On August 5, 2015, the President of the Republic of Poland signed a new Act on Control over Certain Investments dated July 24, 2015 (Journal of Laws of 2015, item 1272). On September 30, 2015, the ‘Act’ entered into force in Poland.
The law started controversies even before its adoption, because the protectionist attitude of the state was considered to be not only contrary to certain elements of the European legislation, but also to the European Convention of Human Rights and several aspects of international law.
The aim of the Act is to create mechanisms in order to protect against hostile takeovers of companies operating in key sectors of the Polish economy (Kluwer Competition Law Blog, 2015). While this goal might be beneficial to Polish companies, the way in which it is put into action is considered to be problematic. Firstly, the law creates a right to veto for the Polish government. The action plan proposed by the Act is that, before the acquisition of shares of strategic companies, the buyer will have to notify the Minister of the State Treasury and to get an official approval. The consequence of the new regulations is that the Minister of the State Treasury becomes a third authority, next to the President of the Office of Competition and Consumer Protection and the Financial Supervision Authority, authorised to control mergers and acquisitions in Poland (Polish Competition Law, 2013).
The obligation to inform the Minister of the State Treasury will apply to transactions which involve the acquisition of at least a ‘material stake’ in companies working in the sectors that are considered to be strategic for the economy. The material stake is defined as a situation which influences the activity of an entity by holding shares representing at least 20% of the total number of votes over the last two years, in the decision-making body of the company or holding an equity interest in a partnership with a value of at least 20% of the value of all contributions made to the partnership (Kluwer Competition Law Blog, 2015).
As a consequence, the Ministry has the possibility to create a list of entities which are subject to protection under the new law. The main role of the institution is to assess the impact of the possible acquisition on the Polish economy, but it can also evaluate whether the transaction is a threat to the independence of Poland, the integrity of its territory, the respect of human rights or national security or public order. The ministry has a large margin of appreciation when approving a transaction, as the criteria presented in the Act is broad, using statements such as ‘the market share of the entity in question’; ‘the scale of the business’, and the transaction’s potential to ‘upset public order or public security’ (Aleksander Stawicki, 2015).
The decision has to be taken within 90 days from the delivery of the notification or from the initiation of proceedings. For the purchaser, this period might be considered to be too long, as it may negatively influence the development of his business. If the Minister makes an objection, the transaction will be blocked. If the acquisition is made against the objection of the state, or without notifying the Ministry altogether, it will be considered null and void. Furthermore, it will be impossible to exercise rights regarding the acquired shares and all decisions adopted by the decision-making bodies of the company will also be null and void.
As far as sanctions are concerned, the failure to comply with the notification obligation can bring a fine of up to PLN 100,000,000 (EUR 25,000,000) or a penalty of imprisonment between 6 months and 5 years for person acting on behalf of legal person. Decisions will be subject to judicial review by complaint to the administrative court.
Judging by its content, the new Polish law introduces an exception to the European Union freedom of capital movement. The control exercised by the state is not related to the State Treasury or to other public entities’ share in the capital of the company, but to the role of the company in the Polish economy and to the fact that the company is restricted from making any changes that might negatively impact the economy. The Act was inspired by laws and other judicial instruments functioning in other EU member states, such as Germany, France and Austria, as well as in other well developed economies, like US and Canada. The decreased levels of international security in the European Union and the state of the economy in Poland have had a significant impact on the adoption of the Act. Another element that conducted to this change was related to recent acquisition attempts of Polish companies that were considered to be contrary to the national security, such as the takeover attempt Grupa Azoty, by Acron, a Russian company.
Even though it is not the first of its type, the law seems to be a lot stricter than the anterior and raises some problems regarding the European and international investment law. Some of the strongest critics regarding the Act refer to the conflict with the European law – more precisely, the Treaty on the Functioning of the European Union (TFEU). Articles 52 and 65 of the European treaty refer to the national legislation regarding public policy, public security and public health and the restrictions that the state can impose, as well as the interdiction of arbitrary discrimination or a disguised restriction on the free movement of capital and payments. Based on these articles, it might be considered that the new polish Act provides non-proportional, arbitrary and discretionary powers to the state. Even if the new law invokes, in a very broad manner, that the interference of the Ministry is justified by the protection of the public order and public security, as well as the state’s integrity and independence, the present situation does not prove in any way that these elements might be as endangered as to justify the new legislation as proportional. On the other hand, the supporters of the Act argue that the state must have the power to prevent issues that can arise from problematic acquisitions. The Polish government has referred to examples of other EU Member States with similar legislation (Marcin Wnukowski, 2015), but whether or not that legislation is as strict as the new Act is a question still left unanswered.
Moreover, as far as the investors are concerned, their judicial protection will be impaired by the large autonomy of the Polish state. The objections were raised during the legislative process, when it was also suggested that it would be beneficial to make the new measures proportional and compliant with the EU law.
The justifications of the state, as well as of the supporters of the Act, were related to the fact that the situation of Poland and of Europe, generally, makes the case-law of the European Court of Justice ‘outdated’ as far as this form of legislation is concerned (Squire Patton Boggs, 2015). It is essential to know that it is not the first time when the European Commission might start the infringement proceeding against Poland regarding one of its legislative measures. A similar occurrence took place in 2010 and it referred to a similar law on the part of Poland, which was later modified in order to respect the European legislation.
The discretionary power of the state, created by the Act, might also be contrary to the case law of the European Court of Human Rights. In cases such as CEC v. Italy, the Court has criticised measures that are excessive and disproportionate. In this specific case, the vague criteria used in appreciating the opportunity of the transactions might be appreciated as contrary to the rights of the citizens involved.
Secondly, it is essential to take into account that Poland is part of 60 bilateral investment treaties. The purpose of these treaties is to impose the negative obligation of the state regarding the use of unreasonable or unjustified tools that could infringe on the rights regarding the leadership, maintenance, use of the investment, except the situation where this would be justified by public interest, it would not be discriminatory and the investor would receive damages.
Based on the role of the state, as a consequence of the Act, Poland might violate the principle of non – impairment, which is imposed by the bilateral treaties. The principle of non-impairment generally refers to the fact that unreasonable or unjustified means may not be introduced if they lead to the impairment of the management, maintenance, use, enjoyment or disposal of the investment (Squire Patton Boggs, 2015).
As a consequence of the Act, both the sellers and the buyers will be disadvantaged by the difficulty in selling their shares, due to the fact that the number of buyers is limited by a potential veto of the government. At an international level, the value of the companies might also decrease, based on the same difficulties, which may be equivalent to an expropriation in the sense of international investment law. Existing companies with foreign ownership could be put on the restricted list, meaning that the law would affect existing investors. These situations are usually solved by means of international arbitration, if all national recourses have already been pursued. Even in this case, it is hard to believe that a national court will be impartial regarding a trial between the state and a private company, which is why critics also warn that this law will create a lack of predictability, which will constitute an issue both as far as transactions are concerned, and regarding the possibility of buyers and sellers to construct a solid long term business plan.
In conclusion, even if the Act on Control over Certain Investments might bring certain advantages to the Polish state, it is clear that it will create some problems for both the buyers and the sellers that have been targeted by the law. Taking into account the possible incompatibility with the European law, as well as with many bilateral treaties which were previously signed by Poland, it will be interesting to see which will be the long-term consequences of the change of legislation.
This article was originally published in the tenth issue of the magazine, which can be accessed here.