We would like to remind you that as of 12 October 2022, the so-called holding law is in force in Poland, which introduced i. a. the possibility to exclude the responsibility of the management board for decisions taken in the interest of the entire capital group and the possibility to repurchase minority stakes/shares of a subsidiary. These are important issues from the point of view of subsidiary boards in particular, as it introduces into the Polish legal order solutions which formalise the actual functioning of capital groups.
Between the hammer and the anvil: the interests of the company versus the interests of the holding company
As we wrote in our earlier post ‘New holding law coming soon‘, the practice of subsidiary companies shows that, on the one hand, their management boards have to look after the interests of the entire capital group, while, on the other hand, the previous legal state of affairs obliged the subsidiary’s management board to look after its interests first and foremost. In an extreme situation, the board could even be held liable for causing damage to the company.
The new holding law addresses this problem by excluding the liability of the subsidiary’s board of directors for decisions made in the interest of the group as a whole. In order to benefit from this solution, however, the company must meet additional requirements, which we wrote about in detail in the entry “New holding law coming soon“.
Procedure for compulsory repurchase of minority stakes/shares of a subsidiary company
Under the new holding law, the stakeholders’ meeting (in the case of a sp. z o.o. – an equivalent to British LTD) or the shareholders’ meeting (in the case of a S.A. – an equivalent to British PLC) of a subsidiary participating in a group of companies may adopt a resolution on the compulsory purchase of stakes/shares of stakeholders/shareholders representing no more than 10% of the share capital by the parent company, which directly represents at least 90% of the share capital.
In addition, the articles of association or articles of association of a subsidiary may provide that the aforementioned power shall be vested in a parent company which directly or indirectly represents in a subsidiary participating in a group of companies less than 90% of the share capital of such company, but not less than 75% of that capital.
In other words, a parent company holding at least 90% of the stakes or shares in the share capital will be able to force the sale of the remaining stakes/shares by a minority stakeholder/shareholder. If the company agreement / statute so provide, the above power will also be available to the parent company holding at least 75% of the stakes/shares in the share capital.
At the same time, one or more minority stakeholders or minority shareholders representing no more than 10% of the share capital of a subsidiary company participating in a group of companies may demand that a resolution on the compulsory repurchase of their shares be placed on the agenda of the next stakeholders’ meeting or shareholders’ meeting by the parent company which represents directly, indirectly or under agreements with other persons at least 90% of the share capital of the subsidiary company participating in the group of companies. The above request may be made only once in each financial year, not earlier than three months after the subsidiary’s participation in the group of companies is disclosed in the register.
Summary
The new holding law responds to the needs of the market by introducing procedures into the Polish legal order that reflect the actual functioning of capital groups.
It formalises the exercise of a dominant position by parent companies, while allowing the empowerment of majority stakeholders and shareholders through, among other things, the possibility to buy back minority stakes/shares.
It also introduces the exclusion of liability of the subsidiary’s board of directors for decisions taken in the interest of the group as a whole.
Authors:
Norbert Czerniak, lawyer
Wojciech Paryś, attorney at law
