Amendment of the Commercial Companies Code. A new institution in the Polish legal system – division by spin-off.

The draft introduces an institution previously unknown in the Polish legal system, the so-called division by spin-off. The change will be introduced in a much broader scope, as it will cover both cross-border and domestic transactions. The principal purpose of initiating the change is to increase the flexibility of entities in the event of their reorganisation.

Legal basis

The project aimed at implementing European Union law concerns the implementation of a directive of the European Parliament and of the Council of the European Union in relation to cross-border transformation, mergers and divisions of companies. Specifically, we are referring to Directive 2019/2121 of the European Parliament and of the Council of the European Union of 27 November 2019 amending European Union Directive 2017/1132.

With the amendment of Article 529 of the Commercial Companies Code, the following types of demergers will be possible:

1) by transferring all the assets of the company being divided to other companies in exchange for shares in the acquiring company which are taken up by the shareholders of the company being divided (division by acquisition);

2) by setting up new companies to which all the assets of the company being divided are transferred in exchange for shares in the new companies taken up by the shareholders of the company being divided (division by setting up new companies);

3) by transferring all the assets of the company being divided to the existing and newly incorporated company or companies in exchange for shares of the acquiring and newly incorporated company or companies, which are taken up by the shareholders of the company being divided (division by acquisition and incorporation of a new company);

4) by transferring part of the assets of the company being divided to an existing or newly incorporated company or companies in exchange for shares of the acquiring company or companies, newly incorporated company or company being divided, which are taken up by the shareholders of the company being divided (division by spin-off);

5) by transferring part of the assets of the company being divided to an existing or newly incorporated company or companies in exchange for the shares of the acquiring or newly incorporated company or companies which the company being divided includes (division by spin-off).

The last bullet point will be a novelty in the Commercial Companies Code, what is the fundamental difference between a demerger by separation and a spin-off?

The institution is almost identical to a demerger by spin-off; at the same time, it should be remembered that there is a fundamental difference in that, in the case of a spin-off, the shares in the acquiring or newly incorporated company or companies will be acquired by the shareholders of the company being divided, while in the case of a demerger, it will be acquired by the company being divided.

Summary

The fundamental question is whether the new institution introduced into the Commercial Companies Code is necessary. The amendment was certainly a long-awaited step by the Polish legislator, as our western neighbours already have such a solution in their legal system. Moreover, the purpose of the amendment is to facilitate reorganisation processes in companies. This is primarily related to accounting and bookkeeping processes. Furthermore, the emergence of an optimised way of organising the business structure will contribute to an increase in the number of transactions on the market, which from an economic perspective will have a significant impact on the Polish economy.

The Act shall enter into force on 15 September 2023, with the exception of Article 13, which shall enter into force on the day following the date of promulgation.