in M&A transactions should be
cluded in a transaction. But the risk is also material considered separately for share deals (involving
in the case of harm to water, protected species, or changes in partners or shareholders), and for asset
natural habitats. deals (involving an enterprise, an organised part of
an enterprise or other assets), which result in
Generally environmental harm is understood to a change of the employer by operation of law.
mean any negative, measurable change in the condi-
tion or function of natural elements, compared to Share deals
the prior condition, caused directly or indirectly by Share deals generally do not affect the employer’s
an entity exploiting the environment. This definition duties to the employees or the employment relation-
is narrowed down with respect to the specific natu- ship in force between them, and do not entail the
ral element affected by the harm. For example, with necessity to take additional actions with respect to
respect to soil, it is accepted that there is harm when employees.
soil quality standards defined by regulation have
been exceeded. If the employer joins a new capital group, however,
that may make it necessary to carry out changes in
If harm occurs, then by operation of law the duty the operations of the employer, the level of employ-
arises to remedy the harm. With respect to the sur- ment, or the organisation of the work in order to
face of the earth, this means that if there is soil con- adapt them to the needs of the group or the rules in
tamination, it is necessary to conduct reclamation. force within the group. Such measures may require
The costs of reclamation may be significant. In cer- notification and consultation with the works council
tain circumstances the environmental authorities (if appointed).
may conduct remediation, whose costs can be great.
Under the Employee Notification and Consultation
The entity required to conduct remedial measures is Act of 7 April 2006, the employer is required to pro-
generally the entity exploiting the environment vide the works council with information concerning
which caused the harm. With respect to certain types the current situation of the employer: the employer’s
of harm to the surface of the earth, liability will be business and economic situation, the state and struc-
imposed on the owner of the real estate, regardless ture of employment, and actions planned for the fu-
of whether or not the owner was the perpetrator of ture, i.e. anticipated changes in the employer’s busi-
the harm. An acquirer of real estate may thus also ness and economic situation, changes in
acquire an obligation to conduct remediation, and employment, measures intended to maintain the
often it might not be feasible to obtain reimburse- level of employment, and actions that may cause sig-
ment for reclamation costs from the person who nificant changes in the organisation of the work or
caused the contamination. The owner of real estate the terms of employment. The employer is required
may also be jointly and severally liable with the per- to provide information to the works council on its
petrator for conducting remediation or covering re- own initiative of anticipated changes or intended ac-
mediation costs, if the owner knew of or consented tions, and at any time upon written request of the
to the contamination. Failure to conduct remedia- works council. If the works council and the em-
tion may also entail criminal liability on the part of ployer have not specifically agreed on the proce-
the persons required to conduct it (e.g. members of dures for information and consultation, it is as-
corporate management boards). sumed by analogy to regulations concerning transfer
of the employment establishment that 30 days’ ad-
Due to the specific nature of environmental law,
vance notice to the works council concerning
each transaction requires an individual approach in
planned changes is sufficient.
the analysis and assessment of the transaction’s en-
vironmental risk as well as the proposed preventive Apart from the duties to provide information to the
measures to minimise the risk for the potential in- works council, in matters directly affecting emplo-
vestor. In any event, it will be essential to address ees, i.e. issues related to employment, terms of em-
such risks in the transaction documents. ployment, and maintaining the level of employment,

30
and actions that may cause significant changes in the the rights and obligations of the former employer in
organisation of the work, the employer is required relation to the acquired employees. Succession in
to consult with the works council. Share deals are employment relationships occurs automatically, re-
rarely consulted with the works council, however, gardless of the intentions of the employees or the
because the transaction documents hardly ever opinions expressed by the employee representatives
cover issues that require consultation. In practice, or any actions they may take with respect to transfer
changes that require consultation typically happen of the establishment.
after the share deal is over.
Transfer of an establishment (or part of an estab-
The consultation obligation is a duty to make best lishment) may occur as a result of various legal
efforts—not to achieve a result. The employer is re- events, including sale, conclusion or termination of
quired to make every effort to reach agreement with a tenancy agreement, separation of the new estab-
the works council through dialogue and an exchange lishment from the employer’s organisational struc-
of views, but the parties are not required to agree on ture, conversion of a cooperative establishment into
a common position on the matter. The purpose of a separate cooperative, or—in certain circum-
consultations is for the employer to hear out the po- stances—agreements transferring tasks and func-
sition of the employees’ representatives and if pos- tions (e.g. outsourcing agreements).
sible reflect their position in its plans. As with the
1. Notice to employees/trade unions
informational duties, the regulations do not provide
a fixed timeframe in which consultations must be Transfer of an establishment (or part of an estab-
conducted, but only indicate that consultations lishment) entails a requirement to notify the trade
should be conducted in a time, form and scope en- unions operating at both the former and new em-
abling the employer to act on the matters subject to ployers, or if there are no trade unions, the employ-
consultation. This means that consultations should ees. The notice should specify the anticipated date
be conducted far enough in advance that the em- of the transfer and the reasons, as well as the legal,
ployer has an opportunity to modify its plans to re- economic and social effects of the transfer for the
flect matters agreed on during the consultation pro- employees, including the intended actions concern-
cess. In other words, changes should be consulted ing the conditions of employment, pay, retraining
with the works council before implementation, not and the like. If there is a change in the date of the
after the fact. transfer, the employer is required to notify the trade
If as a result of a share deal any actions are to be unions (or employees) of the new date. Notice of
taken that require notification and consultation with the planned transfer should be provided at least 30
the works council, the transaction documents days prior to the anticipated date of the transfer.
should include a statement by the seller concerning If the former or new employer does not intend to
its compliance with these requirements. make any changes in the conditions of employment
Failure to comply with the requirement to notify and in connection with the transfer, once the require-
consult with the works council does not affect the ment to notify the trade unions under Art. 261 of
transaction as such, but may subject the employer the Trade Unions Act of 23 May 1991 has been ful-
(as a rule, the management board) to punishment filled, the employer has no further obligations to the
with probation or a fine. establishment (or inter-establishment) trade unions
in connection with transfer of the establishment.
Asset deals
However, if the employer does intend to make such
Under Polish employment law, an asset deal gener- changes, it is required to consult them with the es-
ally results in passage of the establishment (or part tablishment (or inter-establishment) trade unions. In
of the establishment) to a new employer. this situation, consultations are obligatory if the
Under Labour Code Art. 231, passage of an estab- planned changes are connected with the transfer of
lishment (or part of an establishment) results by op- the establishment. Planned changes in the condi-
eration of law in the new employer’s assumption of tions of employment unrelated to the transfer of the

31
establishment do not constitute grounds for com- 2. Employers’ liability to employees
mencing consultations under the procedure pro-
The former and new employers are jointly and sev-
vided in Trade Unions Act Art. 261.
erally liable for obligations arising under the employ-
The purpose of the consultations with the establish- ment relationship prior to transfer of part of the em-
ment (or inter-establishment) trade unions is to ployment establishment to the new employer. There
reach a collective agreement providing the rules for are no specific regulations concerning joint and sev-
carrying out changes in the conditions of employ- eral liability of the former and new employers in the
ment. This procedure is provided only for employ- event of transfer of the entire establishment. It is ac-
ers where establishment (or inter-establishment) cepted in the case law and the literature that an em-
trade unions are in operation. Staff at other employ- ployer taking over an entire employment establish-
ers are deprived of the opportunity of exerting an ment is liable to the employees for new obligations
influence over the planned changes in the condi- as well as those arising prior to the transfer. How-
tions of their employment, as the law does not pro- ever, this does not exclude the liability of the former
vide for consulting them and reaching an agreement employer for obligations arising prior to the trans-
on such changes. fer, under the principle of in solidum liability.

The agreement should be concluded within 30 days 3. Work and pay conditions under internal
after the employer informs the establishment (or in- regulations
ter-establishment) trade unions of the planned ac- Employees’ entitlements arising out of their employ-
tions. This period is only a guideline, and if it takes ment with the given employer are based not only on
longer to reach agreement that will not affect the va- each employee’s employment contract. Employees
lidity of the agreement. also have entitlements provided in the work rules,
pay rules and collective agreements. Transfer of the
The employer’s failure to follow the procedure for
employment establishment to a new employer under
consulting the transfer of the establishment with the
Labour Code Art. 231 does not, as a rule, result in
establishment (or inter-establishment) trade unions
the new employer’s assumption of these internal
does not invalidate the transfer to the new employer
regulations. Nonetheless, the employees will retain
or its assumption of the employees. However, the
the entitlements they held thereunder up to the date
individuals who were required to inform and consult
of the transfer, generally until the terms of their em-
with the trade unions due to the positions they hold ployment are amended in this respect.
are subject to sanctions in the form of a fine or pro-
bation. Enterprise collective bargaining agreement
Apart from notification of the employees or trade Under Labour Code Art. 2418 §1, for one year fol-
unions concerning the planned transfer of the estab- lowing transfer of the employment establishment,
lishment (or part of the establishment), as in the case the new employer is required to comply with the
of a share deal, employers may be required to inform provisions of a collective bargaining agreement with
and consult with the works council, if the transfer respect to the assumed employees who were cov-
may affect matters that are subject to informing and ered by the agreement at the time of the transfer.
consulting with the works council. The new employer does not become a party to the
collective bargaining agreement, but is bound by its
If as a result of an asset deal there will be a transfer terms.
of the employment establishment (or part of the es-
tablishment), it is reasonable to regulate in the trans- The new employer may apply more favourable
terms to the employees covered by the collective
action documents the scope of shared liability of the
bargaining agreement than those arising under the
employers for claims of employees and obtain
existing arrangement.
a statement by the seller concerning performance of
the foregoing obligations under Labour Code Art. When a year has passed following the transfer, the
231 or Trade Unions Act Art. 261 and the Employee new employer is no longer required to comply with
Notification and Consultation Act. the collective bargaining agreement. However, the

