This content is from: Local Insights

Poland

Two new Acts of Parliament have introduced far-reaching reforms to the rules governing the privatization of state-owned companies in Poland. The first Act, of August 8 1996, abolished the Ministry of Privatizations, and, as of October 1 1996, transferred its functions to the Treasury Ministry. The second Act, of August 30 1996, amended the terms and conditions of the sale and privatization of state-owned companies. It came into force on April 8 1997.

This new Act is within the spirit of the old Privatizations Act of July 13 1990. It retains the fundamental elements of privatization through the sale of shares and privatization through liquidation. Nevertheless it introduces a number of innovations intended to facilitate the procedures and expands the range of methods of privatization available. Foreign investors as well as Polish enterprises should find them profitable.

The new Act applies to so-called public enterprises, ie the state-owned enterprises and local authority undertakings. Besides the privatization of state-owned enterprises, joint public/private projects are burgeoning in Poland. They should provide scope for cooperation between municipalities, customers and investors to improve public services.

The new Act breaks new ground by introducing new methods of selling and privatizing state-owned companies, taking into account their respective size and reflecting the various structural needs of the Polish market. It distinguishes between small and medium-sized undertakings, and large state-owned companies. A small or medium-sized undertaking is one that employs less than 500 employees, has a turnover of the zloty equivalent of Ecu6 million (US$5.5 million) or less and has a shareholders' equity of the zloty equivalent of Ecu2 million or less.

Small and medium-sized state-owned companies can be privatized directly, without first being transformed into commercial companies, by way of a sale of part of their assets to private individuals or entities. The employees can also effect a takeover by forming a company which will initially continue trading for a fixed period. At the end of this period, the employees will have a buy-out option. This form of privatization is not open to large state-owned companies.

Direct privatization takes the place of the privatization through liquidation provided for by the old Act. Direct privatization consists of the transfer, with the authorization of the Treasury Minister, of assets and liabilities of a small or medium-sized state-owned company to a private individual or entity by way of sale, contribution to share capital or transfer of business. Private investors, Polish or foreign, can purchase the assets or business, along with their liabilities, without being obliged to purchase a public enterprise as a whole.

All state-owned companies, particularly large ones, can be transformed into commercial companies. It is possible to stop the privatization process without selling shares to third parties, which was prohibited in the past (at least in theory). The share capital of companies transformed in this way will be owned by the Treasury Ministry or a municipality as far as local authority undertakings are concerned.

If they are in a difficult but not desperate financial situation, they can be transformed into limited liability companies, and their creditors can invest in such companies alongside the Treasury Ministry by converting the debts outstanding to them into shares. This is new. In consideration, they reliquish two-thirds of their debt. Foreign creditors are, however, prohibited from converting debts owed to them by Polish companies into shares.

After being transformed into commercial companies, state-owned companies can be privatized indirectly, ie their shares may be sold off to private individuals or entities. Employees can acquire 15% of the share capital free of charge provided they retain their share holding for a period of two years (three for employees who are members of the management board). Employees are also entitled to appoint representatives to the management board and the supervisory board.

The reform also applies in theory to local authority undertakings, provided their transformation into commercial companies complies with the special rules laid down by the Territorial Economy Act of December 30 1996, which entered into force on February 20 1997. This Act provides for an accelerated procedure for the commercialization of such undertakings. If the municipalities do not decide otherwise before June 30 1997, the local authority undertakings become commercial companies, by law, on July 1 1997. This revolutionary reform may create a number of practical difficulties.

Finally, the new Act makes an attempt to involve Poles in these sell-offs by establishing the first elements of privatization by way of bonds. The detailed rules for this type of privatization will, however, ultimately be defined by Ministerial Order in Council.

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