New regulations on reorganisation processes of commercial companies
On 15 September 2023, the new Act of 16 August 2023 amending the Polish Code of Commercial Companies and certain other acts entered into force. The amended regulations of the Code of Commercial Companies implement into the Polish legal system the provisions of two directives of the European Parliament and of the Council regarding cross-border transformation, merger and division of companies and the use of digital tools and processes in companies law.
The new regulations primarily concern domestic and cross-border reorganisation processes. They mainly aim to harmonise and unify national regulations in the European Union Member States, allowing for efficient reorganisation procedures in commercial companies at the domestic and international levels.
New forms of cross-border reorganisation processes
Until 15 September 2023, the Code of Commercial Companies only included one type of cross-border reorganisation of companies in the form of a cross-border merger. Although other forms of cross-country corporate transformation processes have long been in force in the
European Union member states, they were absent from the Polish legal order. The gap was a significant obstacle to reorganising operations with the participation of Polish and foreign entities. In order to eliminate this problem, the catalogue of cross-border transformation processes has been expanded to include two new types: cross-border transformation and cross-border division of companies.
Notably, both procedures are only intended for capital companies (i.e. for a limited liability company /spółka z ograniczoną odpowiedzialnością/ and a joint- -stock company /spółka akcyjna/) and a limited joint-stock partnership /spółka komandytowa/. Following the newly introduced procedures of cross-border division, a Polish company may be split into two or more foreign companies whose operations shall be carried out in one of the European Union Member States or countries which are parties to the European Economic Area Agreement. As for the form of cross-border division, it can only be accomplished by transferring the assets of the divided company to the newly established company or companies. It means that as a result of the di vision of companies, the divided company's assets may be transferred to a newly established foreign entity only. However, it is impossible to transfer them to an already existing entity.
In the case of the second new procedure, namely cross-border transformation, an option was introduced to transform a Polish capital company or a limited joint-stock partnership into a foreign company under the law of an EU Member
State or a state party to the European Economic Area Agreement. Such a foreign company must have its registered office, central board of directors or primary establishment in the European Union or a state party to the European Economic Area Agreement. As a result of this operation, the Polish company shall be transformed (without liquidation) into a foreign entity. Accordingly, in principle, the transformed entity's rights and obligations shall be transferred to the new foreign company.
It should be noted that both of the newly introduced procedures are highly formalised and time-consuming. They will require drawing up detailed documentation and are subject to verification by Polish authorities for compliance with Polish law and scrutiny by the National Revenue Administration
Companies' mergers – new rules
The amendment introduced new forms of cross-border reorganisation processes into Polish regulations. It also guarantees certain simplifications and imposes additional obligations for procedures already in force. A simplified procedure for merging companies has been introduced into the Code of Commercial Companies. It may be applied when one partner or shareholder holds, directly or indirectly, all shares in the merging companies. In such a situation, the merger of companies shall not require increasing the acquiring company's share capital and the granting of new shares to the acquired company's shareholder.
Moreover, this simplified merger shall not require obtaining an expert's opinion on the merger plan. Simplifications will also be possible if several partners of the merging companies hold shares in the same proportions. The introduced facilitations will, therefore, apply primarily in the case of assets' concentration within one capital group, making the procedure for merging related companies more flexible and straightforward.
Another critical change in cross-border reorganisation processes introduces the obligation to have them ap proved by tax authorities. The previous cross- border merger procedure did not require the active participation of tax authorities to be carried out effectively. Its correctness was approved by the registry court, which issued certificates on the compliance of the merger procedure with Polish law. According to the new regulations, the registration court's certificate alone shall not suffice. During a cross-border merger, when applying to the court for a certificate of the procedure's compliance with Polish law, an application will need to be submitted to the competent tax authority for an opinion on the compliance of the cross-border operation with the provisions of tax law.
The tax authorities will primarily be tasked with verifying whether the re organisation is not carried out to avoid taxation. The authority will not issue a favourable opinion if they find that the circumstances of the case justify the assumption that the cross-border reorganisation is aimed at tax evasion or constitutes an abuse of law. The Head of the National Tax Administration shall be in charge of reviewing cross-border mergers. The Head of the National Tax Administration's opinion or its refusal shall be forwarded to the registry court, which only after receiving it will issue a certificate of compliance of the procedure with national law.
Additional rights for limited joint-stock partnerships
Another significant change to the existing regulations in the Code of Commercial Companies is extending the forms of participation of limited joint-stock partnerships in domestic and cross-border reorganisation processes. Until now, a limited joint-stock partnership, due to its legal, could not become an acquiring or a newly established entity during the merger procedure, nor did it have the capacity to divide. That competence was only for capital companies, while a limited joint-stock partnership could only act as the acquired entity during merger transformations.
In order to eliminate the reverse discrimination against Polish entities, the legislator introduced new regulations to the Code of Commercial Companies, extending the scope of entitlements for limited joint-stock partnerships. Following the amendment, such firms will be able to participate in merger processes both as the acquired and acquiring entities. The newly merged entity will also be able to take the legal form of a limited joint-stock partnership.
Moreover, the new regulations included a limited joint-stock partnership among the entities capable of dividing. Thus, a limited joint-stock partnership is the only entity among partnerships that can be split into two or more units. The extension of participation in transformation processes for one of the partnerships only is justified by the unique nature of a limited joint-stock partnership, as its manner of operation is closer to that of capital companies. Such a partnership is often used to run a business on a scale similar to capital companies. According to the legislator, that justifies granting this entity the ability to take over firms smaller than itself or to divide into smaller units.
Pros and cons of the new regulations
The abovementioned regulations may significantly enhance the flexibility and presence of Polish companies in the EU market. As the statement of reasons for the amending act reads, the introduction of unified rules for companies reorganisation processes throughout all EU member states, and the harmonisation of cross-border procedures should positively affect the business freedom. On the one hand, integrating cross-border processes should be perceived as positive as facilitating Polish companies' operations and presence in foreign markets.
However, extending formalities, control tools for cross-border procedures and additional obligations, particularly regarding the opinion of the Head of the State Revenue Administration, may contribute to remarkable extension and complication of the reorganisation processes.
Author: Anna Banasik, attorney-at-law, CHUDZIK i WSPÓLNICY Law and Taxes.