32
individual employment relationships established by resentations and warranties, as well as the circum-
the provisions of the agreement remain in force un- stances constituting events of default, in terms of
til amended by a modifying notice or agreement. the feasibility of transferring the shares and opera-
tions of the borrower to a new capital group. (For
Issues under finance and banking law example, the credit agreement may require that all
Existing debt/security interests the borrower’s cash flows be conducted through the
lender, but the acquirer’s group may do business
In order to obtain information about all security in- with a different bank.)
terests encumbering the assets of the company or its
shares, it is important, in addition to obtaining state- Of particular importance is the inclusion of any
ments from the seller, also to examine the relevant change-of-control clauses, and if so, the specific
registers for intangibles and movables as well as the terms.
land and mortgage register for real estate. In consequence, prior to transfer of the shares it will
From the buyer’s point of view, it is particularly im- sometimes be necessary to obtain consent to the
portant to examine the pledge register in order to transaction from the lender, or a waiver of certain
verify whether the shares or assets are subject to rights under the credit agreement, or else amend cer-
a registered pledge. If a registered pledge has been tain provisions of the credit agreement.
established and the pledge agreement prohibits sale When the financing is to be continued and there are
of the asset, the sale will be invalid unless the buyer encumbrances on the borrower’s shares, it is im-
did not know and could not have known of the pro- portant to make relevant modifications to the secu-
hibition (which would be very unusual, since a pro- rity instruments when the shares are transferred. It
hibition on sale of a pledged asset is disclosed in the must also be determined whether there are any re-
public pledge register). strictions on sale and whether all consents required
As a result, failure to examine the register or obtain by the security instruments have been obtained.
required consents or other statements may result in If the decision is to pay off the outstanding borrow-
invalidity of the acquisition. ings of the target, the provisions of the credit or loan
Share deal agreement concerning early repayment (e.g. with re-
spect to fees and commissions) will be relevant, as
In the case of a share deal it should be examined
will provisions concerning termination of the agree-
whether:
ment (on notice or by agreement). An analysis of
 The target company is a borrower or guarantor these aspects of the credit or loan agreement will en-
under a loan or credit agreement able the parties to prepare a repayment strategy be-
fore presenting the proposal to the lender.
 The assets or shares of the company are encum-
bered by security interests From the buyer’s point of view it is important to de-
termine the conditions, and ideally the wording of
Depending on the type of existing credit or loan
the future declarations, with respect to repayment of
agreement, and after the prospective buyer analyses
obligations and release of existing security interests
its provisions (particularly the financial terms), the
or confirmation that they have expired, as well as
buyer and the seller will determine whether:
consent to deletion of the entry of the security inter-
 The given financing will be continued, or ests from the relevant registers. Therefore prior to
conclusion of the sale agreement, the buyer should
 The outstanding balance will be paid off by the
obtain an undertaking by the lender to issue a release
buyer or the seller or refinanced by another bank
letter upon repayment (pay-off letter). The specific
If the decision is to continue the financing, the spe- wording of the release letter including confirmation
cific provisions of the credit or loan agreement of repayment and expiry of the security interests is
should be examined, particularly the borrower’s rep- usually attached to the pay-off letter.

33
The type of security interest that is being released obligations. In other words, assuming that the con-
will determine the wording of the release letter. It is centration itself receives clearance, it then must be
particularly important in the case of security based determined whether other restrictions on competi-
on disclosure in a register to assure that the security tion agreed by the parties are covered by the clear-
is precisely identified and that the release letter is ance or must be analysed and justified separately.
worded correctly to enable deletion of the entry
Permissible scope of restrictions on compe-
from the register.
tition related to concentrations
The release letter should also contain an undertaking
Issues of contractual restrictions directly related and
to return the original documents related to the prin-
necessary to the implementation of concentra-
cipal forms of security, such as powers of attorney
tions—also known as “ancillary restraints”—are
or declarations submitting to enforcement, and to
subject to self-assessment by the business entities in-
prohibit the use of copies of such instruments.
volved. Polish competition law does not contain
Asset deal specific regulations in this respect. Therefore, under
In the case of an asset deal, first and foremost any the practice followed by the Polish competition au-
security interests encumbering the acquired assets as thority, the Office of Competition and Consumer
a whole should be examined, as well as encum- Protection (UOKiK), in construing contractual pro-
brances on elements of specific assets (for example, visions involving such restrictions businesses should
the plant as such may not be encumbered but the rely on the approach adopted in European Union
production line may be subject to a pledge). law.

The wording of the release letter in this case is typi- European Commission guidelines
cally even more crucial than in the case of a share In order to provide legal certainty to businesses, the
deal. Most often, because the secured claims are not European Commission has issued guidelines for as-
being repaid, the release letter will not include pro- sessment of ancillary restrictions, entitled “Commis-
visions concerning expiry of the debt, but only sion Notice on restrictions directly related and nec-
a statement on waiver of the specific security inter- essary to concentrations” (2005/C 56/03). Under
est.
the established practice, use of the EC guidelines is
From the seller’s point of view, it is important to also accepted by UOKiK with respect to transac-
obtain the necessary consents and declarations from tions that may cause effects in Polish territory.
the lender for sale of the specific assets.
Apart from contractual provisions concerning the
An exception to this structure in the case of an asset main subject matter of the transaction, such as the
deal, closer to the structure described above, where transfer of the target’s shares or assets, the parties to
the target is the borrower, is the situation where the a concentration typically also agree on various other
seller’s acquisition of the assets in question was fi- matters which are not an integral part of the concen-
nanced by a bank or other specialised institution. In tration but may limit the freedom of the parties’ be-
such case (if it is planned to pay down the existing haviour on the market. Certain limitations agreed
claims of the target), the rules for repayment of the between the parties to an M&A transaction may be
claims and the wording of the release letter should beneficial to both the seller and the buyer. As a rule,
be similar to those described earlier. however, the acquirer has much greater need for ad-
ditional assurances, because it must be certain that
Competition law issues as a result of the transaction it will be in a position
The main aspects of competition law applicable to to exploit the full value of the acquired enterprise.
M&A transactions — apart from merger clearance Additional contractual provisions alongside the
by the competition authority — concern contrac- main transaction are thus typically aimed at protect-
tual restrictions related to the transaction, particu- ing the value transferred, maintaining the continuity
larly non-competition clauses and confidentiality of supply, or enabling the start-up of a new entity.

34
Conditions for applying additional re- concentration, but to be regarded as necessary to its
strictions on competition in connection implementation, their duration, geographical scope,
with the concentration subject matter, and the persons subject to them
must not exceed certain reasonable limits.
The restrictions agreed by the parties as part of an
M&A transaction will be subject to the rules set Under the Commission Notice, non-competition
forth in the Commission Notice only if they are di- clauses are generally justified for periods of up to
rectly related to the implementation of the concen- three years following the transaction, when the
tration and necessary to the implementation (the transfer of the undertaking includes the transfer of
merely subjective views of the parties in this respect customer loyalty in the form of both goodwill and
are insufficient). knowhow. When only goodwill is included, they are
justified for periods of up to two years. In excep-
For restrictions to be considered directly related to tional, economically justified circumstances, longer
the implementation of the concentration, they must periods may sometimes be acceptable.
be closely linked to the concentration itself. It is not
sufficient that an agreement has been entered into in The geographical scope of a non-competition clause
must be limited to the area in which the seller has
the same context or at the same time as the concen-
offered the relevant products or services before the
tration. Restrictions that are directly related to the
transfer, but can be extended to territories which the
concentration are economically related to the main
seller was planning to enter at the time of the trans-
transaction and intended to allow a smooth transi-
action, provided that it had already invested in pre-
tion to the changed company structure after the
paring this move.
concentration.
With respect to the subject matter, non-competition
In turn, agreements will be regarded as necessary to
clauses must be limited to products and services
the implementation of the concentration if in the ab-
forming the economic activity of the business trans-
sence of those agreements the concentration could
ferred (including those at an advanced stage of de-
not be implemented or could only be implemented
velopment at the time of the transaction, or fully de-
under considerably more uncertain conditions, at
veloped but not yet marketed).
substantially higher cost, over an appreciably longer
period or with considerably greater difficulty. In de- The entities bound by a non-competition clause may
termining whether a restriction is necessary, it is ap- include the seller, its subsidiaries, and commercial
propriate not only to take account of its nature, but agents. Similar restrictions on others would not be
also to ensure that its duration, subject matter and regarded as directly related and necessary to the im-
geographical field of application do not exceed what plementation of the concentration.
the implementation of the concentration reasonably Other restrictions on competition
requires.
Clauses which limit the seller’s right to purchase or
Non-competition clauses hold shares in a company competing with the busi-
The most frequently encountered restrictions re- ness transferred are permissible under the same con-
lated to concentrations involving acquisition of ditions as for non-competition clauses. They may
a business (in the form of shares, an enterprise or not, however, prevent the seller from purchasing or
other assets, or other method of obtaining control holding shares in competing companies purely for
financial investment purposes (where the seller does
over the target) are non-competition clauses im-
not have a right, directly or indirectly, to exercise
posed on the sellers. Such non-competition clauses
management functions or exert a material influence
guarantee the transfer to the purchaser of the full
over the operations of the competing company).
value of the assets transferred, which in general in-
clude both physical assets and intangible assets, such The permissibility of non-solicitation and confiden-
as the goodwill accumulated or the knowhow devel- tiality clauses should be evaluated in a similar way to
oped by the seller. These are directly related to the non-competition clauses.

35
Real estate issues of the right, at the same time the acquirer may not
have certainty with respect to the boundaries or area
When selecting the form of the transaction, it is im- of the real estate it is acquiring. There is also no in-
portant to reflect the benefits or limitations con- formation in the register about the designated use of
nected with transactions involving real estate located the property in the zoning plan, and in the case of
in Poland. perpetual usufruct there is no information in the
Asset deal register about the obligations under the contract de-
livering the land in perpetual usufruct. Therefore, it
In an asset deal, due diligence with respect to proper is very important to verify the parameters of the real
acquisition of title to real estate may be restricted to estate to be acquired, based for example on infor-
a review of the legal status disclosed in the land and mation included in the register of plots and build-
mortgage register for the property, with the limita- ings, registers maintained by the public administra-
tions described below. This results from the fact that tive authorities and the zoning plan, and, in the case
an acquirer of real estate as part of an enterprise or of perpetual usufruct, to examine the contract,
organised part of an enterprise enjoys the protection which is binding on the acquirer.
of the warranty of public reliance on the land and
mortgage register. A condition for functioning of A real estate acquisition transaction is covered by
the warranty of public reliance is that the transfer of the warranty of public reliance on the land and mort-
ownership or other rights to the property is made to gage register if it occurs for consideration and the
the acquirer by the person entered in the land and acquirer acts in good faith. An acquirer is regarded
mortgage register as the holder. It should be stressed as acting in bad faith if it knows that the content of
that the warranty of public reliance does not protect the land and mortgage register is inconsistent with
the acquirer of real estate or perpetual usufruct by the true legal status, or could easily determine this.
way of universal succession. However, the predom- It is accepted that the acquirer need not conduct
a detailed inquiry in order to determine whether the
inant view in the current case law is that sale of an
listed owner of the property acquired it properly, or
enterprise or an organised part of an enterprise con-
whether reprivatisation claims have been asserted to
stitutes the totality of the transactions concerning
the property. An ordinary degree of diligence is suf-
sale of specific elements of the enterprise; therefore
ficient, meaning that the acquirer should review the
there is no universal succession and the warranty of
content of the land and mortgage register and deter-
reliance on the register applies.
mine who is in possession of the property. The war-
The principle of the warranty of public reliance on ranty of reliance on the register is excluded when
the land and mortgage register means that if there is there is a notation in the register concerning a mo-
a discrepancy between the legal status of the real es- tion with respect to the property, a challenge to
tate disclosed in the land and mortgage register and a ruling by a referendary, an appeal or cassation pro-
the actual legal status, the content of the land and ceeding, or a reservation with respect to the legal
mortgage register will decide in favour of a person status reflected in the register.
who acquired ownership or other in rem right to the
There are certain exceptions from the warranty of
property in a transaction with the person disclosed
public reliance on the land and mortgage register. It
in the land and mortgage register as the rightful
does not operate against rights that encumber the
holder. It should be stressed, however, that data
real estate by operation of law without an entry in
concerning the real estate that are included in the
the register, a life estate, servitudes established pur-
first section of the land and mortgage register are of
suant to a decision of a competent public adminis-
an informational nature only (e.g. the area of the
trative authority, servitudes for a necessary access
property) and are not subject to the protection of
road, or servitudes created by crossing a boundary
the warranty of reliance on the register. Thus, while
in erection of a building or other installation.
a third party may have full confidence in the entry
of the right and therefore effectively acquire the Some courts had previously held that the warranty
right from a person entered in the land and mort- of reliance on the register does not operate with re-
gage register, even if the seller is not the true holder spect to acquisition of the right of perpetual usufruct

