Separation – settlement of acquisition by the acquiring company (newly tied) of assets of the acquired company at fair value, acquisition by acquisition

A very often desired result of the separation procedure is a presentation for balance sheet purposes by individual acquiring companies or companies newly bound assets from a fair value (market) company. This procedure should be conducted quickly, efficiently and with the maximum possible reduction of legal, tax and balance sheet risks.

It should be properly planned, including the assessment and selection of the valuation method for the undertaking and/or the separate organised parts of the undertaking, including the valuation of the individual components, taking into account the chronology of the process of division by separation specified in the provisions of the Act of 15 September 2000 – Commercial Companies Code 1 (continue k.s.h.) and business assumptions of the entire process.

I. Introduction

According to Article 529(1) k.s.h. the division of the capital company may be made:

• 1) by transferring all the assets of the company divided into other companies for the shares or shares of the acquiring company, which include the shareholders of the shared company (division by acquisition);
• 2) by setting up new companies to which all the assets of the company shared for the shares or shares of the new companies are transferred (dividing by the new companies);
• 3) by transferring all the assets of the company divided into an existing and re-established company or company (division by acquisition and incorporation of the new company);
• 4) by transfer of part of the company's assets to an existing company or to a newly established company (division by division).

Subject to the provision Article 529(3) k.s.h.

the partners of the split company may receive, in addition to the shares or shares of the acquiring companies or companies newly bound cash payments not exceeding the total 10% the balance sheet value of the shares or shares awarded to the competent acquiring company as determined in accordance with the statement in question under Article 534(2)(4), be 10% the nominal value of the shares or shares assigned to the newly tied company.

The recipient company's payments shall be made either from profit or from the company's spare capital. In the cases referred to Under point 1-3 as indicated above, the split company is dissolved without carrying out winding-up proceedings on the date on which it was removed from the register (the day of division).

However, in the case in question Under point 4, i.e. in the case of division by division, the divided company shall not be removed from the register and shall continue to operate and the new company shall be separated on the date of its entry in the register.

In the event of the transfer of part of the assets of a company divided into an existing company, the separation shall take place on the date of entry in the register of the increase in the share capital of the acquiring company (the day of separation).

According to Article 531(1) k.s.h., the acquiring companies or companies newly established in connection with the division enter on the date of division or on the date of division into the rights and obligations of the divided company as defined in the distribution plan.

Under the rule Article 534(1) k.s.h. the breakdown plan shall contain at least:

• 1) the type, company and registered office of each of the companies involved in the division;
• 2) the ratio of the exchange of shares or shares of the company divided into shares or shares of the acquiring companies or companies newly bound companies and the amount of any subsidies;
• 3) rules on the allocation of shares in acquiring companies or in newly bound companies;
• 4) date from which the shares or shares listed Under point 3 entitle to participate in the profits of the individual acquiring companies or companies newly bound;
• 5) the rights conferred by the acquiring companies or companies newly bound to shareholders and persons who are particularly entitled in the shared company;
• 6) the specific advantages for the members of the company's bodies, as well as other persons involved in the division, where such benefits have been granted;
• 7) the exact description and distribution of the assets (assets and liabilities) and of the permits, concessions or allowances attributable to the acquiring companies or newly bound companies;
• 8) the division between the shareholders of the split company of the shares or shares of the acquiring companies or companies newly bound companies and the rules of division.

As already shown by the order in which the elements of the distribution plan are mentioned, the exchange parity is one of the most important elements, as it provides the basis for calculating the economic conditions of division and its consequences for shareholders.

II. Exchange parity

The absolute provisions of the K.s.h. as regards the separation procedure of the capital company indicate that the plan for the division of the company, as regards the valuation of the assets, should indicate at least:

• • the ratio of the exchange of shares or shares of the company divided into shares or shares of the acquiring companies or companies newly bound and the amount of any aid 2 ;
• • precise description and division of assets (assets and liabilities) and permits, concessions or reliefs attributable to the acquiring companies or newly bound companies[3].

According to post 4, the exchange parity is therefore to determine the number of shares and the nominal value of the shareholders of the company shared in the acquiring company or the newly established company.

The distribution plan should, when determining the exchange ratio, reflect the relationship between the value of the assets of the companies and the simultaneous possibility of granting aid to the shareholders of the company divided under the conditions laid down under Article 529(3) k.s.h.

Such aid may not exceed 10% the carrying amount of the shares of the acquiring company.

