Purchase of agricultural land

Purchase of agricultural land – opportunities and threats – Polish perspective

A recent, last-year amendment of Polish Land Administration Act has further entangled procedures related to purchase of agricultural land. This does not mean, that such purchase is impossible – the Polish lawmaker left us a few options and legal loopholes which may be of use to non-farmers.

The first step for any non-farmer or legal entity interested in such purchase is to check, whether the land in question and its use is governed by local land use plan (MPZP – Miejscowy Plan Zagospodarowania Przestrzennego). The plan is a binding source of law for the area it covers, so if the plan designates an area as designed for non-agricultural use, purchase should pose no problems whatsoever. The plans, however, are not mandatory for local administration, which may use a study on future physical development of the commune instead – this document is mandatory, yet not binding. As a result, its provisions will be basically irrelevant to the purchasing party. Farmlands are often excluded from the binding plans, and even though we may file for establishment of the MPZP for an area in question, such procedure may last for years. Such pace of proceeding is obviously out of question for most potential buyers. If, however, the estate is not influenced by MPZP, we can take further steps into consideration.

Agricultural Real Estates below 0,3 hectares

The smallest farmlands, measuring up to 30 ares, are excluded from the Land Administration Act regime, meaning that we can purchase them freely – just like any other real estate. Such piece of land is more than enough for consumers willing to build a house, but in case of entrepreneurs this might be not enough even for minor investments. There is always a possibility to divide the estate into small plots of land and buy them singularly. If such solution is unavailable, another option is available for plots of land up to one hectare.

One hectare – one major issue

Up to one hectare, agricultural plot of land can be purchased fairly easily, as long as the National Centre for Agricultural Support (Krajowy Ośrodek Wsparcia Rolnictwa, KOWR), a body administering state-owned farmlands, does not make use of its right of pre-emption. The procedure in this regard is simple for both parties. Firstly, we need to draft a preliminary agreement on purchase of land, in which the purchase itself shall be deemed dependant on refrainment from pre-emption of KOWR. Copy of the agreement is then sent a notary to the Centre, which has one month to make use of its right. If that is the case, the Centre notifies the seller of property by registered mail and publishes the notification on KOWR’s website. Later on, the final agreement between KOWR and the seller is drafted and concluded at price as declared in the preliminary agreement. If the price is considered flagrantly overpriced, the KOWR may ask the court, within 14 days after its notification, to establish a fair price for the estate. This may result in a radical cut on the price and a loss for the seller.

If KOWR is unwilling to buy the estate, it may notify the seller in writing or refrain from any actions altogether. The most certain way to check if we are free to finalise the purchase is monitoring the website of KOWR, where any notification will appear first. As soon as we make sure that KOWR is not interested in the land, we can proceed with the purchase.

Large farmlands – a risky game

Any plot of agricultural land larger than one hectare will prove extremely problematic for both parties concerned. Before the amendment it was enough to offer an estate for sale to farmers using an Internet platform provided by KOWR for virtually any price. If there were no bids, all we had to do was to ask the KOWR for permission to sell the land to someone else, e.g. a non-farmer, and it was rather easy to achieve such permission.

At the moment, if we want to fulfil requirements listed in the Act, we have to offer the estate for sale for a price no higher than 149% of price of land of similar class and quality, as established by the Central Statistical Office for every voivodship. This new requirement means that the initial price might be extremely low – even 149% of the centrally established price is much less than usual market prices. Additionally, the offer made on the KOWR virtual sales platform is binding, meaning that if we choose to take a risk and publish an offer there, we will be forced to sell the land to any other farmer who places a bid. That way, both parties which originally intended to conclude an agreement lose everything. The seller is basically forced to sell his land at an exceptionally low price, and the would-be purchaser must look for another estate once again. One of the most obvious results of the new requirement is a decline in prices of agricultural property in general. The only way to ease this radical procedure is to order and provide an appraisal report which will prove, that the estate is worth more than 50% more than the officially established price. Such appraisals will be, however, available only for the most valuable and healthy soil. The valuable lands are in turn much more problematic in any further proceeding, which we will discuss below.

To summarise, the whole procedure looks as follows: firstly, the land must be offered for sale on the website with a proper price. The offer must contain designation and description of the estate, its price, its purpose in accordance with local spatial planning acts, as well as a deadline for submission of bids, which should be no shorter than 30 days after publication. If the seller does not receive any bids in the designated timeframe, he can ask KOWR for a permission for purchase of agricultural land by a non-farmer, attaching relevant proof of failure to sell the land online, a declaration of potential buyer regarding further performance of agricultural activity and a declaration that the purchase will not result in an excessive concentration of agricultural lands, as well as other documents required by law. If KOWR disagrees for the purchase, we may file an appeal to the Minister of Agriculture. Alternatively, the seller may request KOWR to purchase the estate at a market price established by KOWR itself. The price may sadly turn out to be low, comparable to pricing indicated by Central Statistical Office.

Farmland in a company?

The above mentioned procedure is risky, but there is a much safer alternative – if we are keen on purchasing a large agricultural estate, we can bypass the toughest procedures easily by contribution of the estate to a limited liability company. This is the safest and arguably one of the quickest methods to acquire such land. The first step is obviously a conclusion of a company contract and creation of the company. The estate should already be mentioned in a contract as a non-cash contribution of one of shareholders, but there should be also a provision reaffirming, that ownership of the estate will pass to the company only through conclusion of a separate notary contract. This way we clarify the situation and reject any possible accusations of KOWR, that the acquisition of land was finalised without the Centre’s consent. After conclusion of the contract, the company is already capable of informing KOWR about the contract, asking for permission for acquisition. The notification should include relevant excerpts from land registry. Additionally, it is a good idea to make a declaration on further performance of agricultural activity. This document will greatly enhance our chances for permission, while creating very vague and general obligation that is, in fact, quite easy to fulfil – for example, by regular maintenance of grass in the area. The permission will allow us to conclude the agreement transferring right to the property to the company in a form of notary contract. If KOWR does not approve of acquisition, the only other option it has is to purchase the land by itself within a month, which is highly improbable in practice. Only then, after the ownership is transferred to the company, we can successfully register it. Importantly, the limited liability company can exist without registration up to six months – this is our deadline to perform the acquisition and file for registration of the company. Otherwise, the entity will cease to exist by law.

The previous owner of the land should be encouraged to join the company by security of this procedure, as he will not be obliged to put his land for sale at a terrible price. If KOWR by any chance decides to buy the estate to stop it from introduction to company, it will usually pay a market price for the land. Of course, the seller will receive his payment quite late – only at the moment when he sells his shares – but the traditional proceeding described above is comparably long anyway.

As soon as we decide to transfer ownership to a company, we should separately launch proceeding to exclude the estate from agricultural production. As long as the land remains agricultural, KOWR will be involved in every major proceeding related to changes in company, such as purchase of shares. KOWR has a right of pre-emption to shares of every company owning more than 5 hectares of farmland. The faster we exclude the estate from agricultural protection, the better. In most cases, we will have to change the status of farmland first.

Change of farmland status

An important step on our path to successful investment is a change of farmland status of the estate. This procedure is once again dependant on the MPZP – If the estate is influenced by the MPZP and designated for agricultural purposes, the change of status must occur through a change in the plan. As we discussed earlier, this is an extremely lengthy proceeding, often completely depriving the estate in question of any potential. If, however, spatial planning is on our side, we can act further in line with its valuation class and chemical composition. The valuation class, ranging from I (the best soil) to VI (poor soil), is mentioned in an excerpt from land registry, whereas the composition (either organic or mineral) can be checked in an environmental department of a district office. The best lands, marked I-III, require a ministerial approval for change of farmland status, which in practice is available only through establishment or change of MPZP for the area. The lengthy process does not necessarily have to be successful in this case, as the best lands can still prove to be too good and valuable for the government to let go. It might be easier, and the change might occur without these complications, if:

-at least half of every consistent plot of land must be located within an area of a dense architecture,

-they are no further than 50 meters away from the nearest building plot,

-they are no further than 50 meters from a public road,

-the overall land is no larger than 0,5 hectare, regardless of its division into separate plots – artificial division into smaller plots is therefore out of question.

On the contrary, all lands with IV-VI class rating, as well as I-III-rated lands meeting the criteria above, do not require any decision at this point. We can immediately launch a proceeding for a decision on development conditions. If we are looking for a location for our investment, it is these ground that we should take into consideration in the first place.

Development conditions

The proceeding related to a development conditions decision is fairly simple and straightforward – it should not take more than a month. Virtually anyone can file for it, even a potential purchaser of an estate, but only an owner is able to do it free of charge. The application must contain characteristics of a planned investment, including information on size, technical parameters, and environmental impact of planned structures. Compulsory attachments include a set of official maps, decision on environmental aspects (if applicable), a confirmation of possibility of land development, as well as confirmation of payment of applicable charges and power of attorney document if necessary.

The application will be reviewed in terms of urban development coherence. The investment should serve as a continuation of functions, parameters, and specification, including architectural specification of buildings, outline of buildings and density of architecture, of at least one neighbouring plot of land, in accordance with the so-called principle of good neighbourhood, which is one of the crucial spatial planning rules in Poland. Apart from this, the plot of land in question must have access to a public road, and its existing as well as planned development is sufficient for the investment. Of course, the decision must be issued in accordance with other legal provisions, such as construction law.