36
to real estate in the case of defective entry in the land and in favour of the Polish State Forests in the case
and mortgage register of the State Treasury or local of forest land. Similarly, the administrator of a spe-
governmental unit as the owner of the land. Ulti- cial economic zone has a right of pre-emption with
mately, however, the principle of security of legal respect to ownership or perpetual usufruct of real
transactions prevailed, and priority has been given estate located in the zone.
to the warranty of reliance on the register.
Agricultural real estate
A significant restriction that must be considered in
New regulations entered into force on 30 April 2016
an asset deal is the statutory right of pre-emption
significantly limiting trade in agricultural real estate.
with respect to real estate, under which certain pub-
Only agricultural property with an area of up to 0.3
lic entities are provided a right of priority to acquire
hectare may be freely traded, as well as land desig-
real estate. When there is a statutory pre-emption nated for non-agricultural uses in the local zoning
right, it is necessary for the parties first to conclude plan or decisions on construction conditions issued
an agreement promising to sell the property on con- prior to 1 May 2016. In other instances, agricultural
dition that the holder of the pre-emption right does property may be acquired only by farmers operating
not exercise the right. The regulations and case law a family farm (up to 300 hectares). There are only
have not clearly resolved whether the statutory right a few exceptions to this rule, not applicable to busi-
of pre-emption applies to a transaction involving nesses. Where there is no zoning plan in force,
sale of an enterprise or organised part of an enter- a business cannot acquire a plot of agricultural land
prise which includes real estate as an element. There larger than 0.3 hectares, even if it is only a small part
are arguments for the position that the statutory pre- of a larger property that has no connection with ag-
emption right does not apply because the subject of riculture. It is similar with the sale of plots of land:
the pre-emption right and the subject of the trans- if there is no zoning plan, only an individual farmer
action are different: the right of pre-emption con- can be the acquirer of an agricultural plot larger than
cerns the real estate, while the sale agreement con- 0.3 hectare, even if it is part of an industrial or com-
cerns an enterprise of which the real estate is only mercial property.
one element. However, given the established posi- Acquisition of agricultural or forest land in violation
tion of the courts treating sale of an enterprise as the of the right of pre-emption referred to above is sub-
sale of its specific elements and requiring application ject to the sanction of invalidity.
to the sale of an enterprise of statutory restrictions
or exclusions with respect to the permissibility of
Share deals and other forms
transfer of specific elements of the enterprise, for In share deals, and generally in transactions involv-
the sake of safety it is better to reflect the statutory ing merger, division or conversion of companies, ac-
right of pre-emption in deals concerning assets or an quisition of real estate will not be protected by the
enterprise (or organised part of an enterprise). If warranty of public reliance on the land and mortgage
a sale agreement is concluded in avoidance of a stat- register. In a share deal the subject of the transaction
utory right of pre-emption, the sanction is the inva- is the shares in a company, and not the company’s
lidity of the transaction. assets, including real estate. In the case of a merger,
division or conversion of companies, the warranty
Most frequently encountered in practice is a statu-
of reliance does not function because the transac-
tory right of pre-emption on the part of the local
tion involves acquisition of the assets as an entirety
commune in the case of sale of undeveloped land
of rights through universal succession. Thus, in such
previously acquired from the State Treasury or local
transactions due diligence should include an assess-
governmental unit, or in the case of sale of the right
ment of the correctness of the acquisition of real es-
of perpetual usufruct of undeveloped land regard-
tate.
less of the form in which the seller acquired such
right. For example, there is a statutory right of pre- On the other hand, the restrictions arising out of the
emption in favour of the Agricultural Property statutory right of pre-emption will not apply in such
Agency in the case of the sale of agricultural land transactions.

37
But if a company (other than a listed company) is - Approval of an establishment for specific
the owner of agricultural real estate with an area food production
greater than 0.3 hectare, which is not designated for
- Consent to operation of machinery and
non-agricultural use in the local zoning plan or a de-
equipment subject to technical oversight
cision on construction conditions issued before
1 May 2016, then the Agricultural Property Agency  Entries in register of regulated activity:
has a right of pre-emption to the shares, regardless - Entry in the register of healthcare entities
of the subject of the company’s business.
- Entry in the register of telecommunications
Issues of administrative approvals enterprises
For purposes of this chapter, we understand “ad-  Other approvals
ministrative approvals” to mean any and all types of
- Permit to operate in a special economic zone
consents, confirmations, authorisations, entries in
registers, permits, licences or concessions issued by As a rule, administrative approvals are issued in the
public administrative authorities, required for per- form of an administrative decision, i.e. an act ad-
formance of a given type of economic activity or for dressed to a specific entity which is the applicant and
performance of specific actions within economic ac- a party to the administrative proceeding. The deci-
tivity, or to make specific use of certain assets. sion resolves the matter on the merits and rules on
the applicant’s rights and/or obligations.
The variety of administrative approvals required
across specific sectors results from the specific types Administrative decisions are not transferrable unless
of activity and associated risks. It is generally accu- otherwise provided by a specific regulation. This
rate to say that the greater the risk associated with rule is based on the construction under which an ad-
a given activity, the greater the regulation of the ac- ministrative approval is issued to a specific entity
tivity and the intensity of oversight of the activity by which has been checked by the administrative au-
public administrative authorities. thority in subjective and objective terms and given
a positive rating as an entity ensuring proper perfor-
For example, the following administrative approvals
mance of the specific activity or action.
might be involved:
Usually, during realisation of the transaction, there
 Concessions, licences or permits for conducting
is an expectation that the transaction will not in any
specific types of: way affect the uninterrupted operations (produc-
- Concession to conduct business involving tion) of the entities involved in the transaction,
production and trade in explosives, weapons, whether during the transaction or after the closing.
ammunition, and goods and technologies for But because the rights obtained under administra-
military or police purposes tive approvals are held by a strictly defined entity
- Concession to operate air transport and are not subject to automatic transfer, it must be
verified whether and when the future acquirer will
- Permit to operate a public pharmacy
obtain comparable rights in order to make full use
- Licence to provide road transport of the acquired assets.
 Permits to conduct specific activities as part of There is no one single rule concerning transfer and
economic activity: continuing validity of administrative approvals as
a result of transactions.
- Permit for production of strictly controlled
medicinal products To assess the risk connected with administrative ap-
provals, it is necessary in each case to consult the
- Permit for retail sale of specific types of alco-
regulations governing the specific approval, in light
holic beverages at a specific location
of the type of transaction planned. These regulations
 Consent for specific use of assets: specify the situations in which the administrative au-

38
thority must, or has the discretionary right to, with- transfer of assets, an enterprise or an organised part
draw or limit the approval. If the transaction will of an enterprise.
give rise to circumstances which under the regula-
In the case of sale of an enterprise, the enterprise is
tions provide a basis for withdrawal or limitation of
carved out of the assets of the company that is the
the approval, that is an identified risk.
addressee of the approval. If the enterprise includes
Share deals concessions, licences or permits (Civil Code Art.
551), such approvals are subject to general succes-
The least transaction risk associated with adminis-
sion. Thus the acquirer may apply to the administra-
trative approvals will occur in M&A transactions in-
tive authority for issuance of the same concessions,
volving a change in shareholders (share deal).
licences or permits to the acquirer. The concessions,
As a rule, the addressee of an administrative ap- licences or permits issued in this manner will consti-
proval is a legal person, i.e. the company. The ad- tute a continuation of the original approvals, but re-
ministrative approval confirms the company’s right flecting the change in the identity of the holder.
to conduct a specific type of activity or specific ac-
A more difficult situation arises when the function-
tion.
ing of the enterprise requires approvals other than
Thus, most often, a mere change in shareholders, those expressly identified in the Civil Code as con-
without disrupting the integrity of the company that cessions, licences or permits. These could involve
is the addressee of the approval, will not affect in for example a decision by the sanitary inspectorate
any the entitlement awarded to the company. approving an establishment for food production, or
Sometimes, however, depending on the type of ad- a decision of the technical supervision inspectorate
ministrative approval, a share deal can potentially af- permitting operation of specific equipment, market-
ing authorisation for a medicinal product, or entry
fect the continuation of the entitlement. This will
in the register of telecommunications enterprises.
occur in situations where the identity of the share-
These approvals, unlike those listed in Civil Code
holder, its attributes or qualifications, are relevant to
Art. 551, will not be subject to general succession.
retaining the approval.
In that situation, the acquirer of the enterprise will
An example would be a concession for radio or tel- have to apply for issuance of an approval in its own
evision broadcasting, which may be withdrawn if name.
a different person assumes direct or indirect control
over the broadcaster; similarly with respect to a con- Corporate merger, division or conversion
cession for production and trade in explosives, In the case of a conversion of corporate form, the
arms, ammunition, or goods for military or police transfer of administrative approvals will work simi-
uses. When seeking such concessions, a list of share- larly as in asset deals.
holders is submitted along with the other elements
Within general succession, administrative permits,
of the application. After obtaining the concession,
concessions and allowances pass to the acquiring,
the holder is required to notify the authority within
newly formed or converted company under Com-
14 days of a change in the state of facts or law with
mercial Companies Code Art. 494, 531 or 551, re-
respect to the information contained in the applica-
spectively. But the list of approvals subject to suc-
tion for the concession and the documents enclosed
cession is limited to the permits, concessions and
with the application, arising after issuance of the
allowances and there is no basis for freely expanding
concession. If the authority finds that the change in
this list.
ownership on the part of the concession holder will
impact state defence and security or the safety of cit- This means that newly created entities will have to
izens, it may withdraw the concession. expect the need to apply on their own behalf for ap-
provals required for their activity which cannot be
Asset deals
obtained under the rule of general succession.
Risks connected with administrative approvals gen-
erally arise in connection with transactions involving

