Shield 4.0 introduced restrictions on the acquisition of Polish companies by entities from outside the European Union, EEA and OECD. Which M&A transactions are covered by the new regulations?
The Anti-crisis Act of 19 June 2020 – the so-called Shield 4.0 – amended the Act of 24 July 2015 on the control of certain investments, the provisions of which are to protect commercial law companies from hostile takeovers, or to be more precise, takeovers made by investors who are not from the European Union, the European Economic Area or the Organisation for Economic Cooperation and Development. The aim of these new regulations is to ensure the protection of public order, public security and public health.
In order to strengthen the protection of national companies against takeovers made by non-EU/EEA/OECD entities, there have been introduced temporary (for a period of 24 months) inspections of activities which could threaten public safety, public order and public health in relation to the worsening economic situation caused by COVID-19 epidemic, affecting, inter alia, the level of liquidity risk for companies. The Act on the control of certain investments has therefore been amended because, according to the explanatory memorandum to the draft bill, the previously applicable provisions of the Act on the control of investments were insufficient and protected only a few key Polish companies.
Until now, the provisions of the Act on the control of certain investments included a protection mechanism for strategic companies which was based on a list of economic entities set out in a decree concerning this Act. Failure to include a given company in this decree meant that it was not protected. In practice, the list included only ten entities.
The new provisions provide for a different mechanism. They have introduced a list of strategic business sectors. If a company from a given sector achieves revenues of more than €10 million in any of the two preceding financial years, it is protected by the new provisions. The Act specifies the so-called significant participation, i.e. a situation in which it is possible to exert influence on the entity’s operations by:
In consequence, a buyer from outside the Member States who wishes to acquire at least 20% of shares in such a company is required to submit a notification to the President of the Office of Competition and Consumer Protection. If the President of the Office of Competition and Consumer Protection does not object, such transaction may take place. A Member State is not only a Member State of the European Union, but also a state which is a party to the Agreement on the European Economic Area or a state belonging to the Organisation for Economic Cooperation and Development.
The sectors protected by the legislator include, among others, companies which own property disclosed in the uniform list of objects, installations, devices and services included in the critical infrastructure referred to in art. 5b section 7 item 1 of the Act of 26 April 2007 on crisis management (Journal of Laws of 2019, item 1398 and of 2020, items 148, 284, 374 and 695), or which develop or modify software:
Moreover, an entity covered by protection is an entrepreneur with a registered office within the territory of the Republic of Poland, who runs a business the subject of which is: production of electricity, or production of motor gasoline or diesel oil, or pipeline transport of crude oil, motor gasoline or diesel oil, or storage of motor gasoline, diesel oil, natural gas, or underground storage of crude oil or natural gas, or production of chemicals, fertilizers and chemical products, or production and trade of explosives, weapons and ammunition and products and technology for military or police purposes, or regasification or liquefaction of natural gas, or reloading of crude oil and its products in seaports, or distribution of natural gas or electricity, or transhipment in ports of major importance for the national economy, or telecommunications activities, or transmission of gaseous fuels, or production of rhenium, or extraction and processing of metal ores used for the manufacture of explosives, weapons and ammunition and products and technologies for military or police purposes, or manufacture of equipment, instruments and medical devices, or manufacture of medicines and other pharmaceutical products, or trading in gaseous fuels and gas abroad, or production or transmission or distribution of heat, or transhipment in inland ports, or processing of meat, milk, cereals and fruit and vegetables.
Furthermore, a prerequisite for becoming a protected company is the simple fact of being a public company, e.g. listed on a stock exchange.
These extremely important changes introduced by the amendment to the Act on the control of certain investments may adversely affect property rights and may cause problems for public companies. Moreover, the provisions of this Act are not explicit.
Michalina Gdula, Junior Associate