If the issued decision is not satisfying for us, we can file an appeal to a local board of appeal. Throughout the proceeding we may also file complaints for opinions of relevant organs, which usually constitute administrative decisions.

Exclusion from agricultural production

Finally, the last step is an exclusion from agricultural production. After this stage is over, the plot of land will no longer be considered a farmland and can be purchased or acquired without interference of KOWR and without farmers competing for purchase. The Land Administration Act will no longer apply.

Yet another application must be filed in case of any land marked I-III, as well as in case of IV-VI class lands of organic composition. In the latter case, the application is binding for the local government and we can be certain to receive a positive answer. Application forms are easily accessible on websites of district offices, and their compulsory attachments include land registry excerpts, excerpt from the MPZP if applicable, a decision on development conditions, documents confirming a title of ownership, indication of worth of land, as well as a project of development of the land. The obvious key to success is a compatibility of the investment with provisions of the respective decision on development conditions. The application itself is free, but the exclusions process may be expensive in its own right – it imposes a price on the process, which acts a bit like a reimbursement to the state for its loss of agricultural power. This Includes a singular charge and another, equal one divided into 10 yearly payments, each clearly amounting to 10% of the original charge. Charge rates per 1 hectare are established by law and they are highest for lands of best quality. The overall sum calculated on such basis is reduced by a market value of the land, with the result being the actual charge we are obliged to pay. Only the worst lands – marked IV-VI of mineral composition, are free of charge. Interestingly, an exclusion of up to 500 square meters designated for a single-family house, as well as an exclusion of up to 200 square meters per every planned apartment may be free of charge. The latter option may be extremely important in case of investments in housing, as it may drastically reduce costs of exclusion from agricultural production. In general, a decision should be issued within a month.

However, the exclusion will be effective only after any works in the area are started. Beginning of construction works is considered a moment, in which an actual, material change of purpose of land occurs. The final exclusion can be declared by a surveyor as soon as the works begin. Only then can a relevant entry in registry be altered, with the code R, indicating agricultural land, being replaced with Bp marking, indicating an urban land under construction. At this point any regulations on agricultural land cease to apply, as long as we managed to exclude the whole plot of land.

Is it worth the fuss anymore?

Changes in the Land Administration Act may result in a prolonged loss of value of agricultural lands, resulting from forced application of Central Statistical Office pricing. Nevertheless, every agricultural plot of land requires a careful and thorough examination before we start any proceeding. Proceedings on farmlands can prove both too expensive and too long to be feasible. Depending on characteristics of the land and path of proceedings we choose to follow, we must take into consideration that there may be a risk of substantial charges to be paid for exclusion from agricultural production, as well as a risk of losing the estate either to KOWR or to individual farmers. In practice, entrepreneurs should focus on lands marked IV-VI. These are most promising as they are not protected by as many proceedings and costs as the better ones.

The last thing to consider is an actual risk of losing an estate to KOWR. In fact, it is not a major threat by itself. Statistics published by the Centre itself and our experience prove, that KOWR exercises its rights very rarely, mostly with regards to large lands bordering the ones which are already state-owned. In the end, the risk is in general extremely low, but even though KOWR may be obviously uninterested in the particular estate, we still have to follow procedures and waste a lot of time waiting for its approval or lack of reaction. Sadly, procedures relating to agricultural estates are a substantial and hardly avoidable burden in acquisition of farmland.

Author: Filip Walczak


Financing of companies undergoing restructuring

The COVID-19 pandemic and its economic side effects act to the detriment of entrepreneurs in various ways. Most notably, business partners often delay their payments due to financial problems of their own, resulting in further payment backlogs.

As we discussed in one of our earlier articles, one of the options available under Polish law is restructuring of a company. It is governed by the Restructuring Act of 15 May 2015 (Polish: prawo restrukturyzacyjne, Dz. U. 2020, poz 814).

The restructuring is a major intervention in assets and liabilities laid out in balance sheets of a company. Additionally, this procedure results in major alterations in organisational structure of the company. Its main goal is to make the company more profitable, for example by reduction of costs, discontinuation of unprofitable products or services, or by overall improvement of competitiveness, resulting from a review of management policies of the company in question.

Purely technical improvements, such as modernisation of production by introduction of more efficient equipment, may also be a part of restructuring. Such improvements allow the company to improve quality of products, while reducing costs of manufacturing, such as costs related to energy and materials. More modern equipment itself should also prove cheaper to maintain.

Cost reductions can apply to all levels of the company, from production to management. Costs are crucial in assessment of company’s profitability, thereby directly influencing the process of restructuring. Structure of costs determines, which areas of the company will be included in the process.

Lastly, restructuring touches upon management policies within the company and people who implement these policies. Change of industry, expansion into new markets, or even the slightest changes in management may lead to substantial profit.

Restructuring in general is a process of major changes, which are obviously difficult to overcome for many entrepreneurs, regardless of their future advantages. In order to answer these needs, various funds are offering dedicated products for large, industrial companies undergoing restructuring.

Funding can support restructuring in its entirety and can be used either as an additional capital or as an incentive for a new financing model. All processes mentioned earlier, combined with the funding may transform a company into an efficient and profitable entity, able to generate profits and pay its debts on its own.

We can offer two variants of funding:

  1. Restructuring of debt
    1. Possibility to readjust sum and terms of payments in accordance with current business activities,
    1. Reduction of financial costs by elimination of short-term (i.e. expensive) financing methods,
    1. Improvement of financial stability, acquisition of additional funds and ability to continue standard business activity without major financial obstacles, which would otherwise result from lack of readily available bank funding,
    1. Partial payment of debts, which allows to achieve greater financial security (eg. restructuring of security)
  2. Financing of restructuring plan
    1. Goals identical as in the first variant,
    1. Financing of operational restructuring, i.e. without major amendments to structure and location of business activities.

History and evolution of financial instrument demonstrate that numerous solutions created for large companies are subsequently offered to small and medium enterprises. We can therefore expect that funding schemes will allow restructuring on a wider scale, and that in turn will limit number of companies forced to shut down and file for bankruptcy. Restructuring is the best way for many entities for a fresh start and a more optimistic perspective.

Author: Jarosław Gierszal


Obtaining financing in times of pandemic

The COVID-19 pandemic, as well as subsequent lockdown, harmed entrepreneurs worldwide in various ways. Closed borders brought import and export of goods to a halt, changing exchange rates radically influenced profits, and financial problems of individual customers forced them to reduce spending on luxury goods, instead focusing on the most basic needs. Cancelled contracts, suspended public orders, as well as almost complete lockdown of hospitality and tourism industry, resulted in unprecedented consequences which apply to virtually every branch of industry.

This environment allows only for survival of the fittest – the ones big enough to compensate for losses, or the ones who can use their knowledge and resources to adapt to new reality quickly. A fundamental requirement for survival is financial stability combined with easily accessible funds. This is what makes business adaptive and competitive. That is why companies still enjoying profits should not use the pandemic as an argument to refrain from any development of the company. Instead, they should focus on cost optimalisation while still developing. On the other hand, companies in financial trouble should achieve thorough knowledge regarding alternative, sources of funding, such as preferential loans available within the Financial Shield package.

What is public funding?

With regards to entrepreneurs and other private entities, public funds can mean any type of repayable, partly repayable, or non-repayable financial assistance granted on a more preferential basis than in market reality. This assistance includes grants, subsidies, and liquidity loans. Public funding is an essential part of the Anti-Crisis Shield, a Polish governmental support package introduced as a result of the pandemic. The first version of Shield was introduced on 1 April 2020, and from its very beginning was conceived as overarching support of Polish economy, employers and employees suffering as a result of the pandemic. Currently, Polish government works on the Shield 6.0, which should further broaden a scope of industry branches eligible for public support to 40, with monthly sum of all financial support solutions amounting to 4 billion PLN. Until now, financial support distributed through the Shield amounted to more than 150 billion PLN.

This amount includes:

-60,8 billion PLN distributed through the Polish Development Fund (Polski Fundusz Rozwoju, PFR)

-26,8 billion PLN distributed through Polish Ministry of Family and Social Policy,

-23,9 billion PLN in preferential loans for SME sector,

-17 billion PLN worth of social insurance exemptions,

-14,4 billion PLN in loans for large and medium companies,

-5 billion PLN for idle time benefit,

-1,13 billion PLN of EU funding for SME sector,

-312,9 million PLN of solidarity surcharge.

Operators of public funding include Polish tax authorities, the Social Insurance Institution, regional authorities, the PFR and all sorts of trust funds using their own funds, as well as additional funding from Polish state development bank (Bank Gospodarstwa Krajowego, BGK), which amounts to additional 40,06 billion PLN.

Why public funding matters

In times when most funding products and services offers are very similar, it all comes down to costs and availability of funds when making the right decision. In both these aspects, liquidity loans and government-funded investment loans have the most to offer.

These two types of funding are inexpensive, as there are no costs related to processing of a credit application, and no commission fee whatsoever. Additionally, interest rates are extremely low, ranging from 0% to 4% per year, depending on a particular fund. In comparison, interest rates offered by banks amount to at least 6%, sometimes reaching up to 10%.

Loan agreements are fairly straightforward and include thorough explanation of terms used in their texts, making them easy to understand. They are devoid of any legal loopholes or possibly dangerous provisions.

