Prawo Korporacyjne Eng

Amendment to the Companies & Partnerships Code extending the principle of freedom of establishment in the EU

On 4 May, the long-awaited draft amendment to the Companies & Partnerships Code, which we wrote about last August, was presented to the Sejm. Below are some of the changes that will come into force on 1 August 2023.

Implementation of EU legislation

The bill, which enables the implementation of cross-border and domestic reorganisations, is an implementation of EU legislation, i.e.:

  • Directive (EU) 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;
  • Directive 2019/1151 of the European Parliament and of the Council of 20 June 2019 amending Directive (EU) 2017/1132 as regards the use of digital tools and processes in company law (OJ EU L 186/60, 11.07.2019).

These documents are intended to extend the principle of freedom of establishment in the EU internal market.

Limited joint-stock partnership – another entity involved in reorganisation

According to the amendment, limited joint-stock partnerships will be able to participate in:

  • mergers (either as an acquiring or new entity)
  • divisions (as an entity being divided).

The above changes will apply to both domestic and cross-border operations.

Under the existing provisions of the Companies & Partnerships Code, partnerships, including limited liability partnerships, cannot participate in mergers and divisions as an acquiring or new entity.

The extension of the above list is therefore a significant change.

Division by separation

The current provisions do not govern cross-border divisions.

The amendment introduces a new type of division, i.e. a division by separation, which will apply to both domestic and cross-border reorganisations.

A division by separation is intended to involve a partial transfer of the assets of an entity being divided to an existing or new entity (or entities) in exchange for the shares of the acquiring or new entity (or entities) taken up by the entity being divided.

To date, a partial division by separation has been possible, consisting in a partial transfer of the assets of the entity being divided to an existing or new entity in exchange for shares taken up by the members of the entity being divided – and not by the entity being divided itself, as proposed in the draft amendment.

To distinguish the new form of division from the existing one, it is important to note that a division by separation does not give the members of an entity being divided any rights attached to the shares of an acquiring entity. It is the entity being divided that becomes the owner of the new shares in the increased share capital of the acquiring entity in exchange for the transfer of assets.

According to the amendment, a spin-off or separation of a new entity takes place on the date of its registration. In the case of a partial transfer of the assets of the entity being divided to an existing entity, the separation or spin-off takes place on the date of registration of an increase in the share capital of an acquiring entity or the issue of new no-par value shares by the acquiring entity (spin-off or separation date).

Cross-border conversion

The amendment introduces the possibility for Polish companies and limited joint-stock partnerships to convert into another legal form of an entity from another EEA state, with the converting entity retaining its legal personality.

This will eliminate a number of formalities associated with the need (as at present) to set up a new entity abroad and, for example, to transfer an undertaking to that new entity, or to carry out a cross-border merger and consequently liquidate the converting entity.

New type of merger

The amendment also introduces a new type of merger, the so-called simplified procedure, which does not require an increase in share capital, the issue of new shares and the payment of related costs, provided that one of the following conditions is met:

  • a member holds, directly or indirectly, all the shares in an acquiring entity and in one or more entities being acquired, or
  • the proportion of the share capital of the merging entities held by the members is maintained.

According to the explanatory memorandum to the draft amendment, there will be no obligation to issue shares in such cases, as the shareholding relationships will not change.

The new type of merger will apply to both domestic and cross-border mergers.

Safeguards for minority members, employees and creditors

The amendment introduces safeguards for persons such as minority members, employees and creditors in all cross-border operations.

Such persons will be able to comment on the plan of a particular cross-border operation at least five business days before the date of the general meeting at which the reorganisation is to be resolved.

With regard to the protection of minority members, the amendment introduces, inter alia:

  • the right to withdraw from an entity and receive consideration for the shares equal to their value as determined by an independent expert; and
  • the possibility for members to challenge such consideration.

With regard to creditors, the amendment introduces the right to request security for their claims that have not fallen due at the time of the disclosure or making available of a cross-border merger plan if they demonstrate, within one month of the disclosure or making available of the plan, that their satisfaction is at risk as a result of the merger.

The amendment also introduces the possibility for creditors to pursue their claims before the court having jurisdiction over the registered office of a converting company within 2 years from the conversion date.

With regard to employees, the amendment introduces the possibility of requiring management boards to draw up a report explaining the legal basis and justifying the economic aspects of a particular cross-border operation, and of ensuring that employees can comment on the report.

Amendments concerning the cross-border division and conversion plan

The section on a cross-border division and conversion of companies and limited joint-stock partnerships provides for a requirement to indicate the proposed timetable for the cross-border division or conversion.

According to the lawmakers, this is intended to ensure transparent reorganisation procedures for the creditors, minority members, employees and potential investors of the entities involved in such operations.

Summary

The changes discussed are not exhaustive, but are just some of the key changes introduced by the amendment to the Companies and Partnerships Code that we believe should be outlined.

We look forward to the next stages of the legislative process.

Link to the bill.

Any questions? Contact the author directly:

Patrycja Wakuluk

 


Contact us:

Rafał Rapala

Rafał Rapala

Attorney at Law, Partner, Head of Corporate Practice, Shareholders Conflicts

+48 608 444 650

r.rapala@kochanski.pl