Anna Dąbrowska, Maciej Szewczyk

Sale of an enterprise with assignment of rights under commercial agreements

Does the acquirer of an enterprise become a party to commercial agreements related to the enterprise under the same terms as the seller?

In a transaction involving sale of shares in a company, the change in ownership generally has no effect on legal relationships to which the company is a party, because the entity—the company itself—does not change.

The consequences are different in the case of a transaction involving sale of an enterprise within the meaning of Polish Civil Code Art. 551. Then there is a change in the entity that is a party to all of the agreements connected with the operations of the enterprise.

It is thus worth looking more closely at the consequences of sale of an enterprise, which is defined by Civil Code Art. 551 as an organised set of tangible and intangible assets intended for conducting business activity (examples of the elements are listed in the code).

The consequences are different for claims than for obligations.

Under Art. 551(4), the seller’s claims connected with the enterprise being sold, including contractual claims, e.g. receivables from customers for goods or services already provided, or claims against suppliers for delivery of goods or performance of services, are included in the elements of the enterprise (see Supreme Court judgment dated 18 August 2005, Case No. V CK 104/05). Thus, under Art. 552, they pass to the buyer unless otherwise provided in the relevant legal instrument (e.g. the agreement on sale of the enterprise) or in specific legal regulations.

Obligations are treated differently. Following an amendment to the Civil Code in 2003, obligations and burdens are no longer listed in Art. 551 as constitutive elements of the enterprise. However, under Art. 554, the acquirer of an enterprise is generally liable jointly and severally with the seller for the seller’s obligations connected with conduct of the enterprise (unless despite due diligence the buyer was not aware of the obligations at the time of acquisition).

This rule is designed to protect creditors, who may seek satisfaction of their claims directly from the acquirer of the enterprise without first challenging the sale of the enterprise as an act to the detriment of creditors.

With respect to obligations under commercial agreements, e.g. an obligation to pay for goods supplied or an obligation to provide goods or services, this means that the acquirer joins the seller’s original debt or obligation to the other party. As a result, there are two entities jointly and severally liable to the other party (see e.g. Supreme Court judgment dated 15 June 2010, Case No. II CSK 2/10).

Conversely, in order to assume the seller’s obligations (i.e. to step into the shoes of the seller), it is necessary to obtain the creditor’s consent to release the seller from the debt (see Supreme Court judgment dated 4 April 2007, Case No. V CSK 3/07).

Because under Art. 554 the acquirer’s joining the debt applies to the seller’s obligations connected with the operation of the enterprise, it should be accepted that this includes obligations existing at the time the enterprise is sold. In consequence, this will apply to obligations that are already due as well as obligations that are not due yet (e.g. where there is a future deadline for performance).

Thus, so long as agreements with counterparties concluded by the seller do not contain non-assignment clauses, as a consequence of acquiring the enterprise the acquirer acquires claims under agreements with counterparties. In this specific instance, however, the acquirer becomes obligated (jointly and severally with the seller) for performance of the agreements.

A separate issue is the appropriate contractual provisions governing the issue of settlements between the buyer and the seller of the enterprise, particularly concerning liability to a counterparty for an action by the seller. The buyer and the seller are jointly and severally liable to the counterparty, but in their own agreement they may provide, for example, that between themselves the seller shall be solely responsible for actions made prior to conclusion of the agreement on sale of the enterprise.

Because commercial agreements (and sometimes other types of agreements, e.g. administrative agreements) often contain non-assignment clauses, for the sake of clarity with respect to the effectiveness of the buyer’s assumption of the seller’s rights and obligations under such agreements, before acquiring an enterprise it is worthwhile to have the seller obtain written consent of counterparties for assignment of rights under their agreements to the buyer of the enterprise, and to release the buyer from liability with respect to actions taken prior to sale of the enterprise.

Anna Dąbrowska and Maciej Szewczyk, Corporate Law practice, Wardyński & Partners