Funding is provided by a direct transfer to bank account of a company, which should occur no later than in 1-2 days after conclusion of an agreement.

It is worth mentioning, that costs borne in connection with the loan granted through public funding are in terms of accountancy considered a cost of a business activity and can be listed as such in accountancy documents of a company.

Availability more important than ever

Current market situation is extremely dynamic and demands from entrepreneurs an ability to react to needs of customers swiftly. Apart from the pandemic, any company must take into consideration market tendencies, ever more rigorous quality demands related to social responsibility and ecological issues, as well as many other factors which ultimately determine, whether a company is competitive or not. Each of these changes result in additional costs, which often have to be covered using external funding.

Bank loans were until recently the best, traditional way of obtaining such funds. However, a recent rise of prices, more strict bank regulations and aggressive policies forced many people to look for a new, more easily accessible form of funding. Public loans are the answer to these needs.

Accessibility of such loans is obvious as soon as we look into regulations on excluded branches of business. Apart from alcohol and tobacco production, fuel and mining industry, weapon industry, pornographic industry and shipyards, no branch is excluded in its entirety. Each application is analysed individually. Another crucial aspect of public loans is the fact that it can be used to finance start-up companies, which are often excluded in banking loan systems due to their lack of evaluable financial history. Instead of analysing the past, administrators of public funds focus on the future – applications of start-ups are evaluated based on their ideas, financial forecasts, and sometimes even based on an overview of a particular social group or area, which would require activation through financing of new undertakings.

Another substantial argument in favour of public loans is their straightforward, fast analysis procedure. It is much simpler than in case of bank loans, and most commonly it is based only on analysis of current evaluation period (n) and the period immediately before it (n-1).

Public funds do not require drafting of extensive and expensive business plans, relying instead on short descriptions of planned undertakings and simple financial forecasts.

Looking ahead

While applying for a public loan we must keep in mind, that the operator of public funds will always evaluate credibility of our company, for example by analysing entries in online debt registries. This way, operators can choose safe debtors which will not cause problems within their debt portfolio. Every company should therefore care for his credit history, which is, in fact, its solid investment in future stability. Market of the future will require from us constant changes and adaptation, and those who will stand still will actually go backwards. Companies that cared for their credibility before the crisis have bigger chance of retaining stability and may get out of current difficult situation even stronger. At the same time, those who were found unprepared for the crisis may now fail to comply with public funds conditions and face even more serious financial problems.

It would be a great New Year resolution to use every financial surplus of 2021 to build strong portfolio of assets and to repay old debts. Combined with timely repayment of current bank debts, it will prepare us for any market surprises of the future.

Author: Jarosław Gierszal


Real estates for foreigners – step by step

Legal acts tend to evolve or change extremely quickly in continental law systems, but sometimes we can encounter some old artifacts of legislation that somehow remained in force particularly long. In Poland, for example, the oldest still binding act of law is an Act on Purchasing of Real Estates by Foreigners, which dates back to 24th of March 1920. Obviously, the act has been fundamentally changed and expanded since then, but today it is still an extremely important act in Polish business environment. For foreign entities willing to start their business in Poland it is a particularly important act, which deserves attention.

Who is really the foreigner?

To begin with, we must determine who fits into the definition of foreigner as laid out in the act. The definition contains following groups:

  • people without Polish citizenship – people with more than one citizenship with one of them being Polish, are therefore treated as any other Pole;
  • legal persons with their registered seats outside of Poland – particularly limited liability companies or anonymous companies, as well as foundations or organisations seated outside of Poland;
  • companies of subjects mentioned above, without legal capacity, seated outside of Poland and created on basis of foreign law;
  • legal persons or companies without legal capacity seated in Poland, effectively controlled by foreigners, either directly or indirectly.

Foreigners coming from countries of European Economic Area (EEA: the EU, Norway, Iceland and Liechtenstein) as well as Switzerland, are still considered foreigners, but they do not require any permission to buy real estates in Poland in any case. Those entities will not face any additional obstacles based on their foreigner statute, regardless of capital or control of the entity coming from outside of the EEA.

The term “control” over legal persons and companies has been explained in detail by lawmakers, but strangely enough, this definition is completely irrelevant in relation to purchase of real estate. This is a result of legal norms mentioned above, which declare that any foreigner based in EEA not required to file for permission to purchase real estates, regardless of control held over it. Consequently, companies based in Poland may be considered foreigners, but no matter how they are connected to foreign capital or foreign entities, they will still be able to buy real estates freely. It is therefore childishly simple to bypass the whole permission procedure by creating a limited liability company (spółka z ograniczoną odpowiedzialnością, sp. z o.o.) with its registered seat anywhere in Poland.

If we are considered foreigners by the act, we should in principle file for permission to buy any real estate, as described further. There are, however, a few situations when foreigners do not need permission. Those exceptions do not apply to real estates located in a border zone (which roughly consists of Polish municipalities along national borders, including the whole Tricity area and every other coastal municipality) and to agricultural estates larger than one hectare. If none of the two exclusions apply, we will not need permission to buy:

  • an independent apartment, which means an apartment consisting of rooms and additional spaces such as kitchen or bathroom, which provides adequate housing;
  • a garage or a share in garage, if we require it as buyers or owners of an apartment in order to provide adequate housing;
  • real estate, if we have been living in Poland for five years since receiving permanent resident permit or becoming a long-term resident of the EU;
  • real estate, if it will become a joint property of spouses, if the buyer is a spouse of a Polish citizen and have been living in Poland for two years since receiving permanent resident permit or becoming a long-term resident of the EU;
  • real estate from its owner or perpetual user, if the seller has been an owner or perpetual user for at least five years, if we are entitled to inheritance from the seller based on Polish law – this way, we can easily buy real estates from our close Polish relatives.

The overall structure indicating entities which require permission to buy estates is complicated, but crucial if we want to make a purchase.

To-do list

In order to receive a permission, we must file for it to the Ministry of Internal Affairs and Administration. The procedure is lengthy, and we may wait for an answer for even four months, so it would be wise to file for permission as early as possible. We may expect faster response, if we want to buy something in one of Polish Special Economic Zones – one of them consists of eastern part of Pomeranian voivodship, including the Tricity and Hel Peninsula, and of complete Kuyavian-Pomeranian Voivodeship – the Ministry is then obliged by law to either issue a permission or decline within one month. Basic data which we should include in our document include data of an entity asking for permission, precise information on the real estate in question, according to its type, information on seller, type of legal action resulting in transfer of rights to property (e.g. sale, exchange, donation), purpose of the purchase, and information on sources of financing of the transaction.

One of the key elements is a demonstration of foreigner’s connection with Poland, as such a connection is a legal requirement for the permission. Such connection might be established by Polish ancestry, marriage with Polish citizen, a permanent residence permit, or – most importantly for an entrepreneur – a position in management board of a Polish company or a business activity in Poland. This list, present in the act, is in no way a full list, so we may use a little bit of creativity to come up with other convincing connections. Keep in mind that the list mentions an already lasting business activity, and not just a plan to launch such an activity. It will be therefore useful to provide documents demonstrating, that our business activity in Poland has already begun and purchase of a real estate is a natural next step for our company – any kind of Polish business permissions or concessions would be very helpful here. If we indicate business connections with Poland, we should also indicate how the subject of potential purchase answers the needs of said business. In short, the real estate must fit our business. It is hardly possible to get a permission for a company to buy an apartment, as long as it is not for tourism.

We cannot forget about compulsory attachments, either. They are listed in an ordinance of the Minister of Internal Affairs and Administration and depend on multiple aspects, but in general, the attachments should be related to:

  • the foreigner himself – in case of natural persons, we will need a confirmed copy of an ID, whereas in case of legal persons, copies from relevant national registries will be necessary;
  • the real estate – an excerpt from a land register entry, from the cadastral map or other relevant land registry in Poland, depending on type of real estate. All copies and excerpts should be issued no sooner than six months before filing for the permission;
  • documents on sources of financing of the purchase, as well as – in case of business activity – on financial possibilities to conduct business activity, issued no sooner than three months before filing. Such documents may include attestations from banks or relevant tax authorities;
  • documents demonstrating connection to Poland, such as confirmed copy of marriage certificate, residence permit copy, or documents related to business activity in Poland;
  • confirmation of payment of stamp duty.

Confirmed copies are copies confirmed either by notary or by legal counsel, tax advisor, patent attorney or attorney, acting as plenipotentiary. Documents written in foreign language must be attached together with translation to Polish, made by certified translator. The stamp duty mentioned above amounts to 1570 PLN and should be paid to City Hall of Warsaw, as all stamp duties are paid in relevant municipal offices. High cost of permission is a result of complicated procedure, engaging multiple bodies – the Minister of Internal Affairs is obliged to ask Ministry of Defence for their opinion, and if the real estate in question is agricultural, then the Ministry of Agriculture is also obliged to issue an opinion.

Purchase of agricultural estate leads to further complications, as in most cases an Act on the Formation of Agricultural System will apply to such transaction. According to this act, if the agricultural estate is to be sold to anyone or anything other than individual farmer, a permission from the Agricultural Property Agency will be required. The permission requires a specific proceeding described in the act.

Promise – a promising option?