It should be pointed out that the decision to allocate by dividing a certain number of shares and their nominal value in the acquiring company is taken by the boards of the companies involved.

This means that the value by which the share capital will be increased, and consequently the value of the shares allocated to the shareholder of the split company, constitutes a ‘business’ decision, subject to inter alia a reservation. Article 154(3) k.s.h.

(the value of the contribution to the acquiring company must not be lower than the share capital increase in the acquiring company).

In the case of a separation procedure involving the transfer of part of the assets of a company divided into an existing company, the separation shall take place on the date of entry in the register of the increase in the share capital of the acquiring company (day of division)[5].

It should be pointed out that the division of the company by division 6 the provisions shall apply accordingly. 7 concerning the formation of the relevant type of acquiring company, excluding the provisions on non-monetary contributions, unless otherwise provided for in the specific provisions governing the division.

This provision refers in particular to the procedure for increasing the share capital of the acquiring company, sp. z o.o. This means that shares in the acquiring company in the increased share capital cannot be included below their nominal value. However, the opposite may occur, i.e.

the contribution to the capital company may be higher than the share capital increase (agio). Consequently, if the share is held at a price higher than the nominal value, the surplus shall be transferred to the reserve.[8].

It should be pointed out that the issue of the exchange parity also arises in the merger procedure[9]. The exchange parity shall be considered to be the ratio of exchange of shares/shares (merging companies).

The merger plan should indicate how much the shares or shares of the acquired company partner of that company will receive a certain number of shares or shares of the acquiring company.

"The key issue in this element of the plan is to maintain the appropriate proportion between the segregated wealth and the shares (actions) which are attached to it.

This requires the necessary valuations to be carried out (even when treating isolated assets separately – it is a matter of a particular situation, because they may be different) that do not have to (and should not) have anything to do with the valuation for the purpose of establishing an exchange ratio (...)” 10 . According to U.

Roge's position 11 , the parity is calculated most often on the basis of the valuation of the assets of the companies involved in the division and is the result of the relationship between the value of those shares.

‘The valuation does not consist in determining the value of the individual assets and non-liability components (assets and liabilities) and summing them up, but on the basis of the valuation of the company's company taking into account its market position and reputation (goodwill).

Especially in the case of companies with a known, widely recognized brand and a long tradition, the largest intangible value can be goodwill’. "The provisions of k.s.h. do not indicate methods of valuation, leaving this issue to economic sciences.

Several methods of valuation of companies are known and the most appropriate method should be carefully chosen for a particular company, depending on its situation, in such a way that the interests of shareholders are best protected."

In practice, the exchange parity is usually considered to be based on fair value of the assets of both companies.

The fair value can be defined as ‘the price that can be obtained from the sale of the asset, provided that the seller and the buyer act prudently and in their own interest, have all the necessary information and neither party acts under duress’.

The standard is the use of the discounted cash flow models (DCF), which allows for the best reflection of development plans. In the case of public companies, quotations from the previous few months are also the reference point.

In the case of non-public companies, the typical ‘benchmark’ is appropriate, operational or financial, valuation indicators in comparable transactions or industry listed companies[12]. However, the choice of the valuation method is not only the matter of economic sciences.

Through Article 538(1)(2) k.s.h. the assessment of the appropriateness of the valuation methods used was regulated by commercial law.

According to that provision, the expert in the written opinion shall indicate the methods used to determine the ratio of shares or shares proposed in the plan of division, together with an assessment of the appropriateness of their application.

There are no obstacles to adopting different valuation methods for each of the companies involved in the split, except that the valuation of the split company should be made at fair value, which should be understood as a market value equivalent[13]. In certain cases these methods may be verified by an expert.

In conclusion, the strategic decision of the boards of the companies involved in the division is to determine the exchange parity by division, given that the proportion of the share capital increase and the reserve capital increase in the acquiring company is determined.

In addition, the provisions do not specify a specific valuation method based on which the exchange parity will be established. However, the market value (fair) of an organised part of the undertaking shall not be lower than the share capital increase in the acquiring company.

III. Accurate description and distribution of assets (assets and liabilities)

The provisions of k.s.h. as regards the preparation of the distribution plan do not specify the degree of detail of the description and division of assets (assets and liabilities) assigned to the acquiring company.