39
Legal restrictions in the
transaction
Introduction It should be pointed out that the provisions calling
for obtaining the company’s consent to the transfer
In many transactions, it is necessary to obtain vari- of shares (Commercial Companies Code Art. 182
ous types of approvals or permits, the lack of which for a limited-liability company and Art. 337 for reg-
may even affect the validity of the entire transaction. istered shares in a joint-stock company) are op-
These include corporate approvals in the form of tional, and these restrictions will apply only if pro-
resolutions from specific corporate authorities (such vided for in the company charter (the articles of
as the shareholders’ meeting or the supervisory association of a limited-liability company or the stat-
board), consent of third parties (e.g. creditors), and ute of a joint-stock company).
approvals from relevant government authorities
This does not apply to registered shares which are
(e.g. the Minister of the Interior and Administra- tied to repetitive cash benefits (Commercial Compa-
tion). nies Code Art. 356)—in that case the company’s
The most frequently encountered types of approvals consent cannot be excluded.
are discussed below, together with the procedures In particular, these limitations consist in a possible
for obtaining them and the consequences if they are requirement for the shareholder to obtain the com-
not obtained or are not issued properly. pany’s consent to sale of shares, or—as is often en-
countered in practice—consent of the supervisory
Corporate and other internal approvals board or shareholders’ meeting.
In instances provided for in the Commercial Com- If disposal of share rights is conditioned on consent
panies Code, it may be necessary to obtain corporate of the company, then, unless otherwise provided in
consent to dispose of: the charter, the company’s consent to disposal of
 Shares in a company (limited-liability company shares is given in writing by the management board.
or joint-stock company) A share sale agreement concluded without the re-
 Certain assets of a company quired consent is an ineffective (suspended) transac-
tion, with respect to the company and between the
Corporate consent usually means consent to the parties. Such an agreement may become effective
company’s carrying out a specific transaction, as ex- only when the required consent is provided.
pressed by the shareholders, or less often by the
management board. Transfer of assets

Transfer of shares M&A transactions, broadly speaking, may involve

not only shares but also assets (particularly in the
Under the Commercial Companies Code, the arti- form of an enterprise or organised part of an enter-
cles of association or statute of the company may prise, real estate, or individual assets), and thus it is
include restrictions on a shareholder’s freedom to important in every transaction to determine whether
dispose of its shares—specifically, a requirement to there are additional restrictions on disposal of spe-
obtain the company’s consent to the transfer. cific types of assets.
These restrictions may be divided into those of If the requirement to obtain consent for the given
mandatory applicability and those of optional transaction arises directly from the law, carrying out
applicability (that is, restrictions that may be opted the transaction without the consent results in the in-
out of, e.g. in the company charter). validity of the transaction. This applies to transac-
tions where consent is mandatorily required (e.g.
The restrictions of mandatory applicability include:
sale of the enterprise) as well as where the require-
 Sale, tenancy or encumbrance of the enterprise ment may be opted out of in the articles of associa-
or an organised part of the enterprise (Commer- tion or statute (e.g. with respect to sale of real es-
cial Companies Code Art. 228(3) or Art. 393(3), tate).
applicable to limited-liability companies and
However, if the source of the requirement to obtain
joint-stock companies, respectively)
consent to the transaction is only the company char-
 Acquisition by the company from a founder or ter (for example, if the articles of association of
shareholder, or a company or cooperative con- a limited-liability company impose restrictions on
trolled by a founder or shareholder, of any assets incurring obligations above a certain value), an ac-
for a price exceeding one-tenth of the paid-in tion carried out without the required consent is
share capital, within 2 years after the registration valid, but the members of the management board
of the company (Commercial Companies Code may be liable to the company for violation of the
Art. 394 §11—applicable only to joint-stock charter.
companies).
For the sake of legal certainty, if there is a require-
There is a requirement to obtain the consent of the ment to obtain corporate consent, the buyer will
company, but only if the articles of association or typically require that the consent be presented prior
statute does not provide otherwise, in the case of: to the closing. (Corporate consent in this context re-
fers to consent for the company itself to take a spe-
 Acquisition or disposal of real estate, perpetual
cific act as a party to a transaction—a separate con-
usufruct or a share in real estate (Commercial
Companies Code Art. 228(4) for a limited-liabil- cept from the consent of the company, as the
ity company or Art. 393(4) for a joint-stock com- subject of a transaction, to disposal of its own
pany) shares.) However, under the Commercial Compa-
nies Code, as a rule, consent need not be provided
 Acquisition by the company of (i) real estate, (ii) prior to the transaction. Under Art. 17 §2, it should
a share in real estate or (iii) fixed assets at a price be provided no later than 2 months after the com-
exceeding one-fourth of the share capital but no pany carries out the transaction. However, for obvi-
less than PLN 50,000, within 2 years after regis- ous reasons, it should not be expected that the other
tration of the company (Commercial Companies party will enter into the transaction without obtain-
Code Art. 229—applicable only to limited-liabil- ing prior consent, where lack of consent will impact
ity companies)
the validity of the transaction.
 Disposal of a right or incurring an obligation
with a value equal to more than twice the share Notification of concentration to the president
capital (Commercial Companies Code Art. of the Office of Competition and Consumer
230—applicable only to limited-liability compa-
nies).
Protection
The rules for oversight of concentrations in Poland
Legal effects of failure to obtain consent
are set forth in the Competition and Consumer Pro-
Under Commercial Companies Code Art. 17, the le- tection Act of 16 February 2007. The competent au-
gal effects of failure to obtain corporate consent dif- thority under the act is the president of the Office
fer depending on whether the requirement arises of Competition and Consumer Protection
from the code or from the company charter. (UOKiK).

41
When is notification required? Exceptions and exclusions from notifica-
Under the act, a concentration is defined as: tion requirement
An intended concentration involving transfer of
 The acquisition by one or more undertakings, by
control is not subject to notification if the turnover
purchase of shares or other securities, or by any
in Poland of the undertaking (or undertakings) over
other means, of direct or indirect control of one
which control will be taken (i.e. the target) did not
or more other undertakings
exceed the equivalent of EUR 10 million in either of
 Creation by undertakings of a joint undertaking the two financial years preceding the planned trans-
action.
 Merger of two or more undertakings
If the concentration involves acquisition of control
 Acquisition by an undertaking of part of the as- over an undertaking or undertakings belonging to
sets of another undertaking, if the turnover one capital group and simultaneous acquisition of
achieved through the assets acquired in Poland a portion of the property of an undertaking or un-
in any of the two financial years preceding the dertakings belonging to the same capital group, the
notification exceeded the equivalent of EUR 10 concentration will be excluded from the notification
million. requirement if the combined turnover of the under-
An intended concentration is subject to notification taking (or undertakings) over which control is being
of the president of UOKiK if the combined turno- acquired, as well as the turnover generated by the
ver achieved by all of the undertakings participating acquired assets, did not exceed the equivalent of
in the concentration in the financial year preceding EUR 10 million in Poland in either of the two finan-
the notification: cial years preceding the notification.

 Exceeded the equivalent of EUR 1 billion world- The intended concentration is excluded from the
wide, or notification requirement in the case of:
 Intra-group transactions (within the same capital
 Exceeded the equivalent of EUR 50 million in
group)
Poland
The turnover relevant to determination of whether  Temporary acquisition or taking up of shares in
the basic criteria requiring notification have been another undertaking by a financial institution
met includes: with a view to reselling them within one year,
provided it does not exercise the share rights (ex-
 In the case of a merger of two or more undertak- cept concerning the right to dividends or in order
ings or creation of a joint undertaking by existing to prepare for resale of the shares)
undertakings, the turnover of the capital groups
 Temporary acquisition or taking up of shares in
of the undertakings participating in the concen-
another undertaking in order to secure debts
tration
(provided that share rights are not exercised dur-
 In the case of acquisition of control, the turnover ing such time, except for rights enabling sale of
of the capital group of the acquirer (the under- the shares)
taking assuming control) and the turnover of the
 A concentration occurring within a bankruptcy
acquired undertaking and its subsidiaries (exclud-
proceeding (except where the undertaking in-
ing the turnover of the seller’s capital group)
tending to acquire control or acquiring a portion
 In the case of acquisition of a portion of the of the assets) is a competitor or belongs to a cap-
property of an undertaking (asset acquisition), ital group that includes competitors of the enter-
the turnover of the acquirer’s capital group and prise which is being acquired or whose assets are
the turnover generated by the acquired assets. being acquired.

42
Cross-border transactions and notification As part of the proceeding leading up to issuance of
obligation in Poland a decision permitting the concentration, the presi-
dent of UOKiK will examine whether the concen-
Foreign transactions are subject to merger review in
tration will significantly limit competition on the
Poland if they will exert or could exert consequences
market. In cases where it is found that there is a rea-
in Poland. Under the official guidelines issued by
sonable probability of a significant limitation of
UOKiK, a transaction may exert consequences in
Poland if at least one of the participants in the con- market competition if the concentration is carried
centration (or the capital group which it belongs to) out, the president of UOKiK will present reserva-
generates revenue in Poland. tions with respect to the transaction to the under-
taking(s) participating in the concentration. The res-
It should also be added that in the case of interna- ervations must be justified, and the undertaking(s)
tional transactions, particularly those involving or
may respond to the reservations asserted within the
affecting a large number of entities from various
established time. The authority may issue a decision
countries, with significant turnover in EU countries,
prohibiting the concentration only if the concentra-
it may be necessary to notify the European Commis-
tion would significantly limit competition, meaning
sion.
more specifically the creation or strengthening of
Proceeding before the president of UOKiK a dominant position on the market. If the planned
— issuance of consent to the concentration transaction raises serious concerns under competi-
The Competition and Consumer Protection Act tion law, the authority may establish conditions that
provides for a two-stage proceeding in merger must be fulfilled by the parties in order to obtain
control cases. When the concentration is not par- consent to the concentration.
ticularly complicated, does not raise a reasonable Issues related to the interim period
probability of a significant limitation on market
competition and does not require a study of the mar- When the intended concentration requires notifica-
ket, the proceeding should be completed within tion, the transaction is typically divided into two
1 month after filing of the notification with UOKiK stages. The first is the signing, in which the parties
(first stage). But if the concentration is particularly enter into a preliminary or conditional agreement.
complicated or shows a probability of significantly The second stage, the closing, occurs after success-
limiting competition, or if UOKiK finds that it is ful completion of the proceeding before the compe-
necessary to study the market, the president of tition authority.
UOKiK will issue an order extending the proceed-
ing by another 4 months together with a justifica- Regardless of the construction adopted for the
tion (second stage). Such an order is unappealable. transaction, separating it into stages means that
there will be an interim period between the signing,
If the applicant is summoned by UOKiK to cure de-
after the parties have negotiated the terms of the
fects in the notification or supplement the infor-
deal, and the closing, when the target will pass to the
mation (which happens relatively often), the statu-
acquirer. During the interim period, the acquirer for-
tory period for issuance of a decision in the first or
second instance is extended by the time UOKiK mally has no influence over the target (and cannot,
spends waiting for the response to such additional for example, conduct the affairs of the target or oth-
questions. erwise manage it), but on the other hand the acquirer
wants to be sure that when the target is delivered its
The parties to a transaction that is subject to the no-
condition is no worse than it was at the signing.
tification procedure must refrain from carrying out
the transaction until issuance of a decision by the In consequence, in order to secure the interests of
president of UOKiK, or until the deadline for a rul- the acquirer, it is crucial to include appropriate pro-
ing on the matter (i.e. five months plus any extra visions in the transaction documents governing the
time the authority provides for submission of addi- operations of the target during the interim period, in
tional information or documents). compliance with competition regulations.

