The Agricultural Property Agency has priority in acquiring holdings and shares in companies which are owners of agricultural land. The restrictions also concern a change of partner of a private partnership.

The Act on Suspending the Sale of Properties of the Agricultural Property Stock of the State Treasury and on Amending Some Other Acts of 14 April 2016 introduced, among other things, amendments to the Act on Shaping the Agricultural System of 11 April 2003 as of 30 April 2016. The amendments do not only concern restrictions in selling agricultural properties with an area of at least 0.3 hectares. The Act also introduces restrictions in selling holdings and shares in companies which are owners of such properties, giving the Agricultural Property Agency the right of first purchase of such holdings and shares.

Right of first purchase

Under the new Article 3a of the Act on Shaping the Agricultural System, the Agency is entitled to the right of first purchase of holdings and shares in a commercial law company which is the owner of an agricultural property. The exception is the selling of shares admitted for trading on a stock exchange and the selling of holdings and shares to a close relative (a natural person such as parents, grandparents, children, grandchildren, brothers and sisters, spouse). This means that basically it is not at present possible to also freely sell holdings and shares within the confines of the same capital group. In connection with the above aim, the legislator granted the Agency the right to examine the condition of a company before acquiring its holdings (shares), and thus in actual fact to carry out a due diligence of the company: inspecting the company’s books and documents and requesting information from the company about encumbrances and obligations not recorded in the books and documents. The information obtained by the Agency is a business secret. A mechanism has also been introduced to challenge the price of holdings and shares in an “agricultural company”. The Agency can go to court to determine the price of holdings (shares) within 14 days of filing a declaration on exercising the right of first purchase, if the price differs excessively from the market value. With regard to the very process of acquiring holdings (shares), the Agency exercises the right of first purchase by sending the obligated party a declaration on exercising the right of first purchase in the form of a notarial deed by recorded delivery, and subsequently publication in the Public Information Bulletin. The assumption is introduced that the party obligated under the right of first purchase has familiarised itself with the Agency’s declaration upon its publication.

EXAMPLE: Jan Kowalski has holdings of 10 per cent in X limited liability company, which is the owner of an agricultural plot with an area of 1 hectare, and has concluded an agreement to sell the holdings for the price of PLN 100,000 with Marek Nowak. The agreement should be concluded providing that the Agency, being entitled to the right of first purchase, does not exercise that right. Immediately after concluding the agreement with Marek Nowak, Jan Kowalski should inform the Agency about its content. The Agency can exercise the right of first purchase within one month of being informed about the sale. If the Agency considers that PLN 100,000 was not the market price, it can go to court to determine the price within 14 days of a declaration to exercise the right of first purchase.

Participation in private partnerships

Article 3b of the Act on Shaping the Agricultural System also restricts the change or admission of a new partner to a private partnership which is the owner of an agricultural property. The Agency can then file a declaration on the acquisition of that property against payment of the equivalent of its market value (according to the determination of property values provided for in regulations on property management). An exception occurs if, instead of the present partner, his or her close relative becomes a partner, or the new partner is a close relative of any of the partners. The entity obliged to inform the Agency is the company which is the owner of the agricultural property. The notification should be made within a month of performing the act in law as a result of which the change or admission of a partner occurred. In the case of private partnerships, it is the Agency which specifies, in its declaration made to the company, the monetary equivalent of the market value of the agricultural property being acquired, and the company can go to court to determine that monetary equivalent within a month of the day of receiving the Agency’s declaration. As with the Agency’s acquisition of holdings and shares in companies, the Agency sends a declaration to the obligated party (i.e. the private partnership) on exercising the right to acquire the property in the form of a notarial deed, and then has this published in the Public Information Bulletin, and there is also an assumption that one has familiarised oneself with the Agency’s declaration upon its publication.

EXAMPLE: Jan Kowalski and Marek Nowak are partners in X general partnership, which owns an agricultural plot with an area of 1 hectare and a value of PLN 100,000. Marek Nowak wants to leave the partnership and his place as partner is to be taken by Zbigniew Nowy (who is not a close relative of any of the partners). In this situation, X general partnership should inform the Agency about the change of partner within one month of the change. After receiving the notification, the Agency can, within a month, file a declaration on the acquisition of the agricultural property of X general partnership against payment of the monetary equivalent of its market value. If the partnership does not agree to the Agency’s price, it can go to court to determine that monetary equivalent within a month of the day of receiving the Agency’s declaration.

The Agency’s rights in enforcement

The Agency can also acquire holdings and shares if they are being sold in enforcement, and also if the acquisition takes place on a basis other than a sale agreement. This concerns acquisition as a result of:

• concluding an agreement other than a sale agreement (e.g. a contract of donation);
• a unilateral act in law (e.g. a pledgee’s declaration on assuming ownership of holdings or shares in a registered or financial pledge);
• a decision by a court or public administration authority, or a decision by a court or enforcement authority issued on the basis of enforcement procedure regulations;
• or another act in law or another legal occurrence (in particular, inheriting holdings or shares in “agricultural companies”, or a division, transformation or merger of commercial companies).