An interesting option – but not an alternative to permission itself – is a promise, described in Article 3d of the act. The promise is fairly inexpensive, as the stamp duty is only 98 PLN, and if the promise is granted, we will have a year to file for permission itself, while being assured that the permission will be granted as long as facts relevant to the case will not change (for example, the promise might be rejected if the company ceases its business activity in Poland or suffers losses which render it unable to conduct activity related to the estate in question). When filing for the promise, we have to provide the same required information and documents as when filing for the permission itself, yet we will still have to file for permission again. Before issuing a promise, the Ministry of Internal Affairs and other interested bodies must examine the case just as before issuing a permission, so in reality the promise will not be provided much quicker than a permission would be. All of this renders the institution of promise questionable at least, especially with regards to Special Economic Zones, where we should receive either the permission or the promise within one month.


Throughout the proceeding, the minister may request additional information from the foreigner, mostly in order to check if the purchase will not affect national security, internal safety or other interest of the Republic od Poland. If the motion is declared to fulfil all requirements and receives positive opinions from all relevant organs, the permission will be issued, valid for two years.

In case of rejection of our motion, there is a possibility to file for a second investigation of the case to the minister, which should be done within 14 days after a negative decision is delivered. This motion requires a statement and explanation, in which aspects we disagree with the decision issued. It is also possible to bring the case directly to administrative court. Luckily, the 100-year-old Article 4 of the act, stating that the decision of the minister “shall not require any explanation and shall be final” is no longer in power.

A task for professionals

Procedure leading to permission for purchase of real estates is sadly both complicated and expensive. Apart from the stamp duty, we must keep in mind related costs of translations of foreign documents, fees for relevant documents regarding the estate, and costs of confirmation of copies. All that can be easily avoided simply by creation of a company in Poland, although this is not a universal solution helpful in every case. If there is no chance to make use of numerous exclusions and exceptions, we should let the professionals handle the case for us. Knowledge and experience will allow to manage the procedure effectively and without unnecessary problems.

Author: Filip Walczak


Debt Epidemic – How to protect yourself against it?

The infamous debt collection is a notion that haunts many entrepreneurs, particularly throughout recession, such as the one that we witness nowadays. This is, however, far from being death sentence for our company, and if we know our rights – we might defend ourselves and make use of this procedure to regain control over our money and get rid of debts swiftly.

Bailiff or just a debt collector?

Many people treat both of these professions equally, fearing that a letter from debt collector may have subsequent consequences of seizure of their funds or entry to an office of the company. On the contrary, these two professions are radically different and do not share the same range of tools available to enforce debts. Competences wrongly associated with debt collection are in fact elements of bailiff enforcement, which may be used only by the bailiff and only in a manner strictly regulated by civil law procedures. A real bailiff in Poland never acts on his own or on behalf of private company, as these are in fact officials attached to a district court. What can a debt collector legally undertake, then?

In fact – nothing. The collectors are in no way particular officials and they can rightfully do as much, as any creditor could do on his own. Therefore, they cannot seize our funds, enter our property without our consent or require any information on our financial situation. Any of such actions may in fact be considered crimes, as long as they are not performed by a bailiff on a basis of a proper enforcement order. They may and should be reported to the Police. Which abuses are most common in debt collection?

  • forced entry to debtor’s house without his explicit consent – this behaviour is considered a crime, as laid out in Article 193 of Polish penal code (k.k., kodeks karny) – an intrusion upon seclusion,
  • threats of penal procedure and subsequent bailiff enforcement – this is not only absurd, as debts are most commonly a case for civil, not penal courts, but also illegal, as it be may considered a use of violence or illegal threatening with a purpose of debt collection, as described in Article 191 §2 k.k.,
  • the same article forbids any kind of physical violence in debt collection. Additionally, violence may also constitute an infringement of Article 271 §1 k.k., i.e. violation of physical integrity. Additionally, serious cases may result in personal injury, as regulated by Article 157 k.k.,
  • violation of physical integrity may also occur during forced eviction, to which debt collectors have no rights whatsoever,
  • any attempts or threats of seizure of funds located on bank accounts or seizure of pension or salary are completely out of place, have no legal grounds and may constitute a fraud, penalised by Article 286 §1 k.k.,
  • debt collectors cannot order us to give them any of our belongings or our money – this may constitute either an attempt of theft (Article 278 k.k.) or extortion (Article 282 k.k.)
  • the collectors have no right to inform debtor’s family or employer on his debt – this may lead to accusations of stalking (Article 190a k. k.) or defamation (Article 212 k.k.).

All actions listed above may also serve as a basis for compensation or punitive damage, if the illegal debt collection resulted in material damage, for example if a car is damaged during a seizure attempt, or if it leads to intangible losses, such as stress resulting from stalking. Paragraphs of penal code mentioned above may prove extremely useful in a dispute with an aggressive debt collector. If he acts persistently regardless of our legal arguments, it might be necessary to call the police to bring the unlawful debt collection to a halt. If the collector does commit anything from the list above, it would be fully appropriate to inform either the Police or relevant prosecutor office about a crime. The most proven and safe method is to submit a notification of a crime in the nearest police station. In case of some crimes, such as stalking, police or other organs may undertake proceeding if the victim files for such proceeding in so-called application for prosecution. A police officer reporting a crime should inform us in due time, that the application is necessary in the case in question.

Our readers may wonder at this point, what exactly is a debt collector allowed to do, if pretty much everything is either available only to bailiffs or forbidden altogether? In fact, the principal activity of such collector is negotiation. It is perfectly legal for collectors to contact their debtors and negotiate repayment of the debt in tranches or reduction of debt in exchange for instant repayment. Even the negotiation may however turn illegal, as soon as it becomes stalking, or more precisely a crime of repetitive, persistent harassment, as mentioned above. Such discussions with debt collectors may also be an opportunity to extort our private data. In general, however, the negotiations may bring positive results both for debtors and creditors, allowing the debtor to get rid of his old commitments quickly and rather cheaply, without bearing the costs of court procedures and actual bailiff enforcement. In order to succeed in negotiations, we must have some knowledge on our debts – most importantly, we should check if they are not expired.

Expiration – a debtor’s secret weapon

Many debts collected and enforced by private companies were either never brought to court, or were in fact stated in court decision, but such decision has never been successfully enforced. Such debts are often expired, and private companies try to collect them mostly by relying on confusion and lack of legal knowledge of debtors. No debt collector will ever help us realize, that the debt he tries to secure is in fact too old to be enforced. That is why we should make a quick revision of law on debt expiration.

Back in 2018 we witnessed a major amendment of relevant provisions. Since then, the maximum period of expiration is only 6 years, compared to 10 years regulated before 2018. The 6-year-period applies to majority of claims, including the claims confirmed by decisions of courts, arbitration courts, or any other body able to conduct such proceeding, as well as to claims established in a settlement confirmed by court or arbitration court, or in a settlement established by mediator, subsequently confirmed by court. Expiration period has not changed with regards to periodic payments, such as loan payments, as well as payment related to business activity, and still lasts 3 years. Additionally, the expiration does not occur exactly 6 years after the claim has arisen, but on 31st December of the year in which the 6-year period passes. Realistically, many claims may expire after almost 7 years, such as claims related to contracts concluded in January.

Temporary norms on expiration are extremely complicated. If a claim has not expired before 9th July 2018, we must compare how it should expire according to old, 10-year limit, to how it should expire in accordance with new regulations, with expiration period counted since 9th July 2018. In short – we must check if the old regulation caused an expiration before 31st December 2024. The sooner of the two dates in comparison must be applied.

Keep in mind, however, that the civil code provides a list of events that lead to cessation or pause of the termination period, completely altering the debtor’s situation. In practice, cessation of expiration is particularly important, as it may be caused by any action in the court or any other organ competent in the dispute in question, including an arbitration court, which aims directly at confirmation or pursuing of a dispute, as well as by initiation of mediation or by recognition of the claim by the debtor. Negotiations with debt collectors are in no way an ‘official’ mediation, but in the process of negotiations it may be easy to recognize the claim involuntarily. This might have disastrous consequences, especially if the claim in question is close to expiration. In case of cessation, regardless of its reason, the expiration period starts anew.

How does the expiration benefit debtors? Most importantly, it gives a sense of financial security and stability, as the creditor will have no possibility to enforce debt collection by legal means. If the claim was not brought to court yet, the claim will be easily dismissed in case of court proceeding only because of its expiration. Even if the expired claim is confirmed by court, and even if it is supported with an enforcement order, the bailiff will still lack legal grounds to undertake debt enforcement. This is a serious argument that may lead creditors and debt collectors to reduce the disputed amount drastically, thus making it easier to erase the debt. On the other hand, even the expired debts may be listed in registries, such as National Debt Registry (Krajowy Rejestr Długów, KRD) or BIG InfoMonitor. Such negative entries in registry are a powerful weapon of debt collectors, as they may prove problematic for debtors attempting to obtain a bank loan, leasing, or any kind of instalment purchase. Even if entries relate to old, radically expired debts, the only way to get rid of them is to achieve an agreement with debt collectors. There is no legal requirement for such registries to remove expired debts – conversely, removal of entry depends solely on the creditor.

