Amendments to the Commercial Companies Code – cross-border demergers and conversions

This amendment, resulting from the transposition of the aforementioned directives into national law, addresses a number of practical issues relating to company reorganisation, covering a broader scope than cross-border transformations. Among the most significant changes to the Polish legal system resulting from the entry into force of this amendment, the following should be noted:

1. the introduction of a new type of domestic company division, i.e. division by spin-off,
2. the establishment of a new simplified merger procedure,
3. the extension of the merger and division capacity of a limited joint-stock partnership,
4. the introduction of the possibility of cross-border division and cross-border conversion of a capital company and a limited joint-stock partnership.

The explanatory memorandum to the draft Act of 7 July 2023 amending the Commercial Companies Code and certain other Acts emphasises that “systemic and practical considerations, as well as the need to maintain the stability and transparency of the legal system, which is particularly important for the addressees of these provisions and the authorities applying them, as well as considerations of legislative economy.”

Division by spin-off

One of the key changes is the introduction into the Commercial Companies Code of a new type of company division, namely division by spin-off. Pursuant to Article 529 § 1(5) of the Commercial Companies Code, division by spin-off involves the transfer of part of the assets and liabilities of the divided company to one or more acquiring companies in exchange for the issue, in favour of the divided company, of shares in the newly formed company. Unlike a division by spin-off, in the case of a division by spin-off, the shareholders of the divided company do not become shareholders of the acquiring company. In financial terms, the divided company receives share rights in the acquiring company in exchange for the transfer of part of its assets.

Currently, under the amended Article 529 of the Commercial Companies Code, the following types of division may be carried out:

• division by acquisition,
• division by the formation of new companies,
• division by acquisition and the formation of a new company,
• division by spin-off,
• division by spin-off.

Simplified domestic merger

Another change in domestic law concerns the possibility of carrying out a new type of simplified domestic merger, known as a simplified merger without the issue of shares.

Pursuant to Article 5151(1) of the Commercial Companies Code, a merger may be carried out without the allocation of shares in the acquiring company where a single shareholder holds, directly or indirectly, all the shares in the merging companies, or where the shareholders of the merging companies hold shares in the same proportion in all the merging companies.

Harmonisation of the reorganisation capacity of a limited joint-stock partnership

Under the amendment in question, the legislator has also introduced changes to the Commercial Companies Code concerning limited joint-stock partnerships. Specifically, under national law, the capacity of a limited joint-stock partnership to merge as the acquiring company or as a newly formed company has been extended, and the limited joint-stock partnership has been granted the capacity to divide. Under the previous legal framework, with regard to the division of companies, the provisions of the Commercial Companies Code did not provide for the capacity of partnerships to be divided.

Under Community law, the provisions of Directive 2017/1132 of the European Parliament and of the Council of 14 June 2017 on certain aspects of company law (OJ EU L 169, as amended) provided that cross-border mergers are permissible only between types of companies whose merger is permitted under the national law of Member States.

The implementation of Directive 2019/2121, insofar as it relates to the possibility of cross-border conversion of a limited partnership with a share capital, necessitated the introduction of amendments concerning national types of conversion, thereby removing, as indicated in the explanatory memorandum to the draft Act, “the asymmetry between national provisions determining the merger and division capacity of a limited partnership with a share capital”, which, under national law, did not have the capacity to merge (either as an acquiring company or as a newly formed company) or to be divided.

This means that, as a result of the amendment in question, the status of a limited joint-stock partnership has been brought into line with that of a capital company in relation to both domestic and cross-border reorganisations.

