Amendment to the Commercial Companies Code – significant changes to cross-border conversions and divisions of companies

In mid-September 2023, the amended Commercial Companies Code came into force. The new regulations have introduced a number of important solutions to the Polish company law. What changes has the legislator planned? How will they affect the situation of Polish businesses? 

The amendment to the Commercial Companies Code that entered into force on 15 September 2023 implements the provisions 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 and the activities of a group of companies, as well as Directive (EU) 2019/1151 of the European Parliament and of the Council of 20 June 2019 amending Directive (EU) 2017/1132 as regards the use of digital tools and processes in company law.  

It also serves to implement the judgment of the Court of Justice of the European Union in case C-106/16 Polbud Wykonawstwo, in which it was emphasised that the freedom of establishment under Article 49 TFEU includes ensuring that companies can transfer their registered office from one Member State to another without liquidating the company, which has so far been explicitly required by Article 270(2) of the Commercial Companies Code (CCC).  

The entry into force of the new regulations is the next stage in the implementation of the company law package and refers to cross-border and domestic company reorganisations. 

Amendment to the Commercial Companies Code – the most important changes 

Below you will find the key changes that came into force. 

New cross-border operations 

By virtue of the amendments, new types of cross-border operations have been introduced to Polish law. Now, once the changes are introduced, a division under Article 529 of the Commercial Companies Code may be effected through: 

1) transfer of all assets of the company under division to other companies in exchange for shares of the acquiring company which shares are taken up by the shareholders of the company under division (division by takeover); 

2) formation of new companies to which all the assets of the company under division devolve in exchange for shares of the new companies which shares are taken up by the shareholders of the company under division (division by formation of new companies); 

3) transfer of all assets of the company under division to the existing company and the newly formed company or companies in exchange for shares of the acquiring and newly formed company or companies which shares are taken up by the shareholders of the company under division (division by takeover and formation of a new company); 

4) transfer of a part of assets of the company under division to the existing company or the newly formed company or companies in exchange for shares of the acquiring and/or newly formed company or companies or of the company under division, which shares are taken up by the shareholders of the company under division (division by separation); 

5) transfer of a part of assets of the company under division to the existing company or the newly formed company or companies in exchange for shares of the acquiring and/or newly formed company or companies, which shares are taken up by the company under division (division by spin-off). 

The last type of division is a novelty in the Commercial Companies Code. Part of the assets of the company under division is transferred to the existing or newly formed company, while the shares in the acquiring or newly formed company are taken up by the company under division (and not by the shareholders of the company under division as in the case of division by separation). This division has been introduced to domestic and cross-border operations. It allows the transfer the assets of the company under division to an existing or newly established company or companies, making it possible to carry out an operation similar in effect to the conversion of a branch of a foreign entrepreneur into a company, while maintaining universal succession of rights and obligations. This was not possible so far. 

These types of divisions are regulated similarly to the currently functioning solutions in the company law, as part of the cross-border merger procedure (in terms of transferring assets between companies within different jurisdictions, obtaining certificates, etc.).  

Cross-border conversions  

With regard to cross-border conversions, the new regulations provide for the possibility of converting companies and limited joint-stock partnership into one of the companies incorporated under the law of another Member State, while transferring the registered office of the company from EU countries to Polish or from Poland abroad. Thus, the transfer of the company to another Member State will no longer have to involve liquidation.  

In addition, a number of changes have been made to formal cross-border merger requirements and, in order to ensure transparency, a requirement to submit a timetable for cross-border operation has been imposed. The procedural requirements when examining a cross-border operation in order to issue a certificate of legality have also been clarified.  

As a result of conversion, a company will be able to change its legal form to the one corresponding to its current form under foreign law (e.g., transformation of a Polish limited liability company into a German GmbH). 

Amendments to the provisions regulating a limited joint-stock partnership 

The existing regulations on reorganisation of companies have been extended. The purpose of the amendments is to enable a limited joint-stock partnership to participate in merger processes, either as a acquiring company or as a newly established company and in the processes of company division – as a company under division. Popular limited joint-stock partnerships will now have the right to participate in large-scale reorganization processes. 

A new type of simplified merger 

A new type of simplified merger has also been introduced to the national regulations. In principle, such a merger may be carried out without allocation of shares of the acquiring company if one shareholder holds, directly or indirectly, all the shares of the merging companies or the shareholders of the merging companies hold shares in the same proportion in all the merging companies. 

Checking the legality of a cross-border operation  

As part of the changes, the control of the legality of cross-border operations has been significantly extended by introducing a requirement of issuing a certificate of compliance of such an operation with Polish law (so far in force with respect to cross-border mergers). 

Extending the scope of examination of legality of a cross-border operation, linked to the abuse clause, will result in an interdisciplinary audit covering registration, tax, employment and criminal issues. Not only the registry court, but also other specialized authorities, such as tax authorities, will be involved in the examination. 

The Head of the National Revenue Administration is the competent authority to issue an opinion on the compliance of a given cross-border operation with tax law. The Head of the National Revenue Administration will issue an opinion on an application submitted by the company’s management board, which, however, will not require the company’s management board to submit a separate application. The said application for the compliance certificate will be sent to the Head of the National Revenue Administration by the registry court immediately after it is submitted by the company’s management board. 

Protection of shareholders, employees and creditors 

Broad protection mechanisms have been introduced for particular groups whose interests may be directly related to the planned cross-border operation. The most important include the possibility of making comments on the plan of a cross-border operation and the obligation to prepare a report on its impact on a specific protected group.  

 Creditor protection  

The most important way to protect creditors in cross-border operations is a possibility to request a security within one month of the disclosure or availability of the plan for such an operation. Importantly, creditors should prove that a given cross-border operation adversely affects the satisfaction of their claims and that the security obtained from the company is insufficient. The establishment of security depends on the effectiveness of the cross-border operation. 

Shareholder protection  

The basic instrument for protecting shareholders who vote against a cross-border operation is the right to exit the company. This right entails receiving remuneration equal to the value of their shares (the remuneration should be assessed by an independent expert). Shareholders who are dissatisfied with the amount of the proposed remuneration will be able to challenge this fact before the competent administrative or judicial authority. 

Protecting employees  

Employees have general protection rights, such as the right to comment on the plan of a cross-border operation and the obligation to draw up a report on its impact. The issue of employees participation in a company formed as a result of a cross-border operation is regulated in a separate act (Act on Employee Participation in a Company Formed as a Result of a Cross-Border Conversion, Merger or Division), which gives the right to: appoint or elect a certain number of members of the supervisory board or the board of directors, recommend members of the supervisory board or the board of directors, oppose the appointment of some or all members of the board supervisory board or the board of directors. These rights are intended to protect the interests of employees. 

The use of digital tools and processes in commercial company law 

The amendment also introduced to the Polish legal system the provisions of Directive 2019/1151, which aims to increase the security of trading within the single market. Therefore, the amendments to the Commercial Companies Code contain provisions on the exchange of information relating to the disqualification of directors. They include data collected in this respect in the National Criminal Register, the Register of Insolvent Debtors, the National Register of Debtors and the list made available by the Polish Financial Supervision Authority. 

Summary of amendments to the Commercial Companies Code 

Analysing the above changes, they should be assessed positively, as they will contribute to a significant development of the Polish share in the market of cross-border operations and reorganisations, incorporating to Polish law numerous mechanisms provided for by EU regulations.  

According to the intention of the legislator, the discussed regulations are to harmonize the rules for domestic and foreign reorganizations, as well as to increase the competitiveness of Polish entrepreneurs and facilitate their expansion into the EU markets.  

Company law – see how we can help: