The parent company’s notification obligation and consequences of failure to notify

OBLIGATION TO NOTIFY ABOUT

THE

ESTABLISHMENT

OF A

DOMINATION

RELATIONSHIP The parent company is obliged to notify its subsidiary of the relationship that has arisen, in order to serve the purpose of transparency of capital relations within the companies.

Notification is also subject to termination of the dominance relationship.

The notification obligation generally applies to the directly parent company , i.e. to a company that has a capital, personal, organisational or contractual relationship with a subsidiary.

EXCEPTION!

An exception to the situation where the direct parent company notifies the parent company of the relationship of dominance is the case where in a subsidiary company the shareholder is both the company concerned and a company or cooperative dependent on it.

In such a situation, the acquisition or exercise of rights in the units by such a company or cooperative is deemed to be an acquisition or exercise of rights by the parent company.

In such a relationship, the notifying company is the indirectly dominant company .

The relationship of the companies should be assessed on the basis of Article 4 § 1(4) of the Companies Act, which defines a dominant company as a company that:

1. holds directly or indirectly a majority of the votes at the shareholders’ meeting or the general meeting, also as a pledgee or usufructuary, or on the management board of another capital company (subsidiary), also on the basis of agreements with other persons,

1. or
2. has the right to appoint or dismiss a majority of the members of the management board of another incorporated company (subsidiary) or cooperative (subsidiary), including under agreements with other persons, or
3. has the right to appoint or dismiss a majority of the members of the supervisory board of another incorporated company (subsidiary) or cooperative (subsidiary),

1. also on the basis of agreements with other persons, or
2. its management board members constitute more than half of the members of the management board of another capital company (subsidiary) or a cooperative (subsidiary cooperative), or
3. it holds directly or indirectly a majority of the votes in a subsidiary partnership or at the general meeting of a subsidiary cooperative, also on the basis of agreements with other persons, or
4. it exerts a decisive influence on the activities of a subsidiary capital company or a subsidiary cooperative, in particular by concluding an agreement between the parent company and the subsidiary providing for the management of the subsidiary or the transfer of profits by such a company.

Aparent company may be any Polish commercial company (general partnership, partnership, limited partnership, limited joint-stock partnership, limited liability company, simple joint-stock company and joint-stock company), as well as a foreign company that corresponds to the typology of Polish companies.

A subsidiary can only be a capital company (limited liability company, simple joint-stock company and joint-stock company).

FORM AND TIME OF NOTIFICATION Notification

may be made in any form and is effective as soon as it has reached the addressee (the subsidiary) in such a way that he or she could have been acquainted with its contents; however, account must be taken of the need to prove that notice of the establishment of the relationship of dominance has been given, and it should therefore be made in at least documentary form.

Notice may also be given by electronic means, which shall take effect when it has been entered into the electronic means of communication in such a way as to enable the addressee to acquaint himself with its contents.

The parent company should notify the subsidiary within 2 weeks from the date on which the parent relationship arose.

However, the moment at which the dominance relationship arises will not always depend on the parent company itself, as the relationship between the companies may arise, for example, as a result of the transfer of preference shares by third parties.

In such a situation, the parent company may obtain such information late and the notification period is deemed to run from the date the parent company becomes aware of the information.

Suspension of the exercise of voting

rights The sanction for failure to comply with the information obligation is the prohibition of the exercise of voting rights from shares that exceed 33% of the share capital in the subsidiary.

This means that the parent company can still effectively vote the rights or shares that represent up to 33% of the share capital of the subsidiary.

The sanction of suspension persists from the day following the last day of the two-week period set for notification until the parent company gives notice to the subsidiary.

Importantly, the obligation to notify applies to parent companies regardless of the nature of the relationship, while the sanction for breach of this obligation applies only to those companies whose dominance is of a capital nature, as only in this case is the sanction of suspension of the exercise of voting rights possible.

This sanction is akin to norms of a public law nature rather than a voluntary obligation and, according to commercial law doctrine, should be classified as a sanction-restrictive suspension.

NULLITY OF RESOLUTIONS

If the parent company, despite failing to notify the subsidiary of the creation of the parent relationship, votes with shares representing more than 33% of the share capital, such resolution is null and void, unless the majority of votes and the required quorum have been maintained without taking into account the invalid votes.

In such a situation, the suspended votes shall be treated as if they had not taken part in the vote.

MODEL NOTICE

Download the model notice prepared by the BBS Office:

WZÓR ZAWIADOMIENIA O POWSTANIU STOSUNKU DOMINACJI.