Ministry of Treasury Direct privatisation - Privatisation procedures -

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Privatisation procedures

Direct privatisation

The main purpose of direct privatisation is to provide opportunity for fast ownership changes in small- and medium-sized state-owned enterprises.
Direct privatisation is effected through the sale of an enterprise (within the meaning of Article 55¹ of the Civil Code, hereinafter referred to as “the enterprise”), contribution of an enterprise to a company, or giving of an enterprise to a company to be used for consideration. This type of privatisation is of a direct nature, i.e. it is implemented without the state-owned enterprise having to take an organisational and legal form of a sole shareholder company of the Treasury. Entities participating in the process of direct privatisation of a state-owned enterprise may include both natural and legal persons.
Direct privatisation is unique in that it can be conducted by founding bodies of state﷓owned enterprises on behalf of the Treasury, upon approval of the Minister of the Treasury. The process under which direct privatisation processes are prepared and implemented is a decentralized one – the key role is held by the founding bodies (in most cases province governors). The Minister of Treasury controls and supervises direct privatisation, within the scope required by law, by authorising commencement of implementation of individual investments.
It is the responsibility of province governors to initiate the process of direct privatisation, prepare state-owned enterprises for privatisation, select investors, negotiate terms and conditions of transactions, and, upon obtaining the approval from the Minister of the Treasury, to privatise the respective state-owned enterprise, finalize the privatisation process and sign appropriate agreements with investors on behalf of the Treasury.
Direct privatisation is implemented alongside commitments towards employees (maintaining the number of jobs, social protection schemes) and investment, including investment pertaining to protection of the natural environment.

There are 3 forms of direct privatisation:

       
        1. Sale of an enterprise

This form of direct privatisation may be applied to all enterprises, especially economically weak entities which require investments. Payment for the enterprise can be made in instalments. In accordance with the Act on Commercialisation and Privatisation, the first instalment must amount to at least 20% of the total price of the enterprise. The remaining part may be paid in interest﷓bearing instalments for the period of up to 5 years.


        2. Contribution of an enterprise to a company

Another form of direct privatisation is contribution of an enterprise to a company. In this procedure the Treasury contributes to a company established with participation of other shareholders: employees, state-owned enterprises or investors, a contribution in the form of the enterprise and, in return, takes up an appropriate number of shares. This form of privatisation is successfully applied especially in the case of small and medium-sized enterprises, requiring substantial financing, including investment outlays. Moreover, its purpose is to ensure that credible strategic investors (both domestic and foreign) enter the company. The company may also be joined by its employees and other entities.

Contribution of an enterprise to a company takes place through negotiations under a public invitation. Employees of a company established by way of this procedure, in accordance with Article 49 (4) of the Act on Commercialisation and Privatisation, are entitled to acquire, free of charge, up to 15% of the Treasury shares, out of the total number of shares as at the date on which the Treasury took up shares in the company.


        3. Giving of an enterprise to a company to be used for consideration

In the case of giving of an enterprise to be used for consideration, legislators limited the circle of entities to which the privatised entity may be given, through introduction of provisions which prefer capital companies of natural persons, with participation of employees of the state-owned enterprise.

The agreement on giving of an enterprise to be used for consideration is concluded for the period not exceeding 15 years. If the company meets the criteria set forth in the Act on Commercialisation and Privatisation, then it can take over an enterprise to be used for consideration bypassing the public procedure.

Application of that privatisation path requires the company to make payments to the Treasury (principal instalments and additional fees – legal basis: Ordinance of the Council of Ministers of 14 December 2004, Journal of Laws No. 269, item 2667). The amounts of those payments depend on the value of the subject of the agreement and its duration. As these are relatively substantial burdens, the possibility to apply that form of privatisation should concern enterprises enjoying good economic and financial standing. Moreover, it is required that the companies applying for the possibility of being given an enterprise to be used for consideration meet a number of conditions (accumulation of appropriate registered capital, advantageous structure of that capital, elaboration of a feasible action plan, etc.), which would indicate effective operations of the company and fulfilment of its commitments, including the commitments towards the Treasury. On the other hand, application of that privatisation path may be limited with respect to enterprises whose production profile is seasonal and whose capability for efficient activity are to a large extent dependent on third party financing (loans).

Giving of an enterprise to be used for consideration to a company with participation of employees in many cases does not ensure appropriate inflow of growth and investment capital in the newly established business entity. For that reason, in the Act on Commercialisation and Privatisation a condition was introduced that at least 20% of the registered capital is to be taken up by persons not employed in the privatised enterprise, i.e. by external investors.

Medatdane

Published by: Agnieszka Steindl
Author: Departament Prawny
Last change: 19.06.2009
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