„It is unclear what means that the description is to be ‘accurate’ (Article 534(1)(7)). This should, as it appears, be such a description which allows for the unambiguous identification of each of the assets of the company divided for the purpose of ‘dedicating’ it to a particular acquiring company or a newly established company. This may be an aggregate description if only such a description meets the criterion of unambiguous traceability (e.g. office equipment of a specific company’s premises, consisting of a combined number of computers, desks, chairs; commercial claims from debtor X for the total amount of y). The source data for this description will be included in particular in the accounts of the main and auxiliary accounts of the split company (see Article 15-17 Act on 29 September 1994 accounting, i.e. Journal of Laws of 2018, item 395 (Next: u.o.r.)[14]. The description of the assets assigned in the allocation plan should be sufficiently detailed to clearly indicate that the ownership of the asset (the specific asset) has passed from the company divided into the acquiring company. However, the ‘unprecise’ indication of individual items of assets and liabilities does not invalidate the allocation plan itself.

The allocation plan should include, in addition to the precise description and distribution of the assets (assets and liabilities) to be separated, an indication of their book value and fair value at a given date indicated in the distribution plan. This recommendation concerns key items, in particular fixed assets. This recommendation is dictated by practical aspects of the balance sheet law for the inclusion of individual items according to fair values in the accounting records of the acquiring company.

IV. Determination of the value of the shared company’s assets

The distribution plan shall also be accompanied by:

• determination of the value of the assets of the company divided on a specific day in the month preceding the submission of the application for the publication of the allocation plan 15 ;
• a statement containing information on the company’s accounting status, drawn up for the purposes of the breakdown by day in the month preceding the submission of the application for the publication of the distribution plan, using the same methods and in the same arrangement as the last annual balance sheet[16].

These provisions mean that they are the minimum requirements which should be mandatory in the company's distribution plan. However, this does not preclude the indication of additional information, not explicitly provided for by the provisions of the K.s.h., as regards the valuation of assets in the distribution plan.

For the purposes of drawing up information on the company's accounting status, it is not necessary to present a new inventory 17 , the values shown in the last balance sheet should be amended only where necessary to reflect changes in the accounting records[18]. The provisions of k.s.h.

do not indicate how the value of the company's assets should be determined on a specified day in the month preceding the submission of the request for a distribution plan (Article 534(2)(3) k.s.h.), just as they do not do in the event of a merger (Article 499(2)(3) k.s.h.). According to M.

Rodzynkiewicz's thesis 19 , Article 499(2)(3) k.s.h. does not indicate whether it is a market valuation or an accounting valuation: ‘Comparation to Article 499(2)(4) would indicate that Under point 3 Article 499(2) It's something else. i.e. the market valuation, not the carrying amount.

However, given the wording of the provision, it cannot be assumed that it is mandatory to make market valuations for each merger. Balance sheet valuations can also be stopped. A. Szumański (in: S. Sołtysiński, Commercial Companies Code, Vol. IV, p.

331) assumes that under Article 499(2)(3) it is a fair value valuation, which is doubtful, for example because the so-called acquisition method to which such valuation refers is not the only accounting method for the clearing of mergers in the accounts.

In particular, if there are grounds for clearing the merger by the so-called merger method, there are no grounds for requiring fair value valuations.’

In conclusion, despite the possibility of determining the value of the company's assets on the basis of different methods (e.g.

accounting methods, accounting adjusted methods, net asset adjustment method, income methods, benchmarking methods, or other methods or groups of methods), it is recommended by the advisor, under the key objective of the restructuring procedure, that the division plan determines the market value (good) of the company divided on a specific day in the month preceding the submission of the distribution plan to the registry court.

On the basis of current facts, the DCF, benchmarking and adjusted net assets would be useful.

1. Change in the value of an organised part of an enterprise between the date on which the allocation plan is drawn up and the date of the separation

Separation procedure, subject to Article 536(4) k.s.h., assumes that the management of the split company shall notify the management of the acquiring company of any material changes in the assets (assets and liabilities) that occurred between the date of drawing up the distribution plan and the date of adoption of the division resolution.

This regulation is governed by the protection of the members of the board of directors of the acquiring company responsible for covering contributions to the increased share capital of the acquiring company.

It should be stressed that in the case of a split company engaged in an actual business activity in the separation procedure, the value of the assets transferred from the split company to the acquiring company is actually changed, given that the distribution plan is prepared on the basis of the financial data drawn up on the day of the month preceding the submission of the division plan to the National Court Register and the day of division (i.e.

The date of entry of the share capital increase of the acquiring company) shall be after the date of adoption of the resolution on the split company[20].

