M&A | In Principle

An appraisal of assets in the course of corporate reorganisations is a required element for determining their value when transferred from one company to another as a result of a merger or demerger. But the procedure for reorganising companies is often lengthy, and during the course of the procedure components of the transferred assets or liabilities may change due to ordinary or extraordinary circumstances. Or the appraisal itself may change. This raises a fundamental question of the extent to which the reorganisation documentation must be modified, including the draft terms of merger or demerger, and how these changes can be reflected in the accounting records without having to redo the entire reorganisation procedure.

Poland’s Commercial Companies Code allows for conversion of a joint-stock company (SA) into a limited-liability company (sp. z o.o.), but many formalities are required and not always clearly regulated. Mistakes at any stage of the process may result in the court refusing to register the conversion. In this article, we describe the stages of the process and selected practical issues that may arise.

This issue continues to raise numerous doubts under Polish law. The doubts surround the number of financial statements required by law to be prepared in relation to the conversion, the reporting period covered by each financial statement, and the obligation for the financial statement to be examined by an auditor and approved by the competent body. Of particular importance is the correct determination of the period for which the first annual financial statement of the company post-transformation (the “new” company) must be prepared, which directly affects the method for distribution of profit from the company prior to transformation (the “old” company) and the limitations on distributions.

In M&A practice, and elsewhere, share transfer agreements customarily provide for the seller’s warranty liability, for example, for breach of representations and warranties. This type of liability is grounded on principles of freedom of contract stemming from Art. 3531 of the Polish Civil Code. Although warranty liability is commonly referred to in Polish as “strict” (i.e. based on assumption of risk—na zasadzie ryzyka), strict liability is a completely different construction, expressly provided for by the Civil Code. Thus commercial practice is imprecise in this regard. In extreme cases, using this wording in contracts can generate problems, including interpretive disputes over the basis of liability under such agreements.

The amendments to Poland’s Commercial Companies Code which entered into force on 13 October 2022 standardised the calculation of the terms of management board members, introduced new duties to take minutes of management board and supervisory board meetings in limited-liability companies, and expanded the catalogue of offences resulting in a ban on serving as a member of corporate bodies or as a receiver or commercial proxy. The question is whether the amendment will have a positive impact on the functioning of corporate authorities.
The amendments to Poland’s Commercial Companies Code which entered into force on 13 October 2022 standardised the calculation of the terms of management board members, introduced new duties to take minutes of management board and supervisory board meetings in limited-liability companies, and expanded the catalogue of offences resulting in a ban on serving as a member of corporate bodies or as a receiver or commercial proxy. The question is whether the amendment will have a positive impact on the functioning of corporate authorities.

An increase in the share capital of a limited-liability company without amending the articles of association is often used as a simpler, faster and, in theory, cheaper method of increasing the capital. But in practice, due to the ambiguous wording of the regulations, doubts may arise about this method of capital increase and the form of the documents required for its effective implementation. What should be kept in mind for a simplified share capital increase to be carried out correctly?

The Commercial Companies Code contains rules facilitating mergers of companies where there are few owners and little risk of harm to stakeholders, and thus the law allows certain provisions to be waived. But it is essential to apply the regulations properly so that the merger is carried out effectively and can be entered in the National Court Register.

One of the ways to reduce business costs in a corporate group may be to combine multiple entities into a single entity—a merger. Although all types of companies and partnerships can take part in a merger, the regulations regarding mergers involving partnerships are sometimes unclear, and mistakes during the merger process can result in the court’s refusal to register the merger.

In the case of an increase in the share capital of a limited-liability company, a shareholder subscribing for new shares or an increased par value of existing shares must file a declaration on subscribing for the new shares or the increased par value. This applies to both an existing shareholder and a new shareholder just joining the company. But there are some uncertainties associated with this obligation.

With the growing popularity of video games, the game development industry is booming on a global scale. The outbreak of the coronavirus pandemic only accelerated this process. The unwavering demand for video games is generating an increase in interest in investing in entities involved in production and distribution of games.

It is looking increasingly likely that an agreement governing relations between the UK and the EU after 31 December 2020 will not be reached in time. This could cause some legal turbulence.

On 19 June 2020, the Parliament adopted “Shield 4.0,” new law of great importance for M&A practice. Shield 4.0 amends the Act on Control of Certain Investments of 24 July 2015 and enters into force on 24 July 2020.