Pursuant to the recently amended Polish rules on the control of investments, the Polish Competition Authority (UOKiK) is empowered to review intended investments in Polish companies by investors who are: i) from outside of the European Economic Area, or ii) from non-OECD countries. Such investors are now obliged to notify UOKiK of intended transactions that meet the statutory thresholds provided in the new law. UOKiK may block an investment that would create a potential threat to the public order or public security of Poland. For the next two years, UOKiK will apply parallelly classical concentration control rules and the new regime for the control of foreign investments.
The COVID-19 crisis has strengthened the impetus of governments to protect domestic companies against hostile takeovers which could result in the transfer of such companies’ decision-making centers to outside the borders of the respective country, region or continent. The protection of a country’s strategic industries during the Coronavirus pandemic is being considered and implemented in many jurisdictions. For example, the European Commission recently published its “White Paper on levelling the playing field as regards foreign subsidies.”
Following this way of reasoning, Poland has just enacted a new regime for the control of foreign investments. It is intended to strengthen the protection of domestic companies from being acquired by entities outside the European Economic Area and by non-OECD countries or being subject of other investments transferring decision-making powers to such investors.
The new Polish regime for the control of foreign investments was adopted within the Anti-Crisis Shield 4.0 law (the Law of 19.06.2020, OJ of 2020, item 1086, http://orka.sejm.gov.pl/proc9.nsf/ustawy/382_u.htm). The Anti-Crisis Shield law addresses various legal issues resulting from the Coronavirus pandemic. The new rules on the control of foreign investments (the “2020 Control Rules”) amend the 2015 Investment Control Act (the Act of 24 July 2015, OJ of 2020, items 117 and 284), which also provided a degree of some protection of certain strategic Polish businesses, but in a very limited scope compared with the 2020 Control Rules (the previous protection concerned only a group of the most strategic companies, such as Polski Koncern Naftowy ORLEN).
The 2020 Control Rules have a temporal character. It will be in force for 24 months from the date of July 24, 2020. During this time, UOKiK will be the appointed controlling authority for the purpose of reviewing notified foreign investments. UOKiK will carry out this control function along with traditional merger control rules.
As a result of UOKiK’s dual competence during this two-year period, depending upon the identities of an investor and target, an intention to make an acquisition will sometimes require filing two notifications to UOKiK – one for the reason of merger control, the other to comply with the 2020 Control Rules. UOKiK will assess each of the two types of notifications from the perspectives of different objectives. It can be easily imagined that under the 2020 Control Rules’ new notification system, transactions that pose no competition concerns might be prohibited by UOKiK in order to protect public order or public security, in accordance with the 2020 Control Rules.
Who is obliged to notify about intended investments in Polish companies?
The 2020 Control Rules establishes an obligation to notify investments in certain protected entities (the scope will be explained below) for investors who come from outside of an EEA or OECD country. They are obliged to refrain from completing the transaction before UOKiK has given its consent.
The new notification obligations apply to an investor who is a natural person and does not possess citizenship of an EEA or OECD country.
In case of investments planned to be made by companies or other legal entities, the 2020 Control Rules apply if the investor did not have a registered office in the territory of an EEA or OECD country for at least two years from the day preceding the notification submission.
The notification obligation also applies to an investor who has its registered office in an EEA or OECD country but is a subsidiary of an entity established outside of that territory.
What kind of transactions need to be notified?
The 2020 Control Rules require foreign investors to notify UOKiK about investments that would result in the acquisition of certain decision-making influence in protected Polish companies. The notification obligation arises if an investor intends to:
- acquire the protected entity,
- take dominant control over the protected entity (meaning obtaining the status of a parent entity by acquisition of shares or stocks or rights from shares or stocks, or taking up stocks or shares, or by the conclusion of an agreement providing for the management of this entity or transfer of profit by that entity), or
- achieve “significant participation” in the protected entity (meaning achieving at least 20% of votes at the meeting of shareholders or general meeting or of profit share – it can be achieved not only by changes in capital but also by an acquisition or lease of an organized part of the protected entity).
What companies are subject to “protection”
Protected companies are undertakings with registered offices in Poland and with a turnover in the territory of Poland exceeding EUR 10 million in at least one of two last financial years before notification, provided that the respective company also meets at least one of the following conditions:
- it has the status of a public company within the meaning of the Act on Public Offering and Conditions Governing the Introduction of Financial Instruments to Organized Trading and Public Companies;
- it owns property that has been disclosed in the „uniform list of facilities, installations, equipment and services included in the critical infrastructure” referred to in art. 5b, paragraph 7, point 1 of the Act of 26 April 2007 on Crisis Management;
- it conducts business activity consisting of developing or modifying one of seven types of software listed in the 2020 Control Rules (exhaustive list of activities includes software to operate hospital information systems, to operate devices and systems used in the sale of prescription drugs, to control power plants and to manage the drinking water supply);
- it provides services for the collection or processing of data in cloud computing; or
- it conducts one of twenty one other types of „strategic” business activities, whose scope is very wide and covers not only such obvious businesses as energy, telecommunications, healthcare or transport, but also the „processing of meat, milk, cereals and fruit and vegetables.