One good reason to check your mail

If the negotiations fail, we may expect the debt collector to bring the case to the court. Many people still believe in a theory, that one can easily avoid any court proceedings against him, if one simply avoids acceptance of any court correspondence. Such theory is nowadays nothing more than an empty urban legend, which may prove detrimental especially in case of dispute with debt collectors. This is because such companies often make use of a lawsuit combined with a motion to issue a payment order against a debtor. This is a perfect, delightfully simple method for a creditor to fight for his claims, as the payment order requires nothing more than the most basic documents, such as an invoice accepted by the debtor or a contract. The debtor is not informed about the proceeding against him in the course of proceeding – the first mail that he will receive will be the payment order itself. Luckily, just as it is simple to get the payment order issued, it is easy to overturn it. This requires only a simple act of objection. The objection must be filed within 14 days after the payment order is received. Hiding away from a mailman will not solve anything – we must actively object the order. The objection results in a standard court proceeding, including a classic hearing during which we will be able to secure our rights. This is particularly important, as the payment orders are often issued almost automatically and may relate to debts already expired or repaid. Such claims may be easily rejected in the court, but the success depends on the first step of the creditor – receiving of his mail.

All bark and no bite?

After our summary, the debt collection should not seem as scary and deadly effective as it would seem at first glance. Debt collectors are just ordinary businessmen or workers with no special powers, and even though contact with them might prove beneficial, we cannot forget throughout the negotiations, that the other side has no major advantage over us. The debt collectors tend to rely on confusion and lack of legal knowledge of debtors, so the best way to win is to be aware of one’s own debts, as well as of one’s rights and duties.

Author: Filip Walczak


Binding Tariff Information (WIS)

On June 1st, Polish entrepreneurs had to face a new VAT tariffs scheme, which was bound to enter into force as early as in April. The amendment has been postponed, however, due to the COVID-19 pandemic and subsequent chaos on the market, which would be even deeper with changes tax law. Even though we were given additional time to prepare, many companies may be surprised and face problems related to the new tax reality, especially with Combined Nomenclature (in Polish: Nomenklatura Scalona). Luckily, the amendment itself contains a very handy procedure on Binding Tariff Information (Wiążąca Informacja Stawkowa, WIS). It is supposed to bring more clarity and certainty into tax reality, and apparently it shows up in Polish legal system just in time.

What is WIS exactly?

Polish tax law already allows to file for an individual interpretation on tax regulations, which in theory should protect taxpayers from paying taxes higher than as declared in the interpretation. Sadly, the protection provided by interpretations is far from perfect – tax organs tend to undermine them, arguing for example, that facts stated as basis for the interpretation were imprecise, and the interpretation should not apply in the situation in question. Those decisions are further weakened by a clause on tax avoidance. The WIS may therefore be considered an answer of lawmakers to criticism of the old proceeding.

Firstly, it must be noted that WIS applies only to VAT and it is regulated in the Act on VAT. The interpretation, on the other hand, may apply to most taxes and it regulated in the Tax Ordinance Act. The WIS relates only to VAT because of its principal position in Polish tax system and in business trading. Both proceedings are broadly similar, but they key difference lays in Article 42 of the Act on VAT: the WIS is binding tax administration with regards to entities entitled to file for WIS. As a result, protection offered by WIS is much tougher and there is no possibility to issue a tax decision contradictory to WIS in question. It will also be more difficult to undermine the WIS, especially considering the fact, that each WIS applies to a particular product or service based on its detailed description, while at the same time indicating classification of the product or service in accordance with the Combined Nomenclature, Polish Classification of Goods and Services or other applicable classification, therefore indicating a correct VAT tariff.

The Procedure

Both a taxpayer, identified by NIP number, as well as any other entity undertaking or planning to undertake actions related to subject of the proceeding, or buyer as laid out in Public Procurement Law – to an extent, to which VAT influences pricing of a procurement, may file for WIS. The Tariff Information is issued by the Director of National Tax Information Office (Dyrektor Krajowej Informacji Skarbowej, KIS). The KIS website, as well as e-PUAP platform offer a simple model of a document, which might be used to file for WIS both by e-PUAP profile or by traditional mail. The WIS application should include a detailed and thorough description of a single product or single service. More products or services may be described together, if they form a composite service – a set of service consisting of a primary service and other services inherently connected to the primary one, being necessary for performance of this service. The description is a key element of the application – if done properly, it will provide a solid basis for a subsequent decision. We may suggest classification which seems correct for us, but obviously this suggestion is in no way binding for the Director of KIS.

Additionally, the application should be reinforced by attachments – any kind of documents or materials helpful in the procedure. The Director of KIS has also a possibility to demand a small batch of product for necessary examination – such examination may occur particularly often in chemical or food industry. The application itself is inexpensive and costs only 40 PLN, although in case of examinations we will most likely have to bear cost of them as well. 40 PLN is a cost of a single application for a single product or service (or composite service) so if we want to check proper classification of multiple separate products, we will have to pay 40 PLN for each of them. The Director of KIS is obliged to issue his decision within 3 months, starting on the day when he receives a valid and properly paid application. Both decisions and related applications are published in a Bulletin of Public Information, so even though other decisions do not bind us, we may check how similar applications to ours are proceeded and interpreted.

What’s the catch?

The overall concept of WIS seems fantastic, but it is still far from perfect. Its legal basis is largely derived from old regulations on individual interpretations. For example, if the decision is altered or revoked, we still use Articles 14k – 14m of Tax Ordinance Act, which protect taxpayer and his actions undertaken before he received the decision on altering or revoking, and allow to use the WIS until the end of tax year, in which the WIS has been altered or revoked. Although the WIS is supposed to be a solid document for taxpayers, it may be either altered or revoked altogether, with the most important grounds for such decisions being:

  • decision declared incorrect by Head of National Tax Administration,
  • changes in relevant EU tax law,
  • declaration of incorrect interpretation of relevant legal provision,
  • declaration of incorrect judgement based on legal provision.

In the end, even though WIS is much stronger than classic interpretation, it may still be overturned.

Furthermore, there is one difference between WIS and individual interpretation, in which the old solution was actually better for taxpayers. The WIS is binding only with regards to goods and services delivered or manufactured after the WIS is received. In contrary, individual interpretations did give taxpayers a certain degree of limited retroactive protection. Currently there is no chance for such protection in case of VAT at all, as the two proceedings are not interchangeable – WIS is applicable solely in VAT cases, while individual interpretation may not be used in VAT cases at all.

Combined Nomenclature itself is in a way yet another weakness of WIS, as it is changed on a yearly basis by the European Commission. Obviously, such changes will be hardly revolutionary, but if any change does occur with respect to classification of our interest, it may lead to revoking or change of WIS based on earlier CN version. 

Is it worth it in the end?

In short – the WIS is definitely worth filing for, as there is no chance for other kind of interpretation in terms of VAT anyway. The legal protection offered by the decision of the Director of KIS makes it useful even without retroactive protection, whereas virtually symbolic costs of a single WIS make it an attractive solution which may provide at least a bit more security for our business. It is particularly important in current situation, when many questions related to new classifications may arise. The Combined Nomenclature is a completely new tool both for Polish taxpayers and for Polish tax administration, so a WIS may be a useful tool in adaptation to the new system. Overall, practical impact of WIS is difficult to assess at this point, as the procedure is simply too recent. It will be essential to pay attention to subsequent behaviour of tax administration when it comes to WIS.

Author: Filip Walczak


Debt-proof Shield – A New Mode of Restructuring

On 19th June, entrepreneurs in Poland received new, even stronger version of the so-called Shield, a legal instrument created to assist companies, businessmen and workers in tough times of COVID-19 pandemic. The new act, officially known as Act on supplements to bank credits of entrepreneurs influenced by COVID-19 and on simplified proceeding on confirmation of an arrangement in connection with COVID-19 (Ustawa o dopłatach do oprocentowania kredytów bankowych udzielanych przedsiębiorcom dotkniętym skutkami COVID-19 oraz o uproszczonym postępowaniu o zatwierdzenie układu w związku z wystąpieniem COVID-19, Dz.U. 2020, poz. 1086) contains a vast amount of new legal solutions for companies, but today we will focus on one of the most interesting of them – a simplified restructuring mode.

This solution is far from offering a completely new path – quite the opposite, it is supposed to be just a variant of a standard proceeding on confirmation of arrangement, available – according to the act – only until 30th June 2021.

Arrangement in time of COVID

Changes provided in the new act apply mostly to early phases of the whole procedure. Any debtor may, after concluding a contract on an overview of restructuring proceeding with a licenced restructuring advisor, publish a single notice in MSiG (Monitor Sądowy I Gospodarczy, official Polish journal for legal persons’ obligatory announcements) in which he announces commencement of a proceeding on confirmation of arrangement. That is where the most fundamental difference lies – starting from the day of the announcement, until the day the proceeding is either finished or discontinued, the debtor is protected just as debtors, that had their arrangements settled and confirmed by the court in a standard proceeding. As a result, creditors are in a way presented with a fait accompli. The debtor may unilaterally refrain from paying due charges related for example to leasing, with creditor being unable to undertake any legal action against him. This, however, is not the end of consequences.

