Major cross-border conversion and reorganisation changes to the Companies & Partnerships Code

15 December 2023 | Knowledge, News, The Right Focus

On 15 September this year, an amendment to the Commercial Companies Code came into force, which is intended to make it easier for Polish businesses to operate in the single European market. We have already discussed the general direction of the changes, but it is worth taking a closer look at the final form of the regulations now in force.

Mandatory changes to national legislation in connection with the transposition of EU law, but not only…

In addition to the need to transpose EU legislation into the Polish legal system, the amendment of national legislation was also dictated by Poland’s obligation to comply with a specific ruling of the Court of Justice of the European Union.

In case C-106/16 Polbud-Wykonawstwo, the Court ruled that the scope of the principle of freedom of establishment enshrined in Article 49 of the Treaty on the Functioning of the European Union includes the obligation to guarantee entrepreneurs operating as companies/partnerships the possibility of transferring their seat from one Member State to another, without having to go through liquidation proceedings.

In addition to the implementation of EU regulations on cross-border divisions and conversions, significant changes have been made to national legislation, with the aim of simplifying a number of mechanisms, whilst increasing the protection of entities undergoing conversion or reorganisation and enhancing their competitiveness in the European market.

Scope of the amendment:

  • Enabling limited joint-stock partnerships to divide and enhancing their ability to merge

The amendment introduces solutions to enable or enhance the ability of limited joint-stock partnerships to participate in reorganisation processes.

The new regulations have extended the ability of limited joint-stock partnerships to merge. As a result, under the current regulations, limited joint-stock partnerships are the only type of partnership that can have the status of an acquiring or newly formed entity.

On the other hand, with regard to divisions, the lawmakers have extended the list of companies/partnerships that can have the status of a divided entity, which previously could only be granted to companies, but now also applies to limited joint-stock partnerships.

  • Cross-border divisions and conversions of companies and limited joint-stock partnerships

Another revolution introduced by the amendment to the Companies & Partnerships Code is the possibility of cross-border divisions of companies and limited joint-stock partnerships. The added provisions relate to the direct application of the general provisions on divisions.

The lawmakers have introduced cross-border conversions, allowing both companies and limited joint-stock partnerships to convert into one of the legal forms existing in the legal systems of other EU Member States or state parties to the EEA Agreement (provided, however, that their seat, central administration or principal establishment is located in the EU or in a state party to the EEA Agreement).  The permitted legal forms of entities for converted companies/partnerships are listed in Annex II to Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017. Moreover, in practice, the transfer of the seat from the Member State where the business was originally conducted to another Member State does not require the entity to be liquidated in the former Member State.

  • New possibilities for simplified mergers

Another important change is the introduction of a new, simplified form of merger procedure in legal transactions, i.e. without the obligation to carry out a procedure to increase the share capital and issue new shares. Such a procedure may be carried out if one of the following two conditions is met, i.e.:

  • One member holds, directly or indirectly, all shares in merging entities, or
  • The members of merging entities hold shares in the same proportion in all merging entities
  • Spin-off – a new form of division in Polish corporate law

The list of division procedures has also been updated to include a new type of division, i.e. a spin-off, previously unknown in Polish law, which involves the partial transfer of the assets of a divided entity to an existing or newly established entity, with the shares in the acquiring or newly established entity being held by the divided entity and not by its members. Importantly, the new type of division will apply to both domestic and cross-border transactions.

Preliminary assessment of the amendment

Despite the short duration of the amendments, it is impossible not to agree that the regulations in question will increase the attractiveness of the domestic market for foreign entrepreneurs operating in the single European market. And this could lead to the desired increase in foreign investment in Poland. However, it remains to be seen what the final impact of the changes will be.

Any questions? Contact us:

Patrycja Wakuluk

Kamil Szczygieł

 

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