Breakdown by separation of new method of building holding structures

By amending the provisions of the Commercial Companies Code (hereinafter KSH), which entered into force 15 September 2023[1] In the Polish legal order on a rather large scale, the previously unknown form of the partial division of the capital company and the limited-stock company was introduced.

The legislator extended the existing numbers of the division categories of companies by adding a new type of companies – the so-called ‘division by separation’. The institution of division by seclusion has not been known in the Polish legal system, in contrast to the German commercial law system.

The introduction of appropriate changes in KSH was dictated by the need to implement the so-called corporate package into the Polish legal order[2]. It needs to be stressed that separation may concern not only domestic (internal) and cross-border (external) transactions.

True, the Polish legislature under Directive 2017/1132 modified Directive 2019/2121 He was obliged to introduce rules concerning only cross-border division rules, but the scope of these changes undoubtedly constituted an asumpt to make appropriate modifications also to national company law.

The consequence of the failure to introduce a category of division by separation only on a cross-border basis (with the exception of a national one) would be a phenomenon of so-called reverse discrimination, i.e. an arrangement in which the legal position of a national law entity would be less favourable than that of a foreign entity.

Allowing capital companies and limited-activity companies to divide by separation can undoubtedly bring significant benefits to operators in terms of reducing liability in the event of failure of certain economic projects

According to section 1 point 5) revised Article 529 KSH division can be made: (...) 5) by transferring part of the assets of the company divided into an existing or newly established company or companies for shares or shares of the company or of the acquiring or newly bound companies, which includes the company divided (division by separation).

Therefore, the division by separation does not result in the loss of legal status of the split company, but implies its continuation – as in the case of division by division.

We are therefore dealing with another form of the so-called partial division, with the exception that unlike the split by the shareholders of the acquirers (or the newly-bound ones), the shareholders of the split company will not become the existing shareholders, but the split company itself.

The share rights of the shareholders and shareholders of the split company will therefore remain unchanged – they will not become shareholders of the acquiring company or of the newly bound company, as the shareholder of that company will be the split company.

Visible on first It is therefore a glance at the difference between the other types of division of the company, since the shares or shares in the company or the acquiring companies (newly tied) will not be covered by the partners (shareholders) of the split company, but by the split company itself.

Thus, as a result of the division by division, we will most often deal with a situation where, as a result of the division, the split company becomes a parent company, while the acquiring company (or newly established) a subsidiary. In such a vertical structure, further transformation and restructuring processes (e.g.

through further divisions by separation) will be possible, but also the return transfer of the assets of the acquiring company (newly tied) to the company previously divided by a merger procedure.

The new type of transformation (division) of capital companies and limited-stock companies undoubtedly corresponds to the provisions of the so-called holding right introduced to KSH on the date of 13 October 2022[3] The possibility of division by separation will serve to create vertical corporate relationships (vertical relations), since equity rights in the acquiring company/newly bound company are not acquired by shareholders of the split company, but by the company itself, which is largely dominated by the newly established company or the acquiring company.

The ratio of dominance and dependence will undoubtedly arise when a single-member company is established (in which a representative partner 100% share capital will be divided). Consequently, in the case of a division by separation between a split company and a newly-established one-man company, a holding structure will be created.

At the same time, the relationship of dominance and dependence does not necessarily have to arise when the acquiring company is an existing company (with a significant capital and an extended shareholder structure), which does not change the fact that a vertical relationship will be established between the above mentioned entities.

It is therefore quite safe to say that this form of division will in practice primarily serve the creation of new single-member companies.

As a result of the separation, the split company is not disbanded and deleted from the register but, as in the case of division by division, retains legal entity and continues to function with less assets. A key change is therefore made in the property level of the split company, in exchange for the separation and transfer of a certain part of the property, it receives equity rights in the acquiring company or newly bound company.

The consequence of the separation of a certain part of the company's assets (as broken down by separation) will most often be the need to reduce the share capital of the company divided, unless the separation comes from the company's own capital other than share capital. However, in the event of a reduction in the amount of this capital, the provisions on the so-called convolution procedure will not apply (Article 264(1), Article 265(2)(2)(3) KSH – if a limited liability company is split, or regulations Article 456 and Article 458(2)(3)(4) KSH – in case of split-up of a joint stock company or limited-stock company).

In the case of division by separation and attachment of the new company, the date of separation shall be the day of entry in the register of the separate company. In turn, in the case of the transfer of part of the assets of the company divided into the company existing on the date of seclusion, it will be the date of entry in the register of the increase in the share capital of the acquiring company or the issue of new shares by the acquiring company without nominal value (in respect of a simple share company).

