New holding law coming soon. What does it mean for minority shareholders?

Poland: Changes to company law enacted will come into force on 13 October 2022.

We have already written about the proposed changes in our March newsletter .

Management boards of subsidiaries will under some circumstances take into consideration the interest of the group of companies. Such interests are to be determined by the parent company. Board members will also be obliged to make information on their company available to the parent company, to a greater extent than before. This will not necessarily be in the interest of minority shareholders. How can these shareholders protect themselves?

Where a company is yet to be formed, future minority shareholders can introduce provisions in the Articles of Association that guarantee their influence on a decision to join a group. They can also reserve themselves greater control in the AoA over pursuit of group interests.

But what about existing minority shareholders? From October 2022 they may find themselves in a less favourable position, if their company joins a group of companies.

A minority shareholder who votes against accession or is prevented from voting can require the parent company to purchase his shares. He will have one month to do so, as of adoption of the resolution. The purchase will only apply to shares held in October 2022.

In some cases, however, minority shareholders may find it difficult to enforce the purchase, for instance when the company was established only in the second half of 2021 or in 2022 and its first financial year ends on 31.12.2022. There is also no clear deadline for the purchase. And those who miss the deadline to require such a purchase upon joining will have even more limited options.

Minority shareholders can still demand purchase at a later date but only in case of  a certain proportion of shares. They enjoy this right if they own no more than 10% of the shares and the parent company owns at least 90%. However, in such a situation the parent company may also decide to compulsorily buy out those minority shareholders.

In addition, a minority shareholder who believes that a subsidiary and thereby himself has been harmed by participation of a subsidiary in a group of companies may demand compensation from the parent company. The compensation will be the amount by which the value of the shares has decreased as a result of the parent company’s instructions being carried out by the subsidiary.  This is an important right, but proving the specific amount of the decrease will certainly not be easy.

In a nutshell, minority shareholders in existing companies will be put in a less favourable position from October. However, they will have certain instruments to defend their financial interests. And so the question arises: does this change comply with the constitutional principle of protection of rights acquired? Is it constitutional to extend the possibility of buying out minority shareholders in the interest of a group of companies?

 

Source: Act of 9 February 2022 amending the Commercial Companies Code and certain other acts – J.L. of 12.04.2022 item 807

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