Changes to cross-border mergers

Directive 2019/2121 introduces new requirements regarding cross-border merger plans and introduces new requirements regarding the procedure for cross-border mergers and divisions. Among the most important are:

• an extension of the statutory time limits for the various stages of the process – the period for notifying shareholders of the planned merger has been extended to 6 weeks, and the period for the registry court to issue a certificate of compliance with the law regarding the cross-border merger – to 3 months, and in specific cases – to 6 months), i.e. Article 5166a of the Commercial Companies Code and Article 51612 of the Commercial Companies Code,
• authorising the registry court to refuse to issue a certificate of compliance with the law regarding a cross-border merger if it considers that the merger serves to abuse, infringe or circumvent the law, i.e. Article 51612(6) of the Commercial Companies Code,
• making the issue of a certificate of compliance with Polish law regarding a cross-border merger conditional upon obtaining an opinion from the tax authority concerning the cross-border merger process. Together with the application for the aforementioned certificate, the company should also submit an application for an opinion from the competent tax authority. The authority is obliged to issue an opinion without undue delay, no later than one month from the date of receipt of the application, however, in cases justified by the complexity of the matter, requiring the consideration of additional information or the conduct of further investigations, the one-month deadline for resolving the matter may be extended, but by no more than three months, i.e. Article 51612(1) of the Commercial Companies Code.

New types of reorganisation of commercial companies

The analysed amendment to the Commercial Companies Code introduces the institutions of cross-border division and cross-border transformation into the Polish legal system. Under the previous legal framework, only cross-border mergers were possible. Under the amended provisions, however, it is possible to carry out a cross-border conversion of a Polish capital company or a limited joint-stock partnership into a foreign company, or a cross-border division of a Polish capital company or a limited joint-stock partnership into at least two foreign companies.

Protection of creditors and minority shareholders

The amended provisions of the Commercial Companies Code introduce additional mechanisms to protect creditors and minority shareholders of companies involved in cross-border reorganisations.

Among the most significant instruments for the protection of creditors are:

• the right to demand security for claims within one month of the date of disclosure or publication of the plan for a merger, division or conversion;
• in the case of cross-border conversions pursuant to Article 58012(1) of the Commercial Companies Code, within two years of the date of conversion, creditors of the company being converted whose claims arose prior to the disclosure or making available of the cross-border conversion plan may pursue their claims before the court having jurisdiction over the registered office of the company being converted;
• with regard to cross-border divisions, the amendment has introduced the principle of joint and several liability in situations where a claim by a creditor of the company being divided is not satisfied by the company to which the liability has been allocated.

In turn, among the most significant measures to protect minority shareholders, the amendment to the Commercial Companies Code introduces the following provisions:

• the possibility for shareholders to submit comments on the plan for a cross-border merger, division or transformation of a company,
• the obligation to prepare a report for shareholders explaining the legal basis and justifying the economic aspects of the reorganisation, including an explanation of the effects of the cross-border operation in question on the shareholders and the company’s future operations,
• the right of shareholders voting against the resolution or unjustifiably excluded from voting on the cross-border reorganisation to withdraw from the company and receive compensation for their shares or stock equal to the value of their shares or stock.

In summary, the amendment in question primarily concerns reorganisation processes. At the level of EU law, the lack of a common framework for all Member States regarding cross-border conversions and divisions meant that these states either did not regulate such cross-border operations or created their own, often conflicting regulations. Undoubtedly, the implementation of 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 of companies will facilitate the conduct of business within the European Union’s internal market. In the explanatory memorandum to the draft Act of 4 May 2023, Parliamentary Document No. 3191, it is stated that “Directive 2019/2121 represents a compromise between the need to establish a common legal framework to facilitate cross-border operations and the need to protect the interests of various stakeholders associated with the company, whom these operations may directly affect.”

Author

Adrian Łukasik

Radca prawny, Senior Associate

He gained his professional experience in one of Lublin's renowned law firms, dealing with civil and business law in its broadest sense. At the law firm Hewelt Wojnowski i Wspólnicy spółka komandytowa, he deals on a daily basis with current counseling in the field of business and the development of corporate documentation of companies, such as. Company agreements, bylaws of company bodies, agreements regulating relations between shareholders, resolutions of company bodies, M&A transactions. In addition to…

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