Debtor well protected

Protection offered in the simplified procedure is largely identical to what debtors can expect in a standard proceeding. First and foremost, any bailiff enforcement or other similar debt collection procedure relating to debts included by law in the arrangement, as well as debts related to mortgage, ship mortgage, or resulting from a lien, must be discontinued and no such action can be undertaken as long as the proceeding lasts. It is important to properly understand the term of debts included by law in the arrangement, as mentioned above. This term includes all debts arisen before the day of commencement of the proceeding (i.e. the day of publication), interest rates starting from the day of publication, debts dependant on fulfilment of a condition, as long as it is fulfilled during the proceeding, as well as debts arising from mutual agreements – provided that service offered by the other party is divisible and only to the extent, to which it has been executed before the publication without a due service from the party undergoing restructuring. For example, debt resulting from a contract will be protected if a creditor has paid for service, but has not yet received it, or conversely, if he still waits for payment for his service. Debts arising after the day of publication are in general not protected at all, although interest rates related to them cannot be enforced either. According to the amendment, further consequences of commencement of proceeding include additionally:

-lack of right for the debtor to fulfil duties related to debts included in the arrangement,

-offsetting of claims between debtor and creditor is prohibited, unless the debt has been purchased as a result of debt repayment, for which the buyer was personally or financially responsible, and his responsibility for the debt has occurred before the debtor has filed for publication (keep in mind that this is, consequently, an earlier date than date of publication, mentioned as a border point in all other cases),

-it will be impossible to terminate any leasing contract unilaterally, just as it is impossible in a standard restructuring proceeding.

The law has therefore given all debtors a great opportunity to catch a breath during those tough times. After the publication virtually all existing debts become frozen – they can be neither executed by creditor, nor fulfilled by the debtor himself. Such safety measures for debtors might be particularly tempting with regards to overdue bank loan payments, overdue rent, or other overdue payments related to business transactions.

In the simplified proceeding debtors are able to “freeze” most of debt enforcement actions undertaken against them basically unilaterally. As a result, they gain time and safe resources which can be used for further works on the repayment arrangement. The lawmaker has, in the end, removed the most problematic obstacle in the traditional proceeding – vulnerability of a debtor during a process of establishing of the arrangement itself with all his creditors. While commencing the whole process, debtors do not have to provide any information on their current debts or any other detailed documents – all required data is listed in the amendment and consist of the most basic information about a debtor.

What is next?

The new proceeding is a countermeasure against drastic losses of entrepreneurs resulting from COVID-19 pandemic, that may quickly lead multiple businesses to bankruptcy. The simplified restructuring allows swift response to financial complications and effective protection against creditors. Consequently, the debtor has clearly better chances to survive the pandemic and return to financial prosperity afterwards. His main incentive to focus on restructuring is a 4-month deadline established by the amendment. That is how much time does the debtor have to succeed with the repayment arrangement and file for judicial acknowledgement of the arrangement in court. If he fails to meet the deadline, the whole proceeding will be discontinued by law, and he will have to launch a second, classic restructuring procedure. An entity undergoing simplified restructuring may also launch a sanative procedure – the most radical among restructuring tools offered by Polish law – if the repayment arrangement is rejected by the court or if the proceeding is discontinued after the arrangement is filed in court.

Interestingly enough, the repayment arrangement does not have to be agreed upon by a creditor, whose claim is to be fully repaid in accordance with the document. This enables the debtor to proceed the arrangement much faster.

All of the novelties mentioned above may be of concern to creditors, but they have been given a balanced countermeasure – either the debtor, the restructuring overseer or the debtor himself may file for repealing of all results of publication on commencement of arrangement procedure, provided that they cause harm to the creditors.

Further proceedings regarding the arrangement are largely identical with the classic procedure. An assembly of creditors, a body which can confirm the arrangement, may be held via internet, provided that certain technical requirements, such as creation of protocol of the meeting in an electronic form, are met. Most of online communicators are therefore perfectly suitable for this purpose.

During the restructuring procedure, debtors’ duties are limited to ordinary management activities. Any other action will require a consent of their respective restructuring overseers, which may be given up to 30 days after the action in question as well. The overseer should in principle limit activities of the debtor to the absolute minimum, allowing the debtor to resolve his debt issues and bear all costs related to restructuring.

Old law, old problems

In short, the classic proceeding on repayment arrangement is based on a contract between a debtor and an arrangement overseer (a certified restructuring advisor) and creation of the arrangement itself on a basis of debtor’s current financial situation. The next part of procedure is focused on financial safety of creditors, as it is their role to agree on the arrangement. The document needs to be acknowledged by at least half of creditors, representing at least 2/3 of all the debts related. As mentioned above, after a successful acknowledgement, the arrangement must be approved by court. The court must assess the arrangement with regards to legal requirements for such documents, as well as with regards to possibility of flagrant harm towards the creditors voting against the arrangement. This is where the old procedure has its main weakness – the arrangement will become binding and effective, first and foremost by prohibiting all debtors from undertaking or continuing debt collection, only after the arrangement is approved in court. As a result, it is barely popular with the debtors. Its length and costs make such proceeding worthless, with the procedure being largely ineffective against debt collection in the early phase of proceeding. Further stages of the proceeding include validation of the court’s approval and execution of the arrangement by the selected restructuring advisor. The whole procedure comes to an end with a statement of court declaring a complete execution of the arrangement. 


New restructuring solution seems to be a very promising tool for companies dealing with effects of the pandemic. The simplified restructuring might prove useful for those who cannot fulfil their financial obligations in this particular period. It must be admitted that the amendment itself does not contain any serious loopholes – financial needs of creditors were taken into consideration as well, so they may easily counter harmful activities of their debtors. The pandemic itself has also impacted the new law, as the creditors may easily cooperate online. As we mentioned, the new restructuring procedure is largely based on an old and well-known procedure, so the recent legislation should not cause much concern or doubts in practice. Entrepreneurs have received an effective and simple remedy, which may give them as much as four months to improve their financial situation. The publication on arrangement procedure itself does not create any strict obligations for the debtor, so in practice it may be enough to “freeze” all debts for four months to save a company without any actual restructuring actions.

The amendment itself is very rational and promising, so we may expect it to remain in force at least partially after the pandemic. New procedure is to a certain degree based on an EU Directive of 20th June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency, and discharge of debt. Consequently, the simplified restructuring may remain in Polish legal system for good, as long as it proves practical and fair. Proceedings on repayment arrangement may gain popularity and become a handy solution, satisfying both debtors and creditors. Swift, effective, and cheap restructuring is, after all, profitable to everyone.

Author: Filip Walczak


The Mystery of Ultimate Beneficial Owner

Even though it is relatively unknown, the Registry of Ultimate Beneficial Owners (in Polish: Centralny Rejestr Beneficjentów Rzeczywistych, CRBR) has become officially operational as of 13th October 2019 – almost one year ago. What is CRBR? Who should be listed in the Registry? And last but not least – what are the consequences for those who fail to fulfil duties related to CRBR?

Who should be reported to CRBR?

Reporting to CRBR is mandatory for all ultimate beneficial owners (UBOs), with their definition being established by an Act of 1st March 2018 on countermeasures against money laundering and terrorism financing (Ustawa z dn. 1 marca 2018 roku o przeciwdziałaniu praniu pieniędzy oraz finansowaniu terroryzmu – Dz. U. 2019, poz. 115). The definition includes a large variety of entities, while being extremely complicated and causing serious doubts even for experienced professionals. In short, a UBO is a person holding more than 25% of shares in a company. If exact shares cannot be established, a person holding senior management position is considered an UBO. Additionally, a person that effectively controls the company directly or indirectly, as well as a person ultimately gaining benefits from owned or otherwise controlled company, are also considered UBOs. The definition of UBO applies also to a person, which effectively and decisively influences actions and decisions undertaken by the company.

It is important to notice, that duties related to UBOs do not apply to public companies as regulated in Act of 29th June 2005 on public offer and rules related to introduction of financial instruments to an organised trading system and on public companies (Ustawa z dn. 29 lipca 2015 roku o ofercie publicznej i warunkach wprowadzania instrumentów finansowych do zorganizowanego systemu obrotu oraz o spółkach publicznych – Dz.U. 2019, poz. 623).


Entities registered in Polish KRS (Krajowy Rejestr Sądowy, National Court Registry) before 13th October 2019 had 6 months to make a report on UBO – this deadline passed on 13th April 2020.

Legal entities registered after 13th October 2019 have much less time to make a report – just 7 days after their entry inti KRS, or in case of changes in KRS entry – 7 days after introduction of the change.

Keep in mind, that in all cases the 7-day deadline does not include weekends and national holidays.

Who should make the report?

The report to CRBR can be issued only by a person authorized to represent the company, i.e. person listed in KRS entry as authorized to represent the company. The report must be verified using qualified electronic signature or by ePUAP profile. This regulation has no exceptions – any plenipotentiaries or attorneys of a company are not authorized to issue reports themselves.

In case when more than one person is required for a valid representation of a company, the report must be undersigned by all people required in KRS entry, regardless of order of undersigning. In this case, both electronic signature and ePUAP profile may be used.

Consequences of non-compliance

Both the company and person issuing a report in its name may face severe consequences in case of wrong or delayed report.

A person issuing a report may be held responsible for losses caused by incorrect data published in report or by failure to obey deadlines established by law – possible consequences include fine of up to 1.000.000,00 PLN and prohibition of performing duties in a managerial position. A company itself, in case of failure to issue a report or in case of incorrect data presented in report, may be punished by a fine of up to 1.000.000,00 PLN or by prohibition of performance of certain activities.

In order to avoid consequences mentioned above, and fulfil legal obligations vested in the company, just fill a simple report at The report includes most basic information on the company, as well as on the UBO. It can be swiftly filled out entirely online, but sadly the form is available in Polish only.

Good luck!