The Polish Council of Ministers may, after consulting UOKiK, issue a regulation setting out exclusions from the protection of entities.
The 2020 Control Rules do not apply to foreign investments in entities which – subject to quite similar provisions of the Investment Control Act – are already notifiable to the appropriate authority (the list of such entities is presented in the Regulation of the Council of Ministers of 23.12.2019 (OJ of 2019, item 2501). It has a very limited scope and concerns only a few strategic companies such as Polski Koncern Naftowy ORLEN.
The 2020 Control Rules authorize UOKiK to control foreign investments that meet the conditions set out above. Every intent to carry out a transaction (investment) covered by the 2020 Control Rules must be notified to UOKiK, who will conduct a control procedure.
If a notified transaction does not raise any doubts regarding public safety or public order, UOKiK can issue a lack of objections decision after the initial proceeding, which can last a maximum of 30 days.
In the event of a party’s failure to provide all requested documents and information or if there are reasons justifying further examination of a notified transaction, UOKiK will initiate a second phase proceeding. A phase 2 should be concluded within 120 days form the day of its initiation (the time of waiting for the submission of the requested documents or information shall not be counted in the time limit).
UOKiK, by means of a decision, can object to a transaction:
- based upon material reasons — for instance, there is at least a potential threat to public order or public security of Poland or to the public health in Poland, or the transaction can have negative impact on projects and programs of EU interest);
- based upon formal reasons — for instance: a party did not correct formal deficiencies in its notification within the prescribed period; did not submit all requested documents or additional written explanations within the time limit set by UOKiK; or it is not possible to determine whether the buyer has citizenship of an EEA or OECD country (in the case of natural persons) or has a registered office within that area (in the case of legal entities).
A negative decision by UOKiK is subject to an appeal to the administrative court.
Criminal sanctions for non-compliance with new obligations
The new regulation provides that an investment subject to the regulation’s control is not valid when executed without making a required notification or despite a negative decision of UOKiK.
The new law also establishes criminal liability for persons who do not comply with notification obligations or who infringe the obligation to notify a transaction before its closing. Such an individual is subject to a fine of up to PLN 50,000,000 or imprisonment from 6 months to 5 years, or both. The same penalty shall apply to anyone who infringes notification obligations, while acting on behalf of or in interest of legal entity to which those obligations apply (for instance, the CEO of the investing company).
Moreover, a person who is required by law or contract to deal with the affairs of a subsidiary and knows about the indirect acquisition that should have been notified, shall be subject to a fine of up to PLN 5,000,000 or imprisonment from 6 months to 5 years, or both.
A similar level of criminal liability is provided for anyone who, acting at a meeting of the decision-making body of a protected entity or when adopting resolutions of the partners or shareholders of a protected entity, exercises the rights from shares or stocks on behalf of the entity which, despite the obligation, has not made a notification of achieving significant participation in the protected company, if he knew about this circumstance or was able to find out on the basis of the data available under the 2020 Control Rules.
The 2020 Control Rules’ temporary framework for the control of foreign investments constitutes yet another complex regulation that investors must obey when acquiring or buying shares in certain Polish companies.
It is difficult to know what the impact of the 2020 Control Rules on investments in Poland and how many investments will be subject to the new notification obligations during the upcoming two years. It is indisputable that the scope of categories of protected companies is broad and extends beyond purely strategic industries, as it includes Polish companies listed on the stock exchange, simply for that reason and not for their strategic role (provided that they meet turnover thresholds). On the other hand, the 2020 Control Rules will not affect investors from other EEA or OECD countries.
It is difficult to predict whether and how long the 2020 Control Rules will prolong the time that investors must wait for all consents needed before the closing of a transaction. Much depends on how UOKiK will organize its work. Its long experience in merger control proceedings may be an advantage. One hopes that merger proceedings and foreign investment control proceedings will be carried out in a coordinated way.
UOKiK’s dual control function may create confusion for foreign investors on whether a merger notification should be accompanied by another notification under the 2020 Control Rules. It would be reasonable if UOKiK were to issue guidelines as well as taking a more lenient approach to those investors who may not meet all procedural requirements, especially during the initial period of the new law enforcement.