43
Consent of the Minister of the Interior and  A partnership of such persons without legal per-
sonality, established under foreign law
Administration
 A legal person or commercial company without
Under the Act on Acquisition of Real Estate by For-
legal personality (i.e. partnership) with its regis-
eigners of 24 March 1920, acquisition by a foreigner
tered office in Poland, controlled directly or in-
of real estate or the right of perpetual usufruct of
directly by the persons or companies referred to
land in Poland, or rights to shares in a Polish com-
pany that is the owner or perpetual usufructuary of above.
real estate in Poland, or acquisition of an enterprise Acquisition of shares by a foreigner in violation of
or an organised part of an enterprise including such the act is invalid.
assets, requires a permit.
No obligation to obtain permit
The competent authority for issuance of a permit
under the act is the Minister of the Interior and Ad- The obligation to obtain a permit to acquire real es-
ministration (MSWiA). tate or shares does not apply to foreigners who are
citizens or undertakings from:
Transactions requiring a permit from
MSWiA  Member states of the European Economic Area,
or
A permit from MSWiA is generally required for
a transaction involving:  Switzerland

 Acquisition or taking up of shares by a foreigner unless the real estate is located in a border zone.
in a commercial company with its registered of- The period during which foreigners from these
fice in Poland, or any other transaction involving countries had to obtain consent to acquire agricul-
the shares, when the company is the owner or
tural or forest land expired on 1 May 2016. How-
perpetual usufructuary of real estate in Poland,
ever, in acquiring such real estate, they are now sub-
and:
ject to the general limitations connected with the
- As a result of the transaction the company right of pre-emption introduced from 30 April 2016.
will become a “controlled company” (i.e.
controlled by a foreigner), or Restrictions on transactions in strategic sec-
- The company is a controlled company but tors
the shares will be acquired by a foreigner who
Notification of oversight authority (for stra-
is not already a shareholder of the company;
or tegic company)

 Direct acquisition by a foreigner of real estate or In transactions involving companies operating in

perpetual usufruct of land in Poland: strategic sectors of the economy, it must also be ex-
amined whether the Act on Oversight of Certain In-
- As part of the acquisition of an enterprise or vestments of 24 July 2015 is applicable.
organised part of an enterprise, or
The act requires notification of the oversight au-
- Through universal succession in connection thority (currently the minister responsible for the
with merger or division of commercial com- Treasury, or with respect to energy companies, the
panies Minister of Energy) of an intended transaction
which the authority may object to.
For purposes of the Act on Acquisition of Real Es-
tate by Foreigners, a “foreigner” is defined as: What entities are subject to protection?
The Act on Oversight of Certain Investments intro-
 A natural person without Polish citizenship
duces special restrictions on acquisition of shares or
 A legal person with its registered office outside enterprises belonging to “protected entities.” The
Poland list of these entities is set forth in a regulation of the

44
Council of Ministers. It includes companies operat- enterprise, or before the meeting of shareholders is
ing in key sectors of the economy (e.g. telecommu- held to adopt a resolution on increase of the share
nications, energy, chemicals, and defence) which re- capital or merger of the companies.
quire special protection in light of their significant
The required content of the notice is set forth in the
market share, scale of operations, and fundamental
act. Apart from a description of the transaction sub-
interest to society. ject to notification, detailed information about the
Significantly, a protected entity need not be con- entity filing the notice must be provided, such as:
trolled by the State Treasury, but can be a private
 A description of its economic activity (nature, lo-
company.
cation and history)
Thus if a transaction involves companies operating
 Information about the education held by the per-
in the industries indicated in the act, whether the en-
sons who are members of the management and
tity is protected should be verified at each stage of
supervision authorities (or the applicant himself,
the transaction, as the regulations issued by the gov- if it is an individual)
ernment under this act have generally entered into
force the day after publication in the Journal of  Information about the capital group which the
Laws. applicant belongs to (or if the applicant is not
a commercial company, information about the
When does the oversight authority have to entities entitled to decide on the membership of
be notified of a transaction? its management and supervision authorities, en-
The duty to notify the oversight authority applies to tities entitled to receive distributions from its as-
asset deals and share deals resulting in: sets, and entities entitled to receive its assets in
the event of dissolution or other termination of
 Acquisition or achievement of a major stake, its existence)
meaning acquisition of rights enabling exercise
 A description of its economic and financial con-
of 20%, 25% or 33% of the votes at the meeting
dition
of shareholders, or acquisition of the enterprise
or an organised part of the enterprise of a pro-  A description of the applicant’s intentions with
tected entity, or respect to the protected company, in terms of in-
vestment plans, long-term operating plans, antic-
 Acquisition of control, understood to mean
ipated changes in organisation, in particular any
reaching or exceeding 50% of the votes in the mergers, the financing of its operations, dividend
authority establishing the entity or in its share policy and employment policy.
capital, by acquiring or taking up shares or rights
to shares The oversight authority has 90 days to consider the
notification and issue a decision objecting to the
The act also applies to indirect acquisition (e.g. by transaction. In practice, this period can be pro-
a subsidiary) or secondary acquisition (e.g. as a result longed significantly, as the authority may summon
of division or merger of a protected company or re- the applicant to submit additional information.
demption of its shares).
The authority will issue a decision objecting to the
Proceeding before oversight authority transaction where justified by one of the following
considerations:
The intention of carrying out a transaction resulting
in acquisition or achievement of a major stake or  Ensuring protection of independence and terri-
control of a protected entity must be notified in each torial integrity, human and civil rights and free-
instance to the oversight authority. doms, safety of citizens, or environmental pro-
tection
The notification must generally be submitted before
taking any action resulting in acquisition or achieve-  Preventing actions or social or political phenom-
ment of a major stake or control, that is, before con- ena preventing or hindering performance of
clusion of the agreement on sale of the shares or the NATO obligations
45
 Preventing actions or phenomena that could in- mutual rights and obligations in the event of
terfere with foreign relations a change in the ownership structure of one or both
of them. Most often such clauses include provisions
 Ensuring public order and state security, and under which a change in the ownership structure of
meeting essential needs for protection of human a party requires consent of the other party, or enti-
life and health tles the other party to terminate the contract early.
or if the applicant failed to cure formal defects in the Clauses of this type are routinely included in agree-
notification or failed to submit additional written in- ments with banks and other financial institutions.
formation within the time specified by the authority. Change-of-control clauses often arise out of con-
Actions taken contrary to an objection by the au- nections with larger capital structures (holding com-
thority, or without filing the notification, are invalid. panies, capital groups or the like). Consequently,
membership in such a structure may also be a con-
In addition, failure to file notification is subject to
dition for maintaining or breaking off commercial
a fine of up to PLN 100 million. This fine may be
relations with a given entity. Membership in a group
imposed not only on the entity required to file the
notification, but also on persons carrying out the may give the other party an additional guarantee of
transaction for the entity (management board mem- reliability or solvency. Conversely, acquisition of the
bers, proxies). These individuals may also be sen- other party by a competitor of the other party obvi-
tenced to up to 5 years’ imprisonment. ously might justify a decision to end the cooperation
immediately.
Change-of-control clauses Regulations under Polish law
One of the key issues that require close attention by
Change-of-control clauses are not specifically regu-
the acquirer at the due diligence stage and during ne-
lated under Polish law, but the permissibility of their
gotiation of the transaction documents is the ability
use may be clearly inferred from the principle of
to transfer the target’s contract rights to the ac-
freedom of contract set forth in Civil Code Art.
quirer.
3531.
Commercial contracts (e.g. cooperation agreements,
Because the concept of “change of control” is also
licences for key technology, etc.) and agreements
not defined in Polish law, the wording of the clause
with financial institutions (credit for financing oper-
itself will be of key significance.
ations, leasing agreements and the like) are often el-
ements of the target essential for its continued un- Under Polish law, a change-of-control clause may be
interrupted functioning, and thus the issue of interpreted under Civil Code Art. 353 §2 as an un-
effective assumption of rights under such contracts dertaking by a party to act or refrain from acting, i.e.:
is crucial to the investor.
 To notify the other party before or after the fact
In the case of a transaction involving acquisition of of a change in its ownership structure (involving
shares, the issue of the change in the parties to con- acquisition of control over it by a third party), or
tracts does not arise. Thus contract provisions that obtain prior consent to such a change from the
prohibit assignment of rights under contracts do not other party, or
apply to share deals. Nonetheless, even though the
identity of the parties to the contract does not  Not to make changes involving control over the
change as a result of the transaction, when a capital party without notifying or obtaining the consent
group sells shares in a subsidiary to another group, of the other party.
in practice this results in a change in control of the If the parties did not define the concept of change
target—something which the other party to the con- of control in the agreement, it is necessary to inter-
tract may care about strongly. pret the concept under Civil Code Art. 65 and de-
Thus parties will often include change-of-control termine the meaning the parties would have as-
clauses in contracts, governing issues of the parties’ signed to it. For this purpose, reference may be

46
made to other definitions used in Polish law in rela- third parties, there are several additional issues to be
tion to concepts of control, particularly under cor- considered in the case of transactions involving in-
porate law, competition law and securities law. dividuals.
Content of change-of-control clauses Consent of spouse
In order to avoid ambiguity or the need to interpret It is generally in the interest of the other party to the
a change-of-control clause, it is beneficial for the transaction to obtain consent from the spouse if:
parties to specify by contract what circumstances
 A party to the transaction (either the seller or the
they regard as change of control. In commercial
buyer) is a married individual, and
practice, several types of change-of-control clauses
may be distinguished.  The subject of the transaction (if the individual
The parties may agree that the clause will cover both is the seller) or the funds applied to the purchase
a direct change in control, involving acquisition of price (if the individual is the buyer) are part of
shares in the company that is a party to the contract, the joint marital assets of the party and his or her
and an indirect change, where the ownership of the spouse
parent company changes. Unfortunately, the buyer has a very limited possibil-
A change-of-control reservation may apply to sale ity of determining or verifying on the basis of docu-
of shares to a third party (not previously a share- ments provided by the seller what is the seller’s mar-
holder) and to sale to a current shareholder (e.g. in ital status and whether the given transaction requires
the event of a transaction between shareholders). the consent of the seller’s spouse. Thus it is reason-
able to expect that the seller will provide represen-
Moreover, the clause may contain provisions ex- tations and warranties in the sale agreement with re-
cluding or limiting its use, e.g. providing that sale of spect to the seller’s marital status, and if the seller is
shares to specifically identified entities or within married, also concerning the nature of the marital
a specific period will not be regarded as a change of property regime observed by the couple.
control.
In the case of an asset deal, particularly where the
The parties may also agree that while neither party subject of the transaction is an enterprise or real es-
may transfer its shares without consent of the other tate, under Art. 37 §1 of the Family and Guardian-
party, consent may not be refused without serious ship Code the lack of spousal consent may result in
grounds. the invalidity of all or part of the transaction.
Finally, the essence of the clause is the consequences With respect to a share deal, consent of the spouse
provided for breach of the clause. Most often it is is not a condition for the validity of the transaction,
provided that a change of control in violation of the but it should be pointed out that lack of such con-
clause entitles the other party to terminate the agree- sent may significantly impede or prevent altogether
ment without prior notice or on very short notice, enforcement of claims against the spouse who is
or may, for example, expose the breaching party to a party to the transaction (e.g. for contractual penal-
a contractual penalty. ties in the sale agreement or warranty claims for de-
Given the possible sanctions for violating change- fects). This results from limitations on satisfying
of-control clauses, such as loss of valuable contracts claims out of the joint assets of spouses where one
or acceleration of repayment of credit, it is in the spouse incurs an obligation without the consent of
interest of the acquirer of the shares to perform the other spouse, as specified in Family and Guard-
a due diligence review of commercial agreements to ianship Code Art. 41.
which the target is a party, prior to the transaction. The consent by the spouse generally requires the
same form as that provided for the transaction af-
Other restrictions fected by the consent. In order to avoid doubts as
In addition to the requirements to obtain consent to the authenticity of the consent, however (i.e. to
from the company, administrative authorities or be sure it is given by the right person), it is in the

