The Polish Parliament has adopted a special procedure to control acquisitions of ”protected entities” by buyers from outside of the European Economic Area and OECD. ”Protected entities” include most listed companies, as well as private companies that hold assets critical for the Polish economy or operate in strategic sectors such as energy, oil and gas, military technologies, telecommunications, and pharmaceutical production.
Reacting to changes in the macroeconomic landscape and European Commission guidelines
The new law aims at combating the effects of the COVID-19 pandemic and introduces new rules applicable to the control of foreign direct investments leading to an acquisition of control or a qualifying holding in a protected entity by buyers from outside of the EEA and OECD.
The new law entered into force on July 24, 2020, and the new rules are applicable to transactions not completed before their entry into force (which means that all preliminary/conditional transactions with an expected completion date after the new law enters into force will be analyzed in light of the new clearance obligations). The new rules are set to expire after 24 months following the effective date of the new law.
New clearance obligations apply to transactions involving companies and partnerships (the ”protected entities”) that: (i) have their registered seat in Poland and (ii) in at least one of the two preceding financial years, achieved income in Poland exceeding EUR 10 million and:
- are publicly listed in Poland – i.e., at least one of their shares is admitted to public trading on a regulated market (e.g., the Warsaw Stock Exchange) or a multilateral trading facility (e.g., New Connect); and/or
- hold assets classified as parts of critical infrastructure – i.e., assets that have been identified as key for the functioning of the Polish economy (the list of such assets is confidential, but the current holders should have been informed about such classification); the list includes mostly energy networks, key food and water provision facilities, communication networks, transportation networks, as well as financial systems and systems maintaining the continuity of the functioning of the public administration, etc.; and/or
- develop or modify important software1; and/or
- operate in strategic sectors.2
The new law is not be applicable to the transactions involving entities requiring special protection under the other provision of Polish law, i.e. Centrum Rozwojowo-Wdrożeniowe „Telesystem-Mesko” sp. z o.o., EmiTel S.A., Grupa Azoty S.A., HAWE TELEKOM sp. z o.o. w restrukturyzacji, innogy Stoen Operator sp. z o.o., KGHM Polska Miedź S.A., Orange Polska S.A., Polkomtel sp. z o.o., PKP Energetyka S.A., PKN Orlen S.A., System Gazociągów Tranzytowych „EUROPOL GAZ” S.A., Tauron Polska Energia S.A., and TK Telekom sp. z o.o. In case of these entities, currently existing regime will be applicable.
The new obligations apply on top of any other regulatory and antitrust clearances required under Polish law to complete the acquisition of a given protected entity.
All non-EEA/non-OECD nationals (natural persons who do not have EEA or OECD3 citizenship) or non-EEA/non-OECD entities (entities without a registered office in the EEA or OECD for at least the last two years) are obliged to comply with the clearance procedure when entering into any of the affected transactions. In addition, indirect acquisitions (made via a subsidiary) are also covered by the law. Finally, the new law includes specific provisions against circumventing the EEA/OECD-domicile rule, in particular: (i) subsidiary entities, branches or representative offices of a non-EEA/non-OECD national or non-EEA/non-OECD entity are also regarded as non-EEA/non-OECD entities, and (ii) even if an acquisition is pursued by an EEA/OECD citizen or an entity having its registered office within the EEA/OECD, the buyer may still be regarded as affected, if there is an allegation of circumvention of law, such as the situation in which the buyer does not carry out any business activity other than holding shares or controlling other entities or does not run a sustainable enterprise or employ staff within the EEA/OECD.
Any transaction involving a protected entity will be subject to the new clearance obligation if it involves direct or indirect (through a subsidiary, by the acquisition of an intermediate element of the corporate chain and/or other change of control over an intermediate part of the corporate chain, including through a merger or a demerger):
- acquisition of control over the protected company – i.e., any of the following:
- holding more than 50% of votes at the general/shareholders' meeting (in case of companies) or 50% or more capital (in case of partnerships);
- having the right to appoint and/or dismiss the majority of the members of the management board or the supervisory body of the protected company;
- the majority of the members of the management board of the protected company are also directors, representatives, and/or employees of the buyer;
- having any other right to decide on directions of the protected company's business, including under an agreement with the protected company;
- acquisition of a qualifying holding in the protected company – i.e., a holding representing 20% or more (as well as acquisition of any holding that would bring the buyer above 40%) of the: (i) votes at the general/shareholders' meeting; (ii) share capital; and/or (iii) share in distributed profits;
- purchase or lease of the enterprise (or an organized part thereof) of a protected company through an asset deal.
