iLike various other European Union member states (e.g. Hungary, Czech Republic – read here), Poland has taken the first step to passage of a new act intended to screen foreign direct investments in Polish companies. The goal of the legislation is to protect Polish companies against take-over by non-EU/EEA investors. The new law (the “Amendment”) will not only amend the Act on Control of Certain Investments of 2015 (more on this is available here), but it will also materially extend control over mergers and acquisitions. The Amendment is thought to be a temporary solution – it should expire after 24 months following entry into force.
In justifying the Amendment, the government referred to Articles 52.1 and 65.1 of TFEU, invoking protection of public order, safety and health as the main grounds justifying imposing the new limitations. Noteworthy is that many member states, as well as the European Commission, have emphasized the need for regulations protecting valuable core European assets from take-over at lowered prices in the wake of the COVID-19 epidemic. In an address of April 15, 2020 the Chair of the Polish Office for Competition and Consumers’ Protection also stressed that such regulations are necessary. The Act on Control of Certain Investments (the “Act”) is the screening regulation as set forth in EU Regulation 2019/452.
Investments in many more Polish companies would be subject to control
First, the Amendment extends the catalogue of so-called “protected entities”. Currently, in order to be subject to control under the Act, a company has to cumulatively meet two premises (i) conducting commercial activity in certain sectors listed in the Act and (ii) being listed, by name, in the regulation of the Council of Ministers enumerating protected entities. The Amendment extends the scope of the Act by stating that all companies with their registered offices in Poland that are either public companies listed on the stock exchange, own critical infrastructure or conduct commercial activity in a certain sector of industry (such as, e.g., oil and gas, telecommunications, pharmaceuticals and medical devices, energy, developers of certain software, but also foodstuffs processing) are “protected entities” subject to control under the Act, unless the Polish revenues of such entity did not exceed EUR 10 million in any of the two preceding years. Intra-group transactions are not explicitly exempt under the Amendment.
Any acquisition, whether direct or indirect, of dominance over a protected entity or of a material stake in such entity is subject to control by the Chair of the Office for Competition and Consumers’ Protection (UOKiK). Dominance is understood as holding the majority of votes or capital, the right to appoint the majority of directors, but also as the right receive more than 50% of revenue or, in general, the right to decide, on a contractual basis, on the entity’s course of action. A material stake is defined as holding more than 20% of votes, income, or capital of a protected entity.
Indirect investments and transactions are also covered
The Amendment not only covers direct acquisitions, but it also includes many cases of indirect acquisition, such as through subsidiaries, entities acting on behalf of other entities or by entities acting in concert. Further, the Amendment also applies to so-called secondary acquisitions (nabycie następcze), meaning that dominance or a material stake is acquired through redemption of a protected entity’s shares, as well as by way of demerger or merger of a protected entity with other entities or through actions not aiming at such acquisition (e.g. merger of companies outside Poland resulting in indirect acquisition of dominance).
Applies to investors from outside the EU/EEA
Acquisition of dominance or a material stake in a protected entity must be preceded by notification to UOKiK, in case a potential acquirer (whether direct or indirect) is not an EU-national or, in case of companies, is not based in a Member State. Any branches or subsidiaries of a non-EU/EEA entity will be treated as being a non-EU/EEA entity themselves. The Amendment also attempts to close a potential loophole to avoid the Act, by stating that if the acquisition is contemplated by an EU/EEA entity, such entity may be treated as a non-EU/EEA entity if it does not do real business other than the contemplated acquisition or does not have substance (enterprise, office, employees) within a member state.
Subject to several exemptions, the notification will have to be filed before executing any agreement resulting in the obligation to acquire shares or before other transactions leading to acquisition of dominance or a material stake in a protected entity. Within 30 days, UOKiK will be obliged to decide either that there are no objections in respect of the acquisition or to launch a full investigation. In the latter case, within the next 120 days, UOKiK must issue a decision either approving the notified transaction or objecting to it (this deadline may be longer – the clock stops any time UOKiK requests additional documents or information). Until UOKiK’s decision has been issued, the parties may not proceed with the contemplated transaction, or in case of indirect secondary acquisitions, the voting rights from indirectly acquired shares of a protected entity cannot be exercised.
UOKIK may object to the acquisition if it determines that the proposed transaction may as much as cause potential danger to public order, safety or health (taking into account provisions of TFEU).
Transactions without notification are null and void
If any acquisition is completed without notification or if the acquisition is objected to, it becomes null and void. If shares have been indirectly acquired as a result of secondary acquisitions, the voting rights vested in such shares may not be exercised. Any breach of this prohibition may cause shareholders’ resolutions to be null and void. The Amendment also provides for financial penalties of up to PLN 50 million or criminal sanctions, or both, for acting without notification or failing to file a notification.
Putting aside the very important discussion of the Amendment’s compliance with European Union law, the planned Amendment will materially change the M&A and PE market for Polish companies. First of all, it adds another hurdle to the acquisition process. Now, parties will not only have to consider a merger control filing – such obligation is in no way affected by the Act – or tender offer requirements, but they must also add the additional time and costs to prepare another application and wait for the outcome of these proceedings before UOKiK. Furthermore, the notified transaction now will be analyzed from the point of view of public order, safety and health. Since there is not much case law on these issues in Poland, the parties to the transaction may be uncertain as to the outcome of the UOKiK review, adding another layer of complexity. Finally, there may also be anxiety concerning too much discretionary power vested in the government in potentially blocking transactions concerning private companies.
The Amendment was passed by Poland’s Parliament (the Sejm) as part of COVID-19 Shield Law 4.0 on June 4, 2020. It now goes to the Senate for review, and is expected to return to Parliament for final passage by June 19th, which is expected given the government’s parliamentary majority. Upon final approval it would be sent to the President for signature, and would take effect one day after publication.