47
interest of the other party to the transaction for the ferring ownership of the property (e.g. with nota-
consent to be issued in all cases in a form at least as rised signatures in the case of transfer of shares in a
rigorous as a notarised signature. limited-liability company, or in the form of a notarial
deed if the transaction involves real estate).
Under Family and Guardianship Code Art. 38,
a transaction concluded with an individual involving To avoid doubts or potential future disputes con-
assets or rights specified in Art. 37 §1 will be effec- cerning the target and the effectiveness of the acqui-
tive notwithstanding the lack of spousal consent if sition, it is in the interest of the buyer to assure that
the other party acted in good faith (e.g. did not know the consent reflects as fully as possible the terms
and could not have known that the party was mar- agreed between the parties, particularly that the con-
ried). Regulations concerning protection provided sent clearly indicate the buyer and the main terms
to a good-faith purchaser (Civil Code Art. 169 ff.) under which the transaction is to be carried out (par-
will apply as relevant. ticularly the price).
It should also be pointed out that if consent of the Estate and gift tax
seller’s spouse is not obtained, the buyer’s enforce-
ment of claims against the seller (e.g. for contractual In addition to the issue of co-ownership of the prop-
penalties provided for in the sale contract or claims erty, particularly when the seller is an individual and
for warranty for defects in the subject of the trans- the transaction documents are to be made with no-
action) can be rendered difficult or impossible. This tarised signatures or in the form of a notarial deed,
is because of the limitations provided in Art. 41 §2 it is crucial to pay attention to Art. 19(6) of the Es-
of the Family and Guardianship Code on satisfac- tate and Gift Tax Act of 28 July 1983.
tion out of the spouses’ joint marital property of an Under this act, if the subject matter of the act in
obligation incurred by one spouse without the con- which a notary participates involves inter alia dis-
sent of the other spouse. posal of property obtained through inheritance, gift
Consent of co-owner or bequest, the notary may conduct such activity
only after the notary has first been presented with:
When shares or assets are acquired from individuals,
it often happens that there are two or more co-own-  Written consent of the head of the tax office, or
ers authorised to dispose of the property. This is  A certificate issued by the head of the tax office
particularly the case where they inherited the prop- confirming that (i) the acquisition was free of tax,
erty but did not divide the property or eliminate co- (ii) the tax due was paid, or (iii) the tax obligation
ownership. is time-barred
In this situation, Civil Code Art. 199 is relevant. It The foregoing list of consents and formalities re-
provides that disposal of jointly owned property re- quired for the effectiveness of transactions is not in-
quires the consent of all of the co-owners. tended to be exhaustive. In addition to the issues ad-
If all of the co-owners do not appear at the signing dressed above, under the specific conditions of the
of the transaction documents, it is necessary to ob- given transaction it may be necessary to comply with
tain their prior consent to dispose of the joint prop- other requirements under generally applicable law,
erty. Such consent should be given in a form at least as well as contractual or organisational require-
as rigorous as that provided for the agreement trans- ments.

48
Tax aspects of the
transaction
Introduction dicial rulings do not constitute a source of univer-
sally binding law, they nonetheless have an impact
Sources of tax law in Poland on how the law is applied by the tax authorities and
As a member state of the European Union, Poland by taxpayers—particularly in the case of judgments
is required to apply EU law. Some EU regulations and resolutions issued by the Supreme Administra-
are applied in Poland directly while others are imple- tive Court.
mented within the Polish legal system. Given the high degree of complexity of tax regula-
Among the taxes of particular transactional im- tions, the frequent problems in their interpretation
portance, the most far-reaching harmonisation has and application, and the potentially significant risks
occurred with respect to VAT. associated with improper application, the Tax Ordi-
nance in Poland provides for issuance of interpreta-
EU law also has a major impact on income taxes and tions of tax regulations (including tax treaties).
indirect taxes other than VAT, including capital duty
or indirect taxes on raising capital (in Poland, the tax There are two types of tax interpretations: general
on civil-law transactions functions as a form of cap- interpretations, issued by the Minister of Finance,
ital duty). Based on EU directives, tax neutrality has which are generally addressed to the tax authorities
been introduced in Poland, upon fulfilment of cer- and are designed to unify the application of tax reg-
tain conditions, with respect to dividends paid or re- ulations, and individual interpretations, issued upon
ceived, under the Parent-Subsidiary Directive application of the interested parties (tax payers, re-
(90/435/ECC), as well as the possibility of exemp- mitters or collectors as well as entities that may po-
tion from withholding in Poland on interest and roy- tentially be required to pay tax). Individual interpre-
alties paid abroad to certain related entities under the tations are technically issued by the Minister of
Interest and Royalties Directive (2003/49/EC). Finance, but the minister has authorised five direc-
tors of tax chambers to issue them. An exception to
Another result of implementation of EU law in Po- this system is individual interpretations concerning
land is the introduction of solutions that enable tax- local taxes (e.g. real estate tax), which are issued by
neutral treatment of restructuring transactions, such
the local tax authorities. Authorities issuing interpre-
as corporate mergers, divisions and conversions, un-
tations are required to publish them online (with
der the Merger Directive (2009/133/EC) and Coun-
identifying details of the taxpayers redacted).
cil Directive 2008/7/EC of 12 February 2008 con-
cerning indirect taxes on the raising of capital. The procedure for applying for an individual inter-
pretation is fairly cheap and simple, and provides
Tax interpretations in transactions a high degree of security if the party follows the in-
Interpretations issued by the tax authorities as well terpretation. For this reason, tax interpretations
as rulings in tax cases issued by the administrative have become a commonly used tool for managing
courts are of great importance in the process of in- tax risk in Poland. In the case of complex, multifac-
terpreting and applying tax law. While it is true that eted transactions which may also entail major tax ex-
in the Polish legal system tax interpretations and ju- posure, applying for a tax interpretation is often
standard operating procedure for the parties prior to suffer negative consequences because of the amend-
carrying out the transaction. ment.
The process of obtaining a tax interpretation begins Tax avoidance
with drafting the application, in which the applicant
A general anti-avoidance rule was introduced into
describes the planned transaction or event, formu-
the Polish tax system on 15 July 2016. Under Art.
lates its query concerning the tax effects of the trans-
119a of the Tax Ordinance, an action made primar-
action or event, and presents its own position on the
ily with the aim of achieving a tax advantage (that is,
tax effects of the transaction or event. When the in-
an action in which the economic or commercial aims
terpretation is issued, it will state that the applicant’s
are of little importance), inconsistent in the given
position is correct or incorrect, generally with a jus-
circumstances with the subject and aim of a tax reg-
tification. The interpretation may be challenged by ulation, will not achieve the intended tax advantage
the party, first by calling on the authority issuing the if the manner in which the action was taken was “ar-
interpretation to correct the legal errors in the inter- tificial.”
pretation, and then through the administrative
courts. The manner in which an action is taken is regarded
as artificial if it would not have been applied by an
An interpretation should be issued within 3 months entity acting reasonably, guided by lawful aims other
after receipt of the application, but this deadline may than achieving a tax advantage inconsistent with the
be extended when the tax authority requests addi- subject and aim of a tax regulation. In determining
tional information concerning the application. The whether an action was artificial, the particular fac-
application bears a fee of PLN 40 (about EUR 10) tors to consider include the involvement of interme-
for each state of facts or future event. diaries without economic or commercial justifica-
Individual interpretations are binding on the tax au- tion, and an economic or commercial risk
thorities, which means that an entity that follows an outweighing the anticipated non-tax benefits to
interpretation it has received concerning a future a degree that a rationally acting entity would not
event cannot bear negative consequences if the in- have chosen to act in that manner.
terpretation is later found to be incorrect. More spe- In this situation, the tax consequences of the action
cifically, if the interpretation is later held to be incor- are determined on the basis of the state of affairs
rect, the taxpayer is not required to pay tax or that would have existed if the entity had acted rea-
interest. This protection also means that the author- sonably in the situation, guided by lawful aims other
ities are not permitted to commence fiscal penal than achieving a tax advantage inconsistent with the
proceedings, and proceedings that are commenced subject and aim of a tax regulation. But if achieve-
should be dismissed. However, if the interpretation ment of a tax advantage was the only aim of the ac-
concerns events or transactions occurring before is- tion, the tax consequences are determined on the ba-
suance of the individual interpretation (rather than sis of the state of affairs that would exist if the action
a future event), the taxpayer is not released from had not been taken.
paying the tax.
Considering the vagueness of the concepts used in
This protective function of individual tax interpre- the Tax Ordinance, it can be expected that not only
tations is excluded if the decision is issued as a result actions aimed exclusively at tax optimisation will be
of application of the general anti-avoidance rule. questioned, but also actions with a business rationale
This now effectively limits the role of individual in- if their form does not result in maximisation of tax
terpretations in tax planning. It should be stressed burdens. To eliminate this risk, an application can be
that the Minister of Finance is authorised to amend filed with the Minister of Finance for issuance of
a general or individual interpretation that has been a “precautionary opinion.” The application includes
issued if he finds that the interpretation was unlaw- a detailed description of the transaction, an indica-
ful. In such case, however, a taxpayer who followed tion of the entities participating in the transaction,
the interpretation before it was amended will not including the capital or personal ties between them,