The division by separation may prove to be attractive, that the legislator, adding this type of division to KSH, also introduced a number of procedural simplifications at the preparatory (maneder) stage of the reorganisation process.

And so, by choosing this transformational form of the company, on the basis of the exemption introduced under Article 529(2) KSH, as regards the obligation for the split company to draw up a distribution plan, will not specify:

• the ratio of the exchange of shares or shares of the company divided into shares of the acquiring companies or companies newly bound companies and the amount of any cash payments (Article 534(1)(2) KSH);
• rules on the allocation of shares in acquiring companies or in newly tied companies (Article 534(1)(3) KSH);
• the date on which the shares or shares listed Under point 3 entitle to participate in the profit of individual acquiring companies or companies newly bound (Article 534(1)(4) KSH);
• rights conferred by the acquiring companies or companies newly bound to shareholders and persons who are particularly entitled in the shared company (Article 534(1)(5) KSH).

In the event of a division by the separation of a capital company, the split plan should indicate the number and value of the shares or shares in the company or the acquiring or newly bound companies covered by the split company (Article 534(1)(21) KSH). The same requirement should be imposed on the plan to split up the limited joint stock company (which should be regarded as an obvious omission by the legislator).

Another simplification of the initial division phase is the exclusion of the obligation for the management of the split company and each company receiving a written report justifying the division of the company (Article 536(1) KSH), the obligation to submit the allocation plan to an expert on correctness and reliability (Article 537 KSH) and its expert opinion (Article 538 KSH).

Since the shares or shares in the acquiring company or the newly bound company as a result of the division, not the shareholders (shareholders) of the split company, but the split company itself, are excluded from the possibility for shareholders to raise objections to the distribution plan and require the acquiring company or the newly bound company to purchase their shares or shares, since they will continue to remain shareholders only of the split company (Article 541(5) KSH).

As in the case of division by separation, the consequence of division by separation will be a universal partial succession. As from the date of the separation, the acquiring companies or the newly established companies in connection with the division enter into the rights and obligations of the split company as defined in the distribution plan (Article 531(1) KSH), and to the acquiring company or the newly established company created in connection with the division, shall in particular be subject to permits, concessions and reductions in relation to the assets assigned to it in the plan for the division of shares of the divided company which have been awarded to the divided company, unless the law or decision granting the permit, concession or concession provides otherwise (Article 531(2) KSH).

The same effect as in the case of the division by the separation consisting of the transfer of a specific, separate part of the company (the most often organised part of the company) has so far been achieved by the separation of that part of the company and then by the transfer of it in the form of an aport to a company already existing or previously linked to that objective.

A common ground for the transfer of a separate part of the undertaking in the form of an aport and the division introduced by the separation will undoubtedly be the transfer of a certain part of the property in exchange for shares or shares to be covered by the split company.

However, it should be pointed out that in the case of classical delivery, single succession occurs, and in the case of division we are dealing with universal succession (with partial succession).

The transfer of assets in the case of separation must therefore cover both assets and liabilities in a functional manner with a separate part of the undertaking, which is not necessarily the case in the case of aport separation.

In the margins, it should be pointed out that the introduction of this type of division, with the introduction of appropriate automated mechanisms, may facilitate the control of the concentration of entrepreneurs conducted by the President of the Office for Competition and Consumer Protection on the grounds of Act dated 16 February 2007 on the protection of competition and consumers.

Allowing capital companies and a limited-stock company to divide by separation can undoubtedly bring significant benefits to operators by reducing liability in the event of failure of certain economic projects.

The separation may be a useful instrument in particular in the event of the planned opening of a specific business profile, in particular the start of activities with a significantly increased risk.

It would then be beneficial to separate these activities in a formal manner and separate them from those sectors of activity whose market position is already well established and relatively stable.

Directive 2017/1132 for cross-border transformation, merger and division of companies (Text with EEA relevance)

(Official Journal of the European Union L, No. 321 to 12 December 2019, p. 1–44), hereinafter ‘Directive 2019/2121”; Directive (EU) of the European Parliament and of the Council

Directive 2019/1151 of 20 June 2019 amending Directive 2017/1132 for the use of tools and processes

digital in company law (Text with EEA relevance) (Official Journal of the European Union L, No. 186 to 11 July 2019, p. 80–104), Next

„Directive 2019/2121”.

Author: Olga Skonieczna