Additionally, the clearance obligation will be triggered if any of the above situations results from: (i) redemption of shares of a protected entity; (ii) a protected entity's purchase of its own shares; or (iii) merger or spin-off of a protected entity.
However, in those cases the notification will have to be made by the protected entity itself after the relevant transactions are completed.
Acting in concert with other entities in the above transactions involving protected entities will also trigger a clearance obligation for all the parties concerned.
The new clearance obligation consists of an obligation to notify the President of the Office of Competition and Consumer Protection (”UOKiK”) of the planned transaction and the UOKiK's right to object to the transaction within a specified deadline. The UOKiK would issue such objection if the transaction poses at least a potential threat to public order, public security or public health in Poland, or when the transaction might have a negative impact on the projects or programs of the European Union interest. The objection can be challenged in administrative court, but the court proceedings are usually lengthy and their duration goes well beyond typical transaction timelines.
As a rule, the notification would have to be made prior to the completion of the transaction (or announcement of the tender offer if the target is a listed company) and would have a suspensory effect. Agreements/tenders conditional upon the receipt of clearance are allowed. The UOKiK is also entitled to initiate the control proceedings ex officio if it considers that the transaction aims or aimed to circumvent the clearance procedure related to non-EEA/non-OECD nationals/entities. However, the UOKiK is not entitled to initiate the proceedings, if the period of 5-years from the completion of the transaction had expired.
A transaction made without the required notification or in spite of an objection voiced by the UOKiK would be void. However, in case of an indirect acquisition under transactions not governed by Polish law (e.g., a merger of non-Polish entities resulting in a change of control over a protected entity) the transaction would be effective, but the acquirer could not exercise its corporate rights in protected Polish entities.
The procedure before the UOKiK would take up to 30 business days, but it could be extended for further 120 calendar days if the UOKiK decides to initiate control proceedings. Deadlines would be suspended for periods when the UOKiK is waiting for requested information and documents.
Breach of the new clearance obligation constitutes a criminal offense punishable by a fine of up to PLN 50 million and/or imprisonment for up to 5 years. Additionally, an entity required by law or by an agreement to manage the affairs of its subsidiary, which has not submitted the required notification, will also be subject to a fine of up to PLN 5 million and/or imprisonment for up to 5 years if such entity was aware of the acquisition being made by its subsidiary.
1 Defined as software used to: (i) manage power plants, networks or services or systems relating to the supply of energy, natural gas, fuels or heat; (ii) manage, control or automate drinking water supply or wastewater treatment installations; (iii) operate equipment or systems used for voice or data transmission or for storage and data processing; (iv) operate or manage equipment or systems used for cash supply, card payments, cash transactions, settlement of securities and derivative transactions or to provide insurance services; (v) operate hospital information systems, operate equipment and systems used in the sale of prescription drugs or operate laboratory information systems or laboratory tests; (vi) operate facilities or systems used for the transport of passengers or goods by air, rail, sea or inland waterway, road, public transport or logistics; (vii) operate equipment or systems used in air, rail, sea or inland waterway, road passenger or cargo transport, public transport or logistics; (viii) operate equipment or systems used in the supply of food; or (ix) provide cloud computing data storage or processing services.
2 (i) energy production; (ii) oil and gas production; (iii) oil and gas pipe transmission; (iv) oil, gas and natural gas storage; (v) underground oil and gas storage; (vi) manufacturing of chemicals, fertilizer and chemical products; (vii) manufacturing and trade in explosives, arms and ammunition and products or technology with military or police use; (viii) regasification or liquefaction of natural gas; (ix) transshipment of crude oil and its products in seaports; (x) natural gas and energy distribution; (xi) transshipment in ports of major importance for the national economy; (xii) telecommunications; (xiii) transmission of gaseous fuels; (xiv) rhenium manufacturing; (xv) mining and processing of metal ores used for the manufacturing of explosives, arms and ammunition and products or technology with military or police use; (xvi) manufacturing of medical devices and products; (xvii) manufacturing of medicinal and other pharmaceutical products; (xviii) cross-border trade in gaseous fuels and gas; (xix) heat production, transmission or distribution; (xx) transshipment in inland ports; and/or (xxi) processing of meat, milk, cereals, fruits or vegetables.
3 Currently OECD includes following countries: Australia, Austria, Belgium, Canada, Chile, Colombia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States (countries that are not members of EEA were underlined).