50
and an indication of the aims and economic or com- sale price) and the revenue-earning costs, which gen-
mercial justification for the transaction. The appli- erally include the expenditures incurred in acquiring
cation should also contain a description of the tax or taking up the shares, i.e. the purchase price for
consequences, including the tax advantages, that will the shares plus expenditures directly related to the
be achieved as a result of the transaction, along with acquisition, such as notary fees, brokerage fees and
the applicant’s position on the matter. the like.
A precautionary opinion should be issued within There are special rules for calculating revenue-earn-
6 months after receipt of the application (this period ing costs in the case of sale of shares that were taken
may be extended if the Minister of Finance submits up in exchange for an in-kind contribution. In such
additional questions to the applicant concerning the case, the method for recognising revenue-earning
transaction). The cost of issuance of the opinion is costs depends on the subject matter of the in-kind
PLN 20,000 (about EUR 5,000). contribution (i.e. whether it was in the form of an
enterprise or organised part of an enterprise, or in
In cases in which the anti-avoidance rule may be in-
some other form).
voked, the proceeding is conducted by the Minister
of Finance. During the course of the proceeding, the Income from the sale of shares is taxed according to
minister may at his own initiative (before issuance of general rules at the CIT rate of 19%.
a decision) or at the request of the taxpayer (in its
If the seller of the shares does not have Polish tax
appeal from the decision) seek an opinion from the
residency, the income from sale of the shares may
Tax Avoidance Council on the justification for ap-
be taxed in Poland only if the income is deemed to
plying the anti-avoidance rule. Before the council is-
be earned in Poland. Effective from 1 January 2017,
sues an opinion, the taxpayer may submit additional
the CIT Act provides that income from the sale of
documents to the council and presents its position
shares on the Warsaw Stock Exchange is deemed to
in writing. The council is an independent body
be earned in Poland. Income from transfer of title
whose members are appointed by the Minister of Fi-
to shares in a company in which at least 50% of the
nance for a 4-year term.
value of the assets, directly or indirectly, constitutes
The Polish tax authorities may also dispute transac- real estate located in Poland or rights to such real
tions under Art. 199a of the Tax Ordinance if they estate is also deemed to be earned in Poland.
can prove that the given right or legal relationship The rules for taxation of income earned on the sale
from which a party derives tax effects is non-exist- of shares by such persons are then analogous to
ent (that is, did not occur). If the tax authorities have those applicable to persons with Polish tax resi-
doubts with respect to the existence of a legal rela- dency, except as modified by applicable tax treaties.
tionship or right, they should seek a declaratory
judgment to that effect from the common court. Typically the tax treaties to which Poland is a party
provide that income from the sale of shares may be
Share deals taxed only in the country in which the seller has its
residence, registered office or management. An ex-
Corporate income tax effects ception is tax treaties containing a real estate clause,
Under the Corporate Income Tax Act of 15 Febru- permitting Poland to tax the income on the sale of
ary 1992, expenditures on acquisition of shares are shares in companies whose principal assets are made
not deductible as revenue-earning costs at the time up of Polish real estate (for example, the tax treaty
of acquiring or taking up the shares. Such expendi- between Poland and Germany).
tures may be recognised as revenue-earning costs Effect for purposes of indirect taxes (VAT,
only upon sale of the shares. Shares that are held by
transaction tax)
the taxpayer are also not subject to amortisation.
Sale of shares in a limited-liability company or joint-
When a company sells shares it holds, it is required
stock company is generally not subject to VAT.
to pay CIT on the income earned from sale of the
shares, calculated as the difference between the rev- Sale of shares in a Polish limited-liability company
enue obtained from sale of the shares (typically the or joint-stock company is subject to the tax on civil-

51
law transactions at the rate of 1% of the market Sale of a set of assets and liabilities that do not meet
value of the shares. The taxpayer is the acquirer of the conditions for recognition as an enterprise or or-
the shares. However, there is an exemption from ganised part of an enterprise will be treated for tax
transaction tax for sale of shares in a Polish joint- purposes as the sale of specific assets, even if they
stock company: are sold within a single transaction.
 To domestic or foreign investment firms Sale of an enterprise or organised part of an
enterprise
 Via domestic or foreign investment firms
1. Corporate income tax effects for the seller
 In organised trading, or
Income generated as a result of sale of an enterprise
 Outside organised trading, by domestic or for- or organised part of an enterprise is subject to taxa-
eign investment firms, if they acquired the shares tion under general rules at the CIT rate of 19%. The
in organised trading. income is the difference between the revenue from
Asset deals sale of the enterprise or organised part of an enter-
prise and the book value (In the case of fixed assets
Definition of an enterprise and an organised and intangibles, this is the initial basis as reduced by
part of an enterprise amortisation; in the case of other assets, this is most
often the acquisition cost).
Correct classification of the subject of the transac-
tion (i.e. as an enterprise or organised part of an en- The revenue from sale of an enterprise or organised
terprise or as specific assets) is of decisive im- part of an enterprise is generally the sale price, pro-
portance for proper determination of the tax effects vided that it should be determined at market value.
of an asset deal. For this reason it is recommended to obtain an in-
dependent appraisal confirming that the sale is made
The tax regulations do not contain their own defini-
at market value (in case of a potential dispute with
tion of an enterprise, and thus the provisions of the
the tax authorities).
Civil Code are applied in this respect, under which
an enterprise is an organised set of tangible and in- 2. Corporate income tax effects for the buyer
tangible assets intended for conducting business ac-
Acquisition of an enterprise or organised part of an
tivity.
enterprise may generate goodwill, which is the ex-
The concept of an organised part of an enterprise is cess of the purchase price for the enterprise or or-
defined in the tax regulations as an organisationally ganised part of an enterprise over the market value
and financially distinct set of tangible and intangible of its assets. Goodwill is subject to amortisation.
assets within an existing enterprise, including liabili-
If goodwill is generated, the initial tax basis of the
ties, intended for carrying out specific economic
acquired assets making up the enterprise or organ-
purposes, which could also constitute an independ-
ised part of an enterprise is established for purposes
ent enterprise carrying out such purposes.
of amortisation at their market value. Otherwise, the
In practice, determining whether the specific subject initial tax basis will be the purchase price minus the
of the transaction constitutes an enterprise or organ- value of assets included in the enterprise or organ-
ised part of an enterprise may raise numerous ised part of an enterprise that are not subject to
doubts, which are exacerbated by the unclear and amortisation as fixed assets or intangibles.
conflicting interpretations issued by the tax authori-
ties. For this reason, transactions of this type should 3. Indirect taxes (VAT, transaction tax)
be preceded by a detailed legal and tax analysis to Sale of an enterprise or organised part of an enter-
determine whether the assets in question meet the prise is not subject to VAT.
definition of an enterprise or organised part of an
Sale of an enterprise or organised part of an enter-
enterprise, particularly when certain assets (such as
real estate, liabilities, etc.) are being excluded from prise is subject to the tax on civil-law transactions
the transaction. under general rules, i.e. the sale of each asset in-

52
cluded in the enterprise or organised part of an en- basis, the expenditures for acquisition of the assets
terprise is subject to tax (at 1% or 2% of the market may be recognised as deductible revenue-earning
value, depending on the type of asset). The taxpayer costs upon acquisition. It is important to bear in
is the acquirer of the enterprise or organised part of mind that certain assets (such as land) are not sub-
an enterprise. ject to amortisation.
4. Liability of acquirer of enterprise or organ- 3. Liability of the acquirer of assets
ised part of enterprise
Under the Tax Ordinance, only the acquirer of an
The acquirer of an enterprise or organised part of an enterprise or organised part of an enterprise is
enterprise is jointly and severally liable with the seller jointly and severally liable with the seller for the
for the seller’s tax arrears arising through the date of seller’s tax arrears arising through the date of acqui-
acquisition in connection with business operations, sition. This means that the acquirer of assets is not
but the acquirer’s liability is limited to the value of liable for the seller’s tax arrears.
the enterprise or organised part of an enterprise ac-
4. Indirect taxes (VAT, transaction tax)
quired.
The sale of specific assets that constitute goods or
In order to limit or exclude the liability of an ac- services under the VAT Act is subject to VAT at the
quirer of an enterprise or organised part of an enter- basic rate (23% as of 2017), unless a reduced VAT
prise, it is possible to obtain a certificate stating the rate or VAT exemption is available in the specific
amount of the seller’s tax arrears (following the pro- instance (e.g. the exemption for buildings and other
cedure set forth in Tax Ordinance Art. 306g). The structures under certain conditions).
acquirer will then not be liable for tax arrears of the
seller that were not indicated in the certificate. How- In the case of a VAT exemption for specific items
ever, if the sale of the enterprise or organised part of (e.g. real estate), their sale will be subject to the tax
an enterprise occurs more than 30 days after issu- on civil-law transactions at the rate of 2%. Transac-
ance of the certificate, the acquirer may be liable for tion tax is payable by the buyer.
the seller’s tax arrears arising after issuance of the
Merger
certificate.
Legal succession
Sale os assets
The Tax Ordinance provides for universal succes-
1. Corporate income tax effects for the seller
sion, under which a legal person formed through
Income from the sale of assets is subject to taxation a merger of legal persons and/or commercial com-
under general rules at the CIT rate of 19%. The in- panies or partnerships, or a legal person taking over
come is the difference between the revenue from a legal person or commercial company or partner-
sale of the assets and the tax basis in the books (the ship, enters into all of the rights and obligations pro-
initial basis as reduced by amortisation). vided under tax law, including rights and obligations
The revenue from the sale of assets is generally the arising out of decisions issued under tax regulations.
sale price, provided that it should be determined at An exception to the rule of universal succession in
market value. For this reason, in the case of transac- the case of a merger is that the acquirer or newly
tions at a significant value, it is recommended to ob- formed company is not entitled to use the tax losses
tain an independent appraisal confirming the sale generated by the acquired company.
price is at market value (in the event of a potential
Corporate income tax effects
dispute with the tax authorities).
As a rule, a merger of capital companies with their
2. Corporate income tax effects for the buyer
registered office in Poland or elsewhere in the EU
Goodwill cannot be generated in the case of the sale or EEA is tax-neutral for both the acquirer and the
of specific assets. The acquired assets are generally target and for the shareholders of the target or the
subject to amortisation if their initial basis exceeds merging companies (so long as they do not receive
PLN 3,500. In the case of assets with a lower initial additional consideration in cash). Tax neutrality will