The Agency can then file a declaration on the acquisition of the holdings (shares) against payment of the monetary equivalent of their market value. If this equivalent does not follow from the content of an act in law, decision by a court or other authorities, the Agency specifies it. The holder (shareholder) might not agree to that amount and should then, within a month of receiving the Agency’s declaration, go to court to determine the monetary equivalent of the market value of the holdings (shares). However, if the monetary equivalent results from an act in law but differs enormously from the market value, the Agency can go to court to determine that amount within 14 days of filing a declaration. If, when the Agency acquires holdings (shares) according to the procedure of the right of first purchase (pursuant to Article 3a of the Act), the seller is obliged to inform the Agency, in the case of acquiring holdings (shares) on a basis other than a sale agreement the obligation to inform is different:

• if the holdings (shares) are being acquired on the basis of an agreement other than a sale agreement or on the basis of a unilateral act in law, the Agency should be informed by the acquirer (e.g. a pledgee, when it exercises the right to assume ownership of the subject of a pledge);
• if the holdings (shares) are being acquired by virtue of a decision by a court or public administration authority, or a decision by a court or enforcement authority issued on the basis of enforcement procedure regulations, the Agency is informed by that court or authority;
• if the holdings (shares) are being acquired on the basis of inheritance, the Agency is informed by the heir;
• if the holdings (shares) are being acquired as a result of division, transformation or a merger, the Agency is informed by the acquiring company.

A similar procedure to acquisition by exercising the right of first purchase (Article 3a of the Act) is the procedure whereby the Agency exercises its right to acquire holdings or shares (a declaration on exercising the right in the form of a notarial deed, sent by recorded delivery, publication in the Public Information Bulletin, and the assumption of familiarising oneself with the declaration upon its publication). As with the Agency’s right of first purchase of holdings (shares) in a company to which agricultural land belongs, so also in the procedure of a “para-sale” acquisition of holdings (shares), the Agency can inspect the company’s books and documents and request information concerning encumbrances and obligations not stated in the books and documents.

Consequences of the changes in agricultural property trading

The Act on Shaping the Agricultural System has significantly restricted trading in holdings and shares of companies – owners of agricultural properties – and has restricted the possibility of making personnel changes in private partnerships. If, in the case of limited liability and joint stock companies, the Agency is authorised to acquire holdings and shares (and not to acquire agricultural properties), in private partnerships the Agency does not become a new partner but can directly acquire an agricultural property owned by the partnership.

The changes introduced, apart from the formal difficulties referred to in selling holdings and shares, also cause a decrease of the economic value of security in the form of pledges on holdings and shares of companies owning agricultural properties. It is more difficult for creditors to get satisfaction in the event of a debtor’s failure to repay a debt, regardless of whether an ordinary pledge within the meaning of the Civil Code has been established in favour of the creditor, a registered pledge according to the Act on the Registered Pledge and the Register of Pledges, or a financial pledge (available among some categories of creditors and debtors) on the basis of the Act on Some Kinds of Financial Security. When reflecting on the effects for the economy, it is worth remembering that agricultural properties can belong not only to entities conducting activity around agriculture or food production. The restriction of the new regulations will affect pledges on holdings and shares of companies of totally different branches which happened to have an agricultural property (e.g. as a result of the company’s history). By way of exception, the Agency’s right of first purchase will not apply to shares admitted for trading on a stock exchange (thus, for example, no longer on the NewConnect, which remains an alternative trading system). Under Article 312 of the Civil Code and Article 21 of the Act on the Registered Pledge and the Register of Pledges, the satisfaction of receivables secured by an ordinary or a registered pledge in principle occurs by way of court enforcement proceedings. However, in the case of a registered pledge, in practice a creditor usually gets satisfaction when this is provided for by the pledge agreement (which generally occurs with pledges in favour of banks), or by the pledgee (creditor) taking over ownership of the subject of the pledge (Article 22 of the Act), or by selling the subject of the pledge in a public tender by a notary or bailiff (Article 24 of the Act). Similarly, under Article 10 of the Act on Some Kinds of Financial Security, if there is a basis for realisation of the security, a pledgee can get satisfaction by the sale of the subject of the security, a set-off of its value against the secured financial receivable or, if the agreement on establishing financial security states so, by taking over the subject of the security.

As described above, in the case of selling holdings (shares) in a procedure other than on the basis of a sale agreement, and particularly by way of enforcement as well as by the creditor filing a declaration on taking over ownership of pledged holdings (shares), the Agency has the right to file a declaration on acquiring the holdings (shares) against payment of a monetary equivalent corresponding to their market value. If the Agency does not file a declaration, the holdings (shares) can be acquired by an entity bidding for them under an enforcement procedure, or also by a creditor filing a declaration on taking over their ownership. However, if the Agency files a declaration on acquiring the holdings (shares), in a situation where the monetary equivalent does not follow from the content of an act in law, a decision by a court or by other authorities, the Agency will specify that equivalent. If a holder (shareholder) does not agree to the Agency’s price, it can go to court to determine the monetary equivalent of the market value of the holdings (shares). However, one might reflect whether the pledgee has such a right (as the acquirer) if it takes over the ownership of the subject of security (holdings or shares) to satisfy its receivable (the Act provides for an “appropriate application” of Article 3 par. 8).

What is crucial from the perspective of the practice of trading and the securing of creditors is that one question of how to interpret the new regulations will be: to whom should money be paid by the Agency if it exercises the right to acquire holdings or shares in the event of an unsuccessful takeover of the holdings or shares by the pledgee? Obviously it would be more advantageous for the creditor to assume that the Agency will file the declaration on exercising its right with respect to the pledgee, and will also pay the pledgee the money.