Due Diligence in Poland

Due diligence in Poland – Key Facts

Due diligence – definition	Essential part of the transaction, which provides the comprehensive information on the legal status and potential risks related to the target entity and its assets, which may be a subject to the acquisition in Poland
Aims of due diligence	identify legal risks identify areas for further investigation understanding structure and operations of business / assets potentially – performing valuation preparation of recommendations
Usual types of due diligence	Legal (incl. IP, IT & Regulatory) Financial Tax Operational Commercial Environmental
Who may order due diligence	Buyer Due Diligence (BDD) Vendor Due Diligence (VDD)
Time required for due diligence	Time and scope due diligence analysis depends on size of the target company / asset and time framework of the transaction It may require from couple of days to couple of months.
Source documents	Due diligence is usually run based on: Publicly available records Materials provided in Data Room Materials gathered by the Law Firm based on DD Authrization.

Due Diligence in Polish Law

Due diligence is no separately regulated by Polish Law. The process and related principles entirely source from international practice of M&A transactions. As everywhere else in the world – due diligence in Poland it is an essential part of the transaction, which provides the comprehensive information on the legal situation and legal risks related to the target entity and its assets, which may be a subject to the acquisition process. Failure to check certain legal aspects may result in the failure of the investment or a significant increase in its cost. 

Scope of legal due diligence

Scope of the legal due diligence is usually tailored to particular circumstances, e.g. objectives and size of the transaction, transaction timeline, availability of materials, selection of risk sensitive areas.

Usually comprehensive pre-transaction buyer legal due diligence investigation covers the following fields:

• Corporate
• Real estate
• Employment
• Movables
• Agreements / Commercial
• Intellectual property rights (IP)
• Competition
• Antitrust
• Litigation
• Regulatory
• Financing
• Environmental
• Data protection
• Subsidies / Public aid

Other types of due diligence

Aside from legal due diligence usually parallel additional types of due diligence investigations are performed in order to examine relevant risk sensitive areas, e.g. tax due diligence, financial due diligence, environmental due diligence, IT due diligence, IP due diligence.

Due diligence procurement

The legal due diligence is usually conducted at the request of the potential buyer (buyer due diligence), who is interested in gathering the key information on the legal status of the target company in Poland or its property. Obtaining detailed knowledge of all important legal aspects allows you to make a responsible and informed decision on participating in the investment and get prepared for the negotiations.

Sometime due diligence investigation is requested by the vendor (vendor due diligence). Such legal investigation is carried out at the request of the seller (vendor) before initiating a negotiations with potential investors. Vendor due diligence analysis allows you to prepare the Polish company or its assets for valuation and sale, in particular by resolving specific legal issues and minimizing or eliminating legal risks that could be used in negotiation process by the potential buyers.

Procurement of due diligence usually consists of conflict check, conclusion of letter of engagement and signing / obtaining power of attorneys / authorizations.

Due Diligence report

Classical due diligence report consists of three key parts: introduction, executive summary and analytical / description part.

Tax due diligence

Tax due diligence usually covers verification of tax risks and the following tax aspects by specialized tax advisors:

• Tax arrears verification
• Corporate Income Tax (CIT)
• Capital gain tax (CGT)
• Withholding tax (WHT)
• Value Added Tax (VAT)
• Transfer Pricing (TP) compliance
• Transfer Tax (PCC)
• Real Estate Tax (RET)

Most usually tax risks due diligence concentrates of two key taxes, i.e. CIT and VAT, which includes verification of:

• CIT returