Transaction vehicles (SPV)
In the case of acquisition of shares in a Polish company by investors (including foreign investors), it will often prove necessary for the investor to use another Polish company as the acquirer. To this end, the structure used most often is a limited-liability company serving in the transaction as a special-purpose vehicle (SPV).
The investor can establish a new company and take up the shares in the company. But given the time required for the procedure of entering a newly established company in the commercial register, as an alternative to establishing a new SPV for the purposes of the transaction investors often decide to acquire an existing “shelf company” and then participate in the transaction via the shelf company.
This is a fully registered company, with legal personality and also holding:
- National Court Register number (KRS), tax number (NIP), CIT and VAT registration, and statistical number (REGON)
- Temporary registered office
- Minimum share capital (PLN 5,000 in the case of a limited-liability company)
- Bank account holding the funds from the shareholder’s payment to cover the share capital.
Shelf companies generally do not have an operating history; that is, before being offered to a potential investor the company has not been used to conduct any operations or business, and its activity has been limited to carrying out accounting and reporting requirements.
When a shelf company is used, the course of the transaction does not depend on the length of the judicial proceeding to register the company, and upon acquisition of the shares the SPV is ready to proceed with the planned venture. After acquiring a shelf company, it may be necessary to amend the articles of association to meet the buyer’s needs; these changes become effective upon entry in the National Court Register. But in most instances a shelf company can be used immediately after it is acquired.
It should also be pointed out that effective from the beginning of 2012, the Commercial Companies Code now provides for the possibility of quick establishment of a limited-liability company based on a standard online form for the articles of association. As the practice develops in this respect, it will be possible to assess whether this express approach to establishing a company is a more practical alternative to using shelf companies and streamlining of the procedure for amending the standard articles of association after formation of the company.
Capital increase of SPV
Before using the SPV for the transaction it will typically be necessary to add to its capital to provide the funds to carry out the planned acquisition of the shares of the other entity.
The capital of the SPV will usually be increased in one of three ways:
- Contribution to cover the shares in the newly created share capital (in the case of a new company) or the shares in the increased share capital of an existing company
- Surcharges (dopłaty) by the shareholders (if permitted by the articles of association of the SPV)
- Loans to the SPV by its shareholders.
In the case of loans, however, the limitations arising under thin capitalisation rules must be observed.
Simply put, under the thin capitalisation rules, a shareholder loan will be tax-neutral for the company so long as a company’s total indebtedness to shareholders (including the value of loans) does not exceed the company’s share capital (1:1 ratio). For this reason, a potential loan to the company by a shareholder is preceded by an increase in the company’s share capital.
It also happens in practice that a shareholder first makes a loan to the company (in an amount not exceeding the company’s equity), and then after some time the parties agree to convert the loan into an increase in share capital. Such measures are mainly aimed at improving the company’s balance sheet.
If the investor uses an SPV, strictly speaking the entity involved in the transaction is not the investor itself—which probably has a reputation and a recognised position on the market—but an empty “shell” with no assets or operating history.
For this reason, the other party (e.g. the seller of the shares that are the subject of the transaction) will typically demand that the investor guarantee the obligations taken on by the SPV in the transaction.
Depending on the legal construction of the venture, the guarantee will typically take the form of the investor’s assumption of the SPV’s debt under the transaction documentation (becoming jointly and severally liable with the SPV, in which case the investor will become a party to the transaction) or by providing the other party with a separate document, issued by the investor, in which the investor guarantees the obligations of the SPV.
If the party interested in acquiring shares in a Polish company is a financial investor (such as an investment fund or private-equity fund), unlike an industry investor it will typically not have its own managerial team with knowhow in that specific industry.
Thus, until closing, the management board of the SPV will be made up of the investor’s representatives, appointed temporarily, who then will be replaced after closing by a management team, often coming from the company acquired in the transaction. Consequently, the same persons will often serve on the management boards of both entities. Often the final element of the transaction is to simplify the capital structure by merging the Polish entities, where the SPV is the acquirer of the company acquired in the transaction.
In these situations, it is crucial to schedule the closing activities properly.