We have already written about the law commonly referred to as ‘Warzywniak’ and discussed in detail some of its most interesting solutions. However, due to dynamic developments, we have not touched on the regulations already in force, which seem to be having a negative impact on the functioning of alternative investment companies. Let us therefore examine how AICs are operating under the new law.
What are alternative investment companies
Alternative investment companies (AICs) are entities that carry on business in the form of:
- A partnership (i.e. a limited partnership or a partnership limited by shares where the sole general partner is a capital company, including a European company); or
- A capital company (i.e. a limited liability company, a joint stock company, including a European company)
The essence of an AIC is to raise funds from at least several investors who recognise that they will get a better return on their investment than they would on their own. The AIC charges the investors a fee for managing the funds they have entrusted and, if it makes a profit, a commission (carried interest). From a legal point of view, AICs are still professional investment funds, but with slightly less stringent obligations under law, which allows for more flexibility in the conduct of investment business in this form.
Warzywniak – the unfortunate consequences of the amendment for alternative investment companies
With the adoption of the Warzywniak act, the lawmakers introduced both minor and significant changes to the regulations governing investment funds and the management of alternative investment funds, which had unfortunate consequences for the operation of AICs, the Polish capital market and the very institutions that create this market.
At the same time, it is worth recalling that investor confidence in the domestic capital market was already damaged before these changes were adopted, and the new regulations have not improved the situation at all.
Warzywniak – key changes to the operation of AICs
The most significant change is the amended Article 70k of the Act, which defines the minimum contribution of a professional client to an alternative investment company. From 29 September this year, this amount should be at least the equivalent of EUR 60,000, calculated on the basis of the average euro exchange rate announced by the National Bank of Poland on the date of the contribution to the company.
The problem is that the legislator has created a situation where the rules governing AICs conflict with the Rules of the Stock Exchange (i.e. of the main market of the Warsaw Stock Exchange) and the Rules of the Alternative Trading System (i.e. the NewConnect market), which require that there be no trading restrictions on a company’s shares in order for them to be listed. With nine AICs registered on the two trading floors, the WSE had to carry out a detailed analysis of the new rules and take appropriate action in accordance with generally applicable law.
The problem with AICs and the Stock Exchange’s reaction
Immediately prior to the entry into force of the amendments to the Investment Funds Act, the WSE had to intervene and consider three solutions:
- Suspend trading in AIC shares until the current rules in this respect are ‘re-liberalised’
- Fully exclude AIC shares from both the WSE Main Market and NewConnect
- Continue to process transactions that may be invalidated by common court judgments under the current provisions of the Investment Funds Act
Ultimately, the WSE Management Board opted for the first of these options, acting contrary to the adopted rules.
Reaction from JR Holding AIC S.A.
It did not take long for those affected by the unfavourable amendments to the Investment Funds Act to react. The very next day, JR Holding AIC S.A. published an announcement that January Ciszewski, the company’s main shareholder and President of the Management Board, had taken steps to restore the possibility of further trading in the company’s shares on NewConnect. Details were not released until two weeks later.
JRH’s idea for resuming trading in its shares on NewConnect
January Ciszewski contributed the 23,450,000 JRH shares he holds to Onvestor AIC (of which he is the sole shareholder) as a contribution in kind to cover the newly issued shares in Onvestor’s share capital.
As a result of this transaction, Onvestor holds more than 53% of JRH’s share capital and voting rights at JRH’s general meeting and, consequently, Article 70k(3) to (6) of the Act (i.e. the provisions introducing restrictions on stock exchange trading that are problematic for AIC, as added by the amendment) will not apply to it.
As a result of meeting the statutory requirements, on 21 November 2023 JHR and the WSE entered into a bilateral agreement to restore trading of JHR shares on NewConnect as of 6 December 2023. It is therefore highly likely that other AICs will have entered into similar agreements by the time legislative changes favourable to the operation of AICs are enacted.
Legislative stalemate on AICs
Due to the end of the ninth term of the Sejm and Senate and the principle of the discontinuation of parliamentary work, the legislature has not had sufficient time to adopt the changes in law necessary for the correct functioning of AICs. The issue of correcting the above-mentioned regulations will be dealt with by the Parliament of the current term.
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