To 1 March 2020 the reverse merger has caused numerous controversy, particularly because of the prohibition on the acquisition of own shares or shares by equity companies, expressed Under Articles 200(1) and 362(1) Commercial Companies Code (KSH).
In addition, there was much doubt about the way in which the merger was carried out and the possibility to directly release to the shareholders of the acquired company shares or shares acquired by the merger, in light of the previous wording Article 515(1) KSH.
A revision of KSH that entered into force 1 March 2020, it has introduced regulations to enable such a merger to take place, and it is no longer in doubt.
The change in the structure of the capital group may be implemented on the basis of a reverse merger (so-called downstreammerger or reverse takeover), which consists in the transfer of all assets of the parent company (the company being acquired) to a subsidiary (the acquiring company).
From the point of view of downstream mergers, it is crucial that the acquiring company may issue to the shareholders of the acquired company shares or own shares which it acquired as a result of the merger with that company.
This amendment to Ksh’s rules confirms not only the admissibility of reverse mergers, but also the possibility of direct release to the shareholders of the company receiving the shares or own shares acquired during the merger.
This amendment does not change the existing state of the law, but confirms the correct interpretation of the rules Article 200(1) or Article 362(1)(3) in conjunction with Article 515(1) KSH, adopted so far by most doctrines and practiced by registry courts.
Amended by the amendment, the text Article 515(1) In the last sentence, KSH confirms: ‘The acquiring company may grant shareholders of the acquired company shares or own shares which it acquired as a result of the merger with that company’.
Simultaneously Article 515(2) KSH introduces a restriction: ‘In order to grant shares or shares to the shareholders of the company being acquired, the acquiring company may acquire shares or own shares whose total nominal value, together with shares or shares previously acquired by that company, companies or cooperatives which are dependent on it or persons acting on its behalf, does not exceed 10% share capital’.
As a result of the reverse acquisition, the subsidiary acquires own shares or shares and all the assets of the acquired company.
The reverse merger may be justified by various aspects such as the internal restructuring of the group, the operational consolidation where the parent company also carries out business activities or at least performs certain functions for other entities in the group.
No increase in share capital, prior redemption of shares or shares and the acquiring company need not issue shares or shares to the shareholders of the company being acquired is required to carry out a downstream merger.
When companies merge, including the acquisition of the parent company by the subsidiary, there is a universal succession of rights and obligations, the essence of which is the incorporation of the acquiring company into all the rights and obligations of the acquired company.
The downstream Mercer transaction also gives companies the opportunity to enter the stock exchange with the so-called back door, without meeting certain requirements. This is best done by entities that are already listed on the WSE, but have found themselves in a bad situation.
In short, the process then consists in the fact that the stock company takes over the parent company. Eventually, the name of the listed company is changed to the name of the OTC company. An example of such entry into the stock market is CD Project, which debuted on the stock market In 2011 In 2010 CDP Invest sp.
z o.o., which was the dominant entity in the CD Group The project was officially acquired by Optimus S.A., which was listed on the stock exchange. The company's name was then changed to CD Project RED, and the company's main activity became game production.
The reverse can also simplify the structure of the capital group where the continuation of the business of a subsidiary is important because of, for example, the holding of licences or concessions, its operating activity or its history.
There is now no doubt that such a procedure under Polish law is possible.