53
not be maintained if the merger is not conducted for the tax arrears of the divided legal person, up to the
valid economic reasons, but the main reason or one net value of the assets acquired pursuant to the divi-
of the main reasons for the transaction is tax avoid- sion plan. In addition, in the case of a division by
ance. split-off, such liability is limited to tax arrears arising
through the date of the split-off.
In the case of a merger in which the acquirer or
newly formed company obtains assets whose value An exception to the rule of universal succession in
is higher than the par value of the shares allocated in the case of a division is that the acquirer or newly
exchange to the shareholders of the target, the ex- formed company is not entitled to use the losses
cess in the value of the assets of the target received generated by the divided company.
by the acquirer or newly formed company over the
Corporate income tax effects
par value of the shares allocated to the shareholders
of the target also does not constitute income, unless As a rule, the division of capital companies with
the acquirer holds less than 10% of the share capital their registered office in Poland or elsewhere in the
of the target. EU or EEA is tax-neutral for both the acquirer or
The process of merger does not allow the acquirer newly formed company and for the divided com-
or newly formed company to step up the basis of pany, and for the shareholders of the acquirer or
the acquired assets for tax purposes. In this respect, newly formed company and of the divided company
the rule is that the existing tax basis is carried for- (so long as they do not receive additional considera-
ward, under the principle of continuation. tion in cash), if the assets assumed as a result of the
division (and in the case of a division by split-off,
Indirect taxes (VAT, transaction tax) the assets assumed as a result of the division or the
As a rule, a corporate merger is not subject to VAT, assets remaining in the company) constitute an or-
and is also neutral for purposes of the tax on civil- ganised part of the enterprise. Otherwise, income
law transactions. may arise on the part of the shareholders in the form
of the excess in the value of the shares allocated in
Division the acquirer or newly formed company over the
Legal succession costs of acquiring or taking up the shares in the di-
vided company, but if certain conditions are met this
The Tax Ordinance provides for universal succes- income may be exempt from taxation.
sion in the event of division of a legal person if the
assets assumed as a result of the division (and in the In the case of a division, the acquirer or newly
case of a division by split-off, also the assets of the formed company may obtain assets whose value is
divided legal person) constitute an organised part of higher than the par value of the shares allocated in
the enterprise. In such case, effective on the division exchange to shareholders of the divided company.
date the acquirers or the legal persons formed as Such excess in the value of the assets of the divided
a result of the division enter into all of the rights and company received by the acquirer or newly formed
obligations provided under tax law of the divided le- company over the par value of the shares allocated
gal person connected with the assets allocated to to the shareholders of the divided company does not
them in the division plan, including rights and obli- constitute income (except for a situation where the
gations arising out of decisions issued under tax reg- acquirer holds less than 10% of the share capital of
ulations. the divided company), unless the division is not con-
ducted for economically justifiable reasons.
If the assets acquired as a result of the division (or
in the case of a division by split-off, also the assets The process of division does not allow the acquirer
of the divided legal person) do not constitute an or- or newly formed company to step up the basis of
ganised part of the enterprise, the acquirers or the the acquired assets for tax purposes. In this respect,
legal persons formed as a result of the division are the rule is that the existing tax basis is carried for-
jointly and severally liable with all of their assets for ward, under the principle of continuation.

54
Indirect taxes (VAT, transaction tax) Corporate income tax effects
As a rule, the division of a capital company is not As a rule, conversion from one form of capital com-
subject to VAT, and is also neutral from the point pany into another form of capital company is neutral
of view of the tax on civil-law transactions. from the CIT point of view. The converted com-
pany settles CIT under the principle of continuation.
Exchange of shares
Indirect taxes (VAT, transaction tax)
Definition of exchange of shares
Conversion of a capital company is neutral from the
An exchange of shares is a transaction in which point of view of VAT and the tax on civil-law trans-
a company acquires shares of another company actions.
from a shareholder of the other company in ex-
change for the company’s own shares, resulting in State aid issues
obtaining an absolute majority of the voting rights Under Art. 107(1) of the Treaty on the Functioning
of the other company, or increasing the number of of the European Union, any aid granted by a mem-
shares in the company if prior to the transaction it ber state or through state resources in any form
already held an absolute majority of the voting rights whatsoever which distorts or threatens to distort
in the other company. Cash consideration, if any, competition by favouring certain undertakings or
may not exceed 10% of the par value of the com- the production of certain goods is incompatible with
pany’s own shares, or if the shares have no par value, the internal market.
the market value of the shares.
As a rule, state aid must be presented to the Euro-
Corporate income tax consequences pean Commission for approval, unless it falls within
As a rule, the transaction is neutral from the per- the range of de minimis aid or the derogation set forth
spective of income tax if (i) the transaction is con- in the Commission’s Block Exemption Regulation.
ducted for valid economic reasons and (ii) the enti- When state aid is granted unlawfully, negatively im-
ties taking part in the transaction are subject to pacting the internal market, the member state is
taxation on all of their income, wherever earned, in obliged to recover the aid from the beneficiary.
a member state of the European Union or the Eu- According to case law from the Court of Justice of
ropean Economic Area. the European Union, only state aid approved by the
Indirect taxes (VAT, transaction tax) Commission creates a justified expectation on the
part of beneficiaries, and a reasonable undertaking
An exchange of shares is not subject to VAT or the should examine whether aid was granted to it law-
tax on civil transactions. fully.
Conversion An undertaking that has received state aid is required
to use it in compliance with the rules set forth in
Legal succession
national law, EU law and the funding agreements
The Tax Ordinance provides for universal succes- with the institutions providing the aid. Violation of
sion, under which a converted company enters into these conditions for use of state aid may result in an
all the rights and obligations of the entity in its pre- obligation to refund the aid.
vious legal form provided under tax law, including
Because state aid may be subject to recovery, to-
rights and obligations arising out of decisions issued
gether with interest, in M&A transactions it is nec-
under tax regulations.
essary in each case to examine the existence of state
Conversion from one form of capital company into aid on the part of the undertakings involved in the
another form of capital company does not result in transaction and the effect that the transaction may
loss of the right to use losses generated by the con- have on the conditions for use of any state aid re-
verted company. ceived by the parties.

55
Preliminary examination the project financed with public funds, resulting
from the transaction.
The examination of the existence of state aid and the
related risk most often boils down to an analysis of Funding agreements in projects financed
the conditions set forth in funding agreements. But out of European funds
it should be borne in mind that state aid can also
In connection with Poland’s absorption of EU
occur in connection with relief or reductions in pub-
funds pursuant to the EU’s cohesion policy, national
lic charges (e.g. state aid for restructuring).
and regional operational programmes provide fund-
State aid may also result from regulations condition- ing for businesses carrying out projects consistent
ing advantages on the location of the undertaking with the goals of these programmes.
(e.g. in special economic zones, or prohibiting relo-
The expenditure of EU funds should ensure lasting
cation), the size of the undertaking (e.g. SMEs), the
improvements in the economies of the member
business profile (e.g. services performed in the gen-
states. For this reason, funding agreement in pro-
eral economic interest) or for example on establish-
jects financed out of EU funds impose obligations
ing and maintaining certain corporate governance
connected with the project durability period, contin-
rules (e.g. fruit and vegetable producer organisa-
uing for several years after completion of the pro-
tions).
ject.
An undertaking may also be the beneficiary of im-
The definition of project durability is set forth in
permissible state aid. Then there is a high risk that
Council Regulation 1083/2006 (EC) for projects
an obligation to refund the state aid could be passed
carried out under the 2007–2013 financial perspec-
on to the legal successors (in share deals) or the ac-
tive and Regulation 1303/2013 (EU) for projects in
quirers of the assets (in asset deals).
the 2014–2020 financial perspective.
Funding agreement First and foremost, it must be borne in mind that
The examination of the conditions for award of cessation of productive activity or a change in the
state aid most often involves an analysis of the fund- ownership of an element of infrastructure (whether
ing agreement between the institution providing the in a share deal or an asset deal) may constitute an
funding and the beneficiary. The application for infringement of project durability, requiring repay-
funding is also subject to analysis. ment of the funding.
Such agreements provide for rules and conditions In the case of entities that have obtained financing
and aims related to realisation of the project in ques- out of EU funds, in the case of either a share deal or
tion, defining the rights and obligations of the par- an asset deal, during the project durability period
ties and the rules for cooperation between the ben- particular care is required to maintain the character,
eficiary and the funding institution. purposes and conditions of the project and to en-
sure that the shares or assets are sold at market
Analysis of funding agreements requires particular
prices.
attention to the risks for the parties to the transac-
tion. As a rule, frank cooperation with the institution These requirements impose special obligations to
providing the funding can help avoid consequences reach the appropriate understanding with the insti-
connected with withdrawal of the funding in whole tutions providing the state aid and to make a detailed
or part or termination of the funding agreement for and transparent valuation of the subject of the trans-
breach of obligations connected with realisation of action.

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M&A Practice
For over 20 years we have been advising on a regulated industry, we reflect the specifics of
transactions of international scope and local the industry and its regulations in the transaction.
projects in various sectors of the economy. Our goal is to minimise the time and expense
Alongside dispute resolution, transactional ad- necessary to close the transaction.
vice is a core practice of the law firm, represent-
We advise at all stages of transactions. We pre-
ing a significant proportion of the matters we
pare full due diligence reports. We draw up
handle.
framework agreements governing the structure
We act for all parties of transactions: sellers, buy- and specific stages of the transaction, letters of
ers, and other stakeholders, as well as financial intent, heads of agreement, confidentiality
institutions and the management board of target agreements, preliminary agreements, contrac-
companies. We are thoroughly familiar with the tual undertakings and dispositive agreements,
Polish and CEE markets, where we assist foreign involving shares, enterprises, organised parts of
investors in establishing a presence. We also as- enterprises, and specific assets. We assist in the
sist Polish investors abroad. Thanks to our many changes necessary to spin off companies and for
years of experience cooperating with the top for- the company or enterprise to pass from the con-
eign law firms in M&A, we provide support for trol of one capital group to another, including
cross-border transactions in Poland and across transfer of rights and obligations under existing
Europe. contracts. After closing, we advise on matters re-
lated to performance of the obligations under
We help structure transactions and formulate the
the transaction documents as well as public-law
documentation to properly secure the interests of
obligations connected with the transaction.
our clients and limit the risk of disputes arising
between the parties. If the company operates in

Contact:

Izabela Zielińska-Barłożek, [email protected]

Krzysztof Libiszewski, [email protected]
Anna Dąbrowska, [email protected]
Tel.: +48 22 437 82 00, 22 537 82 00

57
Wardyński & Partners
Wardyński & Partners was established in 1988. public procurement & PPP, real estate & con-
Drawing from the finest traditions of the legal struction, reprivatisation, restructuring, retail &
profession in Poland, we focus on our clients’ distribution, sports law, state aid, tax, and
business needs, helping them find effective and transport.
practical solutions to their most difficult legal
We share our knowledge and experience
problems.
through our web portal for legal professionals
The firm is particularly noted among clients and and businesspeople (www.inprinciple.pl), the
competitors for its services in dispute resolution, firm Yearbook, and the “Law and Practice” pub-
M&A, intellectual property, real estate and repri- lication series.
vatisation (title restitution).
We are also the publishers of the first Polish-lan-
The firm now has over 100 lawyers, providing guage legal app for mobile devices
legal services in Polish, English, French, Ger- (Wardyński+), available as a free download at
man, Spanish, Russian, Czech and Korean. We the App Store and Google Play.
have offices in Warsaw, Kraków, Poznań and
Wrocław.

We advise clients in the following areas of prac-

tice: agridesk, aviation law, banking & finance,
bankruptcy, business crime, B2B contracts, cap-
ital markets, competition law, compliance, cor- www.wardynski.com.pl
porate law, difficult receivables recovery, dispute
www.inprinciple.pl
resolution & arbitration, employment law, energy
law, environmental law, EU law, financial institu-
tions, healthcare, infrastructure, insurance, intel- Wardyński+
lectual property, life science, M&A, new technol-
ogies, outsourcing, payment services, personal
data protection, private client, private equity,

58
Wardyński & Partners
Al. Ujazdowskie 10
00-478 Warsaw

Tel.: +48 22 437 82 00, +48 22 537 82 00

Fax: +48 22 437 82 01, +48 22 537 82 01
E-mail: [email protected]

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