by Piotr Kopec
Observation of economic reality in Poland leads to a conclusion that owners of the companies more and more often decide to create a capital group of companies. The main reasons to create a dependant companies is to create a company for a specific task, to increase in the competitiveness and value of the companies or recognise a new entity for tax purposes. On the other the company may turn out to be dominant towards other company because of the purchase shares of in that company.
The Polish Commercial Companies Code recognise a company to be dominant in the following cases:
1. The company controls a majority of the votes at the general meeting or the general assembly of another capital company or partnership. It is the most typical example in Polish commercial company practice of the relation of dominance. It must be underlined that the value of shares or the number of shares is insignificant. It is the number of votes that counts and decides about the dominance relation.
2. The company is entitled to appoint or dismiss a majority of the members of the management board of another capital company. This situation is very common connected with the first case. Normally a shareholder who has the majority of votes at the general meeting is also entitled to appoint the majority of the member of the board.
3. The company is entitled to appoint or dismiss a majority of the members of the supervisory board of another capital company. Analogically also the situation when a shareholder is entitled to appoint the majority of the members of the supervisory board is treated in Poland as the dominance relation.
4. The members of its management board constitute more than half of the members of the management board of another capital company (the dependent company). It is very interesting provisions and many people tend to forget that also when the same people constitute the board of management of other company is treated by Polish law as dominance relation. This case is independent of ownership relations in the company. In may happen the two companies has different shareholders but because of the fact the same persons constitutes the board of the companies, there is a dominance relation.
5. The company exerts a decisive influence on the operations of the dependent capital company. The Polish law does not specify the concept of ‘exercising decisive influence’ on the operations of a company. This means that a catalogue of cases that can be qualified as fulfilling the conditions of decisive influence is open.
What are the consequences of being a dominant or dependent company in Poland?
First of all the dominant company shall, within two weeks of the date on which such relation arose, notify the dependent capital company that the relation of domination has arisen.
Secondly a shareholder or member of the management board of a company may demand that a company which is the shareholder in such company provide information as to whether it remains in a relation of dominance or dependence. The replies to the shall be provided within ten days of receipt of the demand.
In my opinion the most important consequence that Polish law provides for dominance relation is the prohibition of acquisition of the shares by a dependent company in dominant company. In other words the dependent company can not purchase the shares of the dominant company. Such a transaction is invalid and Polish Registration Court shall not register such an acquisition.
There are some exceptions for the abovementioned prohibition. Namely the dependent company can purchase the shares of the dominant company in the course of enforcement proceedings for satisfaction of claims of the company which may not be satisfied from other assets of the shareholder. The second exceptions is acquisition for the purpose of redemption.
To sum up, it is very important in Polish law to determine if there is between companies the relation of dominance. It has the particular meaning when it comes to the acquisition of the shares between the companies that are connected. As in Poland the creation of the group of companies or appointing the same persons to the board management of the companies is quite common, it should be kept in mind that the relation of dominance has its consequences and may lead to annulment of some acquisitions.