Consequently, it should be stressed that there is a significant time interval (minimum 8 weeks 21 ) between those dates when the assets released from the split company may be changed, e.g.

receivables may be repaid, regulated liabilities, the split company may purchase new assets or new liabilities may arise in relation to the structured part of the enterprise.

It should be stressed that the differences between the amount of assets and liabilities shown in the distribution plan for an organised part of the undertaking and the amount of assets and liabilities released at the date of the separation must be reflected in the acquiring company for balance sheet purposes.

For balance sheet purposes, in order to simplify the procedure for the settlement of the division by the separation in the books of the acquiring company, it is worth that the split company should prepare information on any material changes in the assets (assets and liabilities) that occurred between the date of drawing up the distribution plan and the date of drawing up the division resolution.

VI. Settlement of the allocation by acquisition

The balance sheet settlement of the transfer of an organised part of the company by the acquiring company may be made in accordance with the so-called method of acquisition[22].

The settlement will consist in summing up the individual items of the assets and liabilities of the acquiring company, at their book value, with the relevant items of the assets and liabilities of the acquired part of the undertaking, at their fair value at the date of their merger (i.e. for the day of separation).

Given that the division by division will be made to the recipient company sister to the split company, the procedure in question may be considered to be so-called for the purposes of balance sheet law. transformation under common control.

Consequently, although the determination of the value of the assets transferred from the company divided to the acquiring company could potentially be made at book value (as defined by the so-called net book value, excluding the fair value of the individual components) and without the audit of the distribution plan by the statutory auditor, it is recommended by the advisor that this determination be made at fair value already in the distribution plan.

Where the value of an organised part of the undertaking is determined by accounting values (less than fair value), the acquiring company should include on the liability side equity, so defined. This means that there might not be a legal basis to include as a reserve an excess of the fair value of the part of the company being acquired by the acquiring company as a result of the division, in relation to the value of the share capital increase (corresponding to the book value).

Any excess (high value) would have to be presented as a "negative value of the company". In view of further restructuring plans, in particular the merger of the acquiring company with its sole shareholder, the business objectives of the restructuring procedure could not be achieved.

In addition, in order to:

• to avoid possible risks in challenging the regularity of the management of the acquisition company's designation of assets and liabilities of the acquired part of the undertaking at values other than those indicated in the distribution plan,
• to avoid any doubt as to the indication of the effective accounting document for the balance sheet purposes, which is the legal basis for the recording of the revaluations and acquisitions of the values of the components cleared by the acquisition method, i.e. a document other than the breakdown plan and the values indicated therein,
• avoid creating a significant negative value of the company in the acquiring company, because it is not possible to demonstrate the so-called issue agio as a reserve (when for the purposes of the distribution plan according to k.s.h. the value of the company to be issued by accounting value would be accepted),

consideration should be given to the fact that the fair value of an organised part of the company is already indicated in the allocation plan, and additional information in the allocation plan on the revaluation to fair value of key assets and liabilities.

In addition, it should be pointed out that the possible differences between the value of an organised part of an undertaking and the value of that organised part of an undertaking at the date of the separation (i.e.

at the date of entry in the register of the share capital increase in the acquiring company) should be adequately reflected in the accounts of the acquiring company. This adjustment would concern, inter alia, the positive or negative position of the company and/or other operating income or other operating costs.

VII. Summary

The breakdown plan must indicate the exchange parity, i.e. the ratio of the share exchange of the company divided into the shares of the acquiring company and the amount of any aid.

Consequently, the swap parity must specify the number of shares and their nominal value to be received by the shareholders of the company shared in the acquiring company. The provisions of k.s.h. do not specify the method on which the exchange parity is to be determined. The provisions of k.s.h.

do not specify the method on which the value of the company's assets should be determined on a specific day in the month preceding the submission of an application for the publication of a distribution plan.

The key restriction on the establishment of the swap parity is that the sale value (fair) of the entire part of the company being released to the acquiring company must not be lower than the share capital increase in the acquiring company.

Where an exchange parity is determined on the basis of book values – which is acceptable and in accordance with k.s.h.

– and results in the determination of the value of an organised part of the enterprise being issued also on the basis of book values – the maximum value of the increase in equity in the acquiring company should correspond to the value of the allocated part of the undertaking (i.e. book value).

If the assets taken over are revalued to a fair value in the acquiring company, the excess could not be shown as the value of the capital contribution. This surplus would be shown, among others, as a negative value of the company.

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