Author: Weronika Wiczkowska


New Year, New Civil Procedure

Beginning of a new year is often a time of various summaries, but it is also a time of novelties – even when it comes to judiciary.  In the new year, Polish courts must deal with a major amendment of code of civil procedure (kodeks postępowania cywilnego – KPC), probably the largest one in recent years. The new act is a good source material for a scientific paper, but today we will try to tackle the issue from a business perspective. What traps have been prepared by lawmakers, and what should one take into consideration while preparing for a case?

Back to the past –a separate commercial procedure

A key novelty for all types of entrepreneurs is a separate procedure for business entities, which did in fact exist in Polish legal system before. The main argument, laid out in favour of this procedure by supporters of the new act, is the idea of making such business-related procedures much faster. Speed of proceeding is crucial when it comes to financial aspects of enterprises and their ability to operate in general. Such important proceedings are, according to article 4582 § 1 KPC cases:

  1. Between entrepreneurs regarding private law issues related to their business activities;
  2. Arising from corporate law and litigations within companies;
  3. Arising from construction work contracts or other contracts, related to the construction process, directly linked with performance of such services;
  4. Arising from leasing agreements;
  5. Between organs of state-owned company;
  6. For appending an enforceability clause to an enforcement title, which is a decision of a commercial court or a settlement concluded before that court.

For every rule, there is an exception

Two exclusions have been established – both division of partners’ assets after cessation of partnership and cases relating to debt acquired from a non-entrepreneur, except when the debt arose on grounds of contract, related to business activity of all of its parties have been excluded from commercial cases. Division of assets itself is a classic civil court case, so there’s no wonder it has not been transferred to commercial courts. This type of case simply doesn’t fit there. The second exclusion has been established with enterprises dealing with purchase of debt in mind. Such debts have various sources, which do not necessarily fit within scope of commercial courts.

Certain elements of typical civil proceeding have also been excluded from this procedure, creating an interesting example among Polish civil procedures. Commercial procedure does not allow for addition of new claim instead or together with the ongoing one, except for a situation, where the new claim regards repetitive payments or other provisions which should be repetitive, such as monthly rent. It is also forbidden to change a subject of dispute for something different or its equivalent.

The whole scheme creates a reasonable balance between flexibility required by the very nature of commercial litigations, such as a possibility to include new unpaid invoices in the case, and the main goal of lawmakers – to make Polish courts faster.

It will still be possible to sue additional parties in the course of procedure or for third party to intervene in the procedure, but possibilities provided in articles 194-196 of KPC have been excluded as well, which means, among others, that a suit filed against a wrong party can no longer be ”saved” by indicating another, appropriate party. Such a mistake will lead directly to lost case and lost money. Extreme caution must be then taken, when there is a need to file a suit against a company, in order to check if it really is the legal person we need to get into litigation with, or is it just a different subject somehow related to an appropriate party.

Furthermore, it is impossible to suspend procedure due to absence of parties in court, so parties will no longer be able to bring court proceedings to a halt by simply disregarding calls to appear in court. It should also be kept in mind, that within commercial procedure there is no possibility to use counterclaim within one litigation, or to hand a case over to a district court already dealing with a related case.

These last two exclusions are rather pointless – to forbid possibilities much more beneficial for both sides – courts and parties. Without these options, there will be not one but two separate proceedings burdening both entrepreneurs and judges.

Oblig@tory e-mail address

Novelties outlined above are not the only ones, as there has to be mentioned one more crucial, yet completely pointless trait of commercial cases – an obligation to include e-mail address (or a separate declaration of lack of such an address) of all parties in their first documents sent to a court. According to the original concept of lawmakers, the e-mail had been supposed to be an additional way of communication between court and parties not using legal aid, used to send messages and non-defined support for such parties. Nature and form of such support still remain unknown, and as a result, provision of e-mail address hardly changes anything. On the other hand, lack of information regarding e-mail is a major formal deficiency leading to serious consequences. Apparently, we have to deal with a serious error in legislation, and still include e-mails whether it makes sense or not.

The need for speed

We also have to keep in mind, that two important periods have been shortened – both time for discontinuance of a suspended proceeding and for motion of resuming the case have been cut in half.

There are also new deadlines applying to work of courts. Now there is only one month to delegate an issue not being a commercial one to a non-commercial court, or to delegate a commercial case to commercial court by an invalid one. The one month-period starts when parties engage in dispute and is supposed to prevent prolonged disputes as to which court is the proper one in the case. Commercial cases put additional pressure on court and its president, as they should work on every case in a manner, that will lead to a conclusion in no more than six months. Obviously, this is not a fixed, strict deadline, but rather an emphasis on pace of proceeding. Each case is different, and one cannot expect, that every one of them will be over in half an year, regardless of external factors, such as the sheer number of documents that need examination. Courts retain all the right to work on a case for more than six months, if there is a need to do so. On the other hand, the six-month term implies that judges should be in hurry – and while speed is an important contribution to efficient legal system, other values and overall quality of court proceedings should not be surrendered in the name of speed.  

Both sides of litigation are „hurried” by the new legislation as well, for example because of the requirement to lay out all claims and evidence in their first documents within the litigation. There will be no possibility to keep an ace up one’s sleeve for later.

Mediation as a great bargain?

Entrepreneurs should also focus on new regulations in regards to costs of court proceeding. They have been clearly amended in order to fulfil not only financial, but also an incentive aspect of such costs. That should come as no surprise– inflation and continuous rise of virtually all prices must have sooner or later led to subsequent rises of court costs. This is particularly relevant in the area of civil proceedings, where the amounts of controversy rise just as rapidly as payments, salaries and other financial sums brought to court. Furthermore, when court proceedings become disproportionately cheap, it is easier to start multiple proceedings without a second thought – and often without much sense, either. That’s why motivation is a particularly important aspect of new prices – such considerable costs may discourage from placing further burdens on overloaded courts, while at the same time encourage to look for alternative methods of dispute settlement.

Amongst many changes, the ones implemented with regards to commercial proceedings are particularly important for entrepreneurs. While earlier on various company-related procedures costed 2.000,00 PLN, they now cost more than twice as much – 5.000,00 PLN. Such proceedings must occur sooner or later while managing a company, so there is no general way to avoid them.

The largest and most discouraging change occurred in the field of proportional costs. Until November, they amounted to 5% of amount of a matter of dispute, but not less than 30 PLN and not more than 100.000,00 PLN. Now, however, cost thresholds have been introduced:

1) when amount of controversy is smaller than 500 PLN, the cost amounts to 30 PLN;
2) between 500 PLN and 1.500 PLN: 100 PLN;
3) between 1500 PLN and 4000 PLN: 200 PLN;
4) between 4000 PLN and 7500 PLN: 400 PLN;
5) between 7500 PLN and 10.000 PLN: 500 PLN;
6) between 10.000 PLN and 15.000 PLN: 750 PLN;
7) between 15.000 PLN and 20.000 PLN: 1000 PLN.

If amount of a matter of dispute is bigger than 20.000,00 PLN, cost will still be 5% of the amount, but such cost may now reach up to 200.000,00 PLN. The first draft of amendment provided up to 500.000,00 PLN, but even the final version constitutes a striking change in overall costs of proceedings. Interestingly, when it comes to the thresholds, litigations concerning smaller amounts are proportionately more expensive than the ones concerning major amounts. 100 PLN of costs for a litigation on 500 PLN is 20% of the amount, while a litigation on 10.000 PLN costs only 5% of this amount.  

Major changes within payment system are supposed to reduce flow of new cases into already overburdened courts, and they may be extremely successful in this aspect.  High-priced proceeding raises questions both for debtor –” Does it really make sense to avoid payment and wait until we end up in expensive court?” as well as for creditor –” Is court proceeding really necessary at this stage?” In comparison with expensive litigation, mediation and other arbitral means of dispute settling seem much more convenient than they were before.

Bailiff instead of a postman

Authors of the new civil procedure declared war on plague of undelivered court notices by introduction of new article 1391. According to the new article, if defendant will not receive, after a second notice, the first document addressed to him which requires his defensive actions – so, in most cases, a lawsuit – the court will order plaintiff to deliver the document using bailiff’s services.

Bailiff’s delivery is in general more reliable than delivery by postal service, and can provide a correct, real address of defendant – bailiff has obviously more possibilities to check whereabouts of the defendant and find him than a regular postman. There are two months for a bailiff’s delivery. If this attempt turns out to be unsuccessful as well, the plaintiff is obliged to inform the court about this outcome, while providing the court either with the address of defendant acquired by bailiff, or evidence supporting the address provided by the plaintiff in his lawsuit. Such evidence may consist of invoices or contracts, in which the defendant himself mentions his address. It’s useful to prepare such evidence in advance – failure to observe the new regulations will lead to suspension of proceeding.

Most of all, the modification is an additional burden for plaintiff. Until now, inclusion of defendant’s address was perfectly enough, even if plaintiff knew that the address is wrong, and two failed deliveries to this address would lead to legal fiction of delivery. From now on, it will take much more effort.

A nod to consumers

Certain complications will emerge from new wording of article 31 §2 of the KPC, which excludes all kinds of alternative jurisdiction against consumers. All types of litigation will have to be filed in local courts of consumer’s place of living.

What’s next?

