New rules in Polish law concerning cross-border conversions of companies

Draft amendments to the Polish Commercial Companies Code

In August 2022 the Polish Ministry of Justice has proposed an amendment to the Polish Commercial Companies Code (hereunder referred to as CCC). The main aim of the project was to implement to the Polish law the European Directives, i.e.:

  • Directive 2019/2121 of the European Parliament and of the Council of 27 November 2019 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions, and
  • Directive 2019/1151 of the European Parliament and of the Council of 20 June 2019 amending Directive 2017/1132 as regards the use of digital tools and processes in company law.

The Act also aims to implement the judgment of the Court of Justice of the European Union in Case C-106/16 Polbud Wykonawstwo, according to which the transfer of the registered office of a capital company from one country to another cannot be made conditional on the company conducting winding-up proceedings.

The main objectives of the amendment include facilitating the activities of companies established in accordance with the legal order of the EU Member States and the EEA in the EU internal market and facilitating cross-border conversions, mergers and divisions, while ensuring the protection of the interests of creditors, minority shareholders and employees of the company that could be affected as a result of the above cross-border operations.

The above-mentioned facilitations for companies can be mainly found in the newly added paragraph 61 to Article 516 of the CCC, which states:

“To mergers by acquisition by a company in which one shareholder holds directly or indirectly all shares in the acquiring company and in the company or companies being acquired without the allocation of shares in the acquiring company, the provisions of Article 494 § 4, Article 499 § 1 points 2 to 4, Article 502, Article 503 do not apply.”

This provision provides many simplifications, for example no need to include in the plan of the merger the ratio of the exchange of shares in the company being acquired into shares in the acquiring company [art. 499 § 1 point 2 CCC] or the rules of the allocation of shares in the acquiring company or in a newly established company [art. 499 § 1 point 3 CCC]; as well as no need to carry out an expert examination of the merger plan [art 502 CCC].

In addition, the Polish Ministry of Justice has decided on a solution introducing the obligation to submit the required documents at least five weeks before the date of the shareholders’ meeting or the general meeting of the company at which a resolution on a given cross-border operation is to be adopted.

The amendment also regulates changes in the use of digital tools and processes in company law provided for by EU law. The proposed amendments provide for a broader regulation of the exchange of information between registers through the system of interconnection of registers in the field of information on disqualifications from holding managerial functions. Thanks to this system, there will be made available free of charge information and documents concerning a given cross-border operations. The provision of the said information and documents may be of particular importance to members, creditors, employees’ representatives or, in the absence of such representatives, employees, that is to say, entities whose interests may be affected by the cross-border operation in question.

The draft, just like the EU directives, focuses on regulations ensuring the control of cross-border reorganizations carried out and the protection of the interests of entities affiliated with the company.

The proposed rules introduce provisions concerning the certificates of legality of the cross-border operation. According to art. 55015 § 1 of the CCC:

“The Management Board of the company submits an application to the registry court for the issuance of certificates of compliance with Polish law of the cross-border conversion in the scope of the procedure subject to that law together with an application to the competent tax authority for issuing an opinion in accordance with the provisions of the Tax Ordinance. The registry court immediately sends the application to the competent tax authority”.

The regulations mentioned above ensure full control of the legality of a given cross-border operation and ensure that it is not carried out with the intention of committing abuse or fraud.

The amendment also provides for defence mechanisms for entities in relation to which there is a threat of violation of their interests. One of them is, for example, the right to comment on the draft terms of conversion, division or cross-border merger.

Regulations aimed at ensuring the protection of shareholders include the obligation for the management board of the company to draw up a report explaining the legal basis and economic justification of the cross-border operation [art. 516 5 § 1 – 5 of the CCC]. Furthermore, shareholders who vote against a resolution on the implementation of a specific cross-border operation have the right to repurchase their shares. In addition, a shareholder who requests repurchase and does not agree to the repurchase price will be able to bring an action for additional monetary remuneration.

The newly added art. 5507 regulates the protection of company workers. It states that: “ The Board of Directors of the divided company prepares a report for the shareholders and employees explaining the legal basis and justifying economic aspects of the cross-border division, including the explanatory effects of the division on employees and for the future operations of the company.”

The report to the extent intended for employees shall specify in particular:

  1. the effects of the cross-border division on employment relationships, as well as measures to protect these relations, if required;
  2. significant changes in the applicable terms and conditions of employment and in relation to the place of business of the company;
  3. to what extent the elements listed in points 1 and 2 relate to subsidiaries.” [art 5507 §5 of the CCC].

Regulating the rules for cross-border transformations may, on the one hand, improve the competitiveness of Polish companies on the EU market, and on the other hand – positively affect the assessment of the attractiveness of the Polish market by foreign entities and provide an incentive to conduct their activities on the territory of Poland. In addition, the harmonization of legal regulations for cross-border operations in EU countries will certainly contribute to greater legal certainty and transparency in the EU, as well as facilitate the functioning of companies in the internal market.

KIELTYKA GLADKOWSKI advises and provides legal guidance to Clients at all stages of cross border conversions, to secure interests of the Clients, particularly in respect of entities with international shareholding structure.