Another amendment to the Code of Commercial Companies

On the website of the Government Legislation Center on October 18, 2022, another version of the draft act amending the Act - Code of Commercial Companies and certain other acts (hereinafter: "Draft", "Amendment") was published. As an introduction, it should be noted that the Amendment focuses primarily on the processes of mergers, transformations and divisions of companies and is the next stage of the implementation of the so-called company law package, which includes 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 (OJ L 321 of 12.12.2019) (hereinafter: "Directive 2019/2121").

Changes in cross-border processes

Among the changes, the Amendment includes introducing regulations into the Polish legal system that will enable companies to participate in two new cross-border processes: a cross-border division and a cross-border transformation (under the current regulations, only a cross-border merger is possible). The planned changes will significantly facilitate the expansion of companies outside the domestic market.

The Draft provides that a cross-border division may be carried out by transferring the assets of the divided company to the newly formed company or companies (proposed Art. 550⁵ of the Code of Commercial Companies). The cross-border division will require obtaining a certificate of compliance of the cross-border division with national law, what is important here is that until the date of receipt of such a certificate, the cross-border division will be subject to the law of the country of the company being divided, and after that date it will be subject to the law of the country of its registered office for each of the newly formed companies. Directive 2019/2121 imposed the obligation to implement this type of procedure on all members of the European Union. According to the Amendment, a new type of connection will also be introduced - connection by separation, which will be discussed below.

The proposed changes also provide for the possibility of transforming a capital company and a limited joint-stock partnership into a foreign company listed in Annex II to Directive (EU) 2017/1132 of the European Parliament and of the Council of June 14, 2017, subject to the law of an EU Member State or a state party of the EEA Agreement and having its registered office, central administration or main establishment in the EU or a country party to the EEA Agreement, with the simultaneous transfer of at least the registered office to that country. It is worth highlighting that according to the proposed changes, the cross-border transformation will not require liquidation proceedings.

Reorganizations of companies

The Draft provides that the provisions of the Code of Commercial Companies will also introduce other changes regarding the reorganization of companies, including, above all, two new reorganization processes, i.e. simplified mergers of companies and a new type of division of companies - division by spin-off.

As noted above, it is planned to introduce a new type of merger of simplified companies into national regulations. Directive 2019/2121 obliges Member States to introduce a new type of cross-border merger (the new type of company merger will also apply to domestic processes), whereby one or more companies transfer all their assets and liabilities upon dissolution without going into liquidation to another existing company - the acquiring company - without the need to issue new shares or establish new shares by the acquiring company, provided that:

• one person holds, directly or indirectly, all the shares or stocks of the merging companies; or
• shareholders of the merging companies hold their securities and shares in the same proportion in all merging companies.

The proposed new type of merger aims at simplification consisting in no requirement to issue new shares, due to the identity of the shareholder or shareholders in the merging companies and the same proportion of capital involvement in the merging companies. No need for a merger issue of shares in these cases is justified by the fact that as a result of this type of merger, the shareholding relationships remain unchanged.

One of the biggest changes to be introduced to the Code of Commercial Companies is also the addition to the Polish legal system of a new institution of division of companies, i.e. division by separation. The new type of breakdown will apply to both cross-border and domestic operations.

Currently, under Polish law, there is a partial division of the company (the so-called division by spin-off). It consists in transferring part of the assets of the divided company to an existing company or to a newly established company, but in this case the shares or stocks are taken over by the partners of the divided company, and the new type of division provides for their being taken over by the divided company. Unlike division by spin-off, in the case of division by spin-off, the partners of the divided company do not automatically become partners of the acquiring company, as the shares will be acquired by the divided company, and not by its partners.

The definition of the new possibility of dividing the company is to be included in the draft Art. 529 § 1 item 5 of the Commercial Companies Code, which states that the division of the company may be carried out "by transferring part of the assets of the divided company to an existing or newly formed company or companies for shares in the company or companies taking over or newly formed, which include the divided company (division by separation)".

Limited joint-stock partnership in reorganization processes

Referring to a limited joint-stock partnership, in the context of cross-border mergers regulated so far, Art. 491 § 11 of the Code of Commercial Companies and Art. 528 § 2 of the Code of Commercial Companies provide for restrictions that this company cannot be the acquiring company or a newly established company in the process of merging companies, and that a partnership cannot not be subject to division.

The Amendment is to grant a limited joint-stock partnership full merging and division capacity by specifying that a limited joint-stock partnership will be able to be the acquiring company or a newly established company both in the process of domestic and cross-border merger of companies (proposed Art. 491 of the Commercial Companies Code) and by specifying that "a partnership other than a limited joint-stock partnership is not subject to division" (proposed Art. 528 § 2 of the Code of Commercial Companies).

Creditor protection

The Amendment is to introduce facilitations for the protection of creditors of companies participating in reorganization processes. The main method of protecting creditors of a domestic company is to be able to submit a request, within one month from the date of disclosure or access to the cross-border merger plan, to secure their claims that have not become due at the time of disclosure or access to this plan. Creditors should substantiate that the satisfaction of their claims is jeopardized by the merger. In the event of a dispute, the court competent for the registered office of the merging, divided or transformed company is to decide on securing the creditor's claims. It should be emphasized, however, that obtaining collateral will depend on the effectiveness of a given cross-border operation.

Partner protection

The main instrument specified in Directive 2019/2121 to protect shareholders voting against a given cross-border operation is the right to exit the company and receive remuneration for shares with a value equal to the value of their shares, which remuneration should be estimated by an independent expert. Similar provisions are already in force in the Polish legal system. The Amendment provides only for the extension of the protective provisions to shareholders of non-voting shares and shareholders unreasonably prevented from participating in the shareholders' meeting or the general meeting in the matter of adopting a resolution on a cross-border merger.

Checking the legality of a given cross-border operation

As part of the Amendment, the control of the legality of cross-border operations is to undergo a significant change in the form of the institution of issuing a certificate of compliance of such an operation with Polish law, which has so far been in force on the basis of cross-border mergers. The scope of the examination aimed at issuing a certificate of legality of a given cross-border operation will be extended to include issues related to the assessment of whether a given cross-border operation is carried out for the purpose of committing abuse or fraud resulting in or intended to evade or circumvent EU or national law or for other criminal purposes.

In addition, as indicated in the explanatory memorandum to the Draft, it is specified that "the competent authority may consider the fact that the cross-border operation would lead to the company's place of actual management or business activity in the Member State where the company or companies are to be registered after the cross-border operation, as indicating to the absence of circumstances leading to abuse or fraud”. This is a significant facilitation for companies wishing to participate in reorganization processes with companies from European Union countries.

Under the current legal status, the registry court was the authority competent to issue a certificate of legality of a given cross-border operation. However, due to the extension of the scope of the examination of the compliance of a given cross-border operation related to the abuse clause, this inspection is to be of an interdisciplinary nature (registration, tax, employee, criminal matters), which "encourages involvement in the procedure of issuing a certificate of compliance with the cross-border operations law also of other specialized bodies” (for example, the Head of National Revenue Administration or the National Labor Inspectorate).

Entry into force

The Draft provides that most of the provisions are to enter into force on January 31, 2023 (this is also the deadline for the implementation of Directive 2019/2121).