Changes introduced last year make up an impressive list, although it will take months, or maybe even years to properly assess whether their positive impact on Polish judiciary was just as impressive. On the other hand, lack of proper knowledge of new requirements may not only prolong litigations, but also result in terrible losses to a party which is not as up to date with legal developments as the other one. New provisions require much more knowledge and professionalism from businessmen trying to prove their rights in a court. Simple strategies and smart tricks, widely available on legal forums or in free guides have become not only largely useless, but also dangerous – maze of altered norms can easily lead to unexpectedly big costs of proceedings, or to a failure that would be essentially one’s own fault. That’s why it has become even more relevant to put one’s trust in professional legal assistance, that will help and represent an entrepreneur in accordance with current legal norms.

New year may very well bring us commercial court cases solved quicker than before. Such a quick, successful outcome will be attainable only with a proper preparation of all procedural documentation to support them.

Author: Filip Walczak


Simple Public Limited Company – New Solution for Startups?

On 2nd August, the President of the Republic of Poland signed an act which changes Polish code of commercial companies and introduces a widely anticipated and debated novelty – a simple joint-stock company (Simple JSC, in Polish – Prosta Spółka Akcyjna PSA). Ministry of Enterprise and Technology, being an author of the act, claims that such a company is a dedicated solution for startup companies and their specific issues. Can this new type of conducting business become an actual help for young entrepreneurs after its entry into force in March next year?

First look at the new act may lead to rather pessimistic conclusions when it comes to the actual simplicity of the company. The newly introduced chapter I.A has 133 articles – just slightly less than chapter regulating traditional company with limited liability. Many of those articles are, however, nothing more than repeated solutions for both types of companies – LLC and JSC already existing in Polish law. Real novelties in the Simple JSC can be summarized in a few points.

The most characteristic features of the Simple JSC is minimal share capital of just 1 PLN and possibility to contribute to company’s capital with work or service. It is an extremely controversial solution – after all, share capital is essential for functioning and the very existence of a joint-stock company. A company with low share capital may be considered untrustworthy, although there are more and more claims that share capital cannot be considered a guarantee anymore. Since 2008, Polish company with limited liability may have a share capital as small as 5000 PLN, which doesn’t offer much more financial security than 1 PLN, especially if we consider, that much of this sum will be quickly used up to launch activities of the company. On the other hand, a catchy perspective of just 1 PLN needed to start one’s own company is, in fact, a kind of marketing trick. Creation of company, its registration and preparation of its enterprise will definitely cost much more than that. Taking into account the fact that initial shareholders still need more than 1 PLN in their company, such a low minimal share capital is merely a legal curiosity, with little to none impact on real requirements.

Possibility of contribution with work or service does indeed seem to suit startup companies, by enabling people that cannot contribute financially, but have relevant skills and abilities to become shareholders. Nevertheless, it is a real revolution for a joint-stock company – this possibility opposes previous version of article 14 of Polish code of commercial companies, which explicitly forbade such contribution. A very insightful remark on this novelty has been included in opinion on the act by Institute of Law Studies, Polish Academy of Sciences. According to the document, contribution of work or service ”is in fact a contribution of debt – it is a commitment of future action, of which financial value is difficult to determine.” As a result, the Simple JSC introduces a new type of capital, called in Polish ”kapitał akcyjny” which literally translates into share capital. In the context of the Simple JSC  it is, however, a narrower term, taking into account only contributions that would comply with previous wording of article 14 mentioned above, and have a traditional contribution capacity. Regardless of the new type of capital, it is still safer to build company’s capital on financial contributions or something from a broad catalogue of things that have a traditional contribution capacity. For example, a potential shareholder may contribute a specific know-how (widely accepted as having a contribution capacity) instead of contributing work which uses that know-how. Additionally, extremely low requirements of share capital allow shareholders to contribute even with very limited funds.

An important aspect of the Simple JSC is a simplicity of creation and termination of a company. Like a company with limited liability, the Simple JSC may be created by notarial act or by filling a contract online. Official form of online contract is not yet known, and will be established by Minister of Justice after the act comes into force. Conclusion of contract online, using a dedicated S24 platform, is not a novelty, yet it contradicts a very nature of Simple JSC due to limitation imposed by new paragraph 4 of article 3007. It is impossible to contribute online using contributions other than financial ones, so there is no use in the broad catalogue of contributions possible in the Simple JSC. As authors of the project admitted, this limitation has been imposed due to technical shortcomings of the S24 system. Every kind of contractual provision that is not available in S24 has to be established in notarial act. As a result, creation of Simple JSC is virtually identical to creation of standard company with limited liability. On the other hand, A real improvement is a possibility to contribute all declared financial contributions up to 3 years after filling a motion to register a company. The 3-year treshold can be shortened and specified by the contract of company itself, or by a resolution of general meeting of the company or management board.

Termination of Simple JSC is largely based on standard solutions found in other limited companies, but there is an important difference in the fact that the Simple JSC can be removed from the registry by transferring all assets of a company to a single shareholder, who will then have to pay off all creditors and other shareholders of the company. Such a simple termination can be trigerred by resolution of general meeting of the company by majority of ¾ votes and quorum of 50%. It is important to notice that such termination has to be then allowed by registry court, where it has to be proven that termination will not harm shareholders or creditors. The judiciary control is conducted ex lege and does not require lodging an appeal against the resolution. Such  possibility clearly shows how the Simple JSC tries to correspond with needs of startup companies. A complicated, costly and long termination of such entities would be completely unnecessary and pointless, especially if we consider their small scale and considerable risk of failure.

As mentioned above, capital of the Simple JSC is different than share capital known in other types of companies. Shares in the Simple JSC have no par value and only reflect shareholder’s rights within company. Capital of the Simple JSC is much less formalised and it is not mentioned in a contract establishing the company. As a result, there is no need to amend the contract when the capital is changed. The capital is, however, mentioned in registry, so registry court will always supervise any changes. At the same time, the contract does have to mention the amount and data of shares themselves, so annulment of shares will always lead to amendment of contract. Free withdrawals from the capital may reach up to 5% of all obligations based on last fiscal year’s financial statement. This correlation between obligations and withdrawals is a result of dynamic, unstable nature of capital of the Simple JSC and establishes a fairly balanced alternative for strict requirements of Polish law. Withdrawals that exceed 5% require a standard procedure of notifying the creditors, while withdrawals below that treshold are limited only by a very general requirement of leaving the company with ability to perform its financial obligations in the next 6 months under normal circumstances. Lawyers rightfully criticise this solution, claiming that it is too general and insufficient. The bigger the company, the bigger its obligations will be, and as a result there will be a steadily growing amount of money that can be managed without creditors’ supervision. This creates an actual risk and shows that authors of the act did not manage to balance needs of shareholders and creditors, overly emphasizing right to manage company’s money by the former. Newly introduced article 30019 provides a solution similar to supplementary capital, yet it is still less strict than in standard joint-stock companies. Taking into account such general and rather unconvincing regime, it comes as no surprise that the Simple JSC is strictly non-public and cannot sell its shares on stock market. On the one hand, the Simple JSC regime would be hand extremely dangerous for potential small shareholders, while on the other hand it could create unfair competition against joint-stock companies with their more strict requirements.

Shares in the Simple JSC have no documentary form, which means that they are dematerialized. Dematerialization is a constant goal of Polish lawmakers, and a total dematerialization of joint-stock companies’ shares is expected to follow the Simple JSC’s example soon. Lack of documentary form is not only a part of general tendency towards modernization, but also a guarantee of safe trading and financial facilitation for the company. Strict regime of dematerialization for public companies does not apply to the Simple JSC. Another very modern solution is a possibility to use blockchain technology while creating a registry of shareholders. It may seem that the Simple JSC is a kind of proving ground for modern technologies that may be introduced to other joint-stock companies and limited-joint stock partnerships in the future.

Finally, the key novelty when it comes to management of the Simple JSC is a possibility to choose between standard structure of organs, with management board and optional supervisory body, and board of directors. The new board is supposed to combine representation, as well as executive and control duties in one body, with a possibility to choose within its ranks executive directors, obliged to perform one or more duties connected with management. The rest of directors then become non-executive directors and perform control duties. In this way, both supervision and management can be performed by a single body with clear division of duties, thus lowering possible costs. Of course, in both schemes general meeting remains the main law-making body of the company. Members of all bodies mentioned in this paragraph may take part in their proceedings and voting using means of direct distance communication, such as videoconferencing.

Apart from the innovations described above, the Simple JSC is a hybrid company copying numerous solutions from both existing limited liability and joint-stock companies with minor adjustments. Most of its solutions are therefore well known to entrepreneurs dealing with standard forms of companies and to lawyers. However, the Simple JSC as a whole is a completely new regime, and – in some cases – a real revolution in business environment. Contrary to the word ”simple” used in its name, the Simple JSC  is far from being simple when it comes to its interpretation and actual usage of new provisions. Complications arising from this type of business may be disappointing for many minor entrepreneurs. Of course, the Simple JSC may over time prove to be easier and more cost-effective than its traditional counterparts, but especially at the beginning of its operations it will need a proper back office and legal assistance. It is impossible to predict how will potential investors react to this new entity, considering that the Simple JSC seems to offer relatively poor protection of their interests. Legal discussions aside, we may certainly claim that the Simple JSC will find its users and will meet expectations of at least part of minor entrepreneurs and startup companies in Poland. Nevertheless, it definitely will not replace the company with limited liability as the leading form of company on Polish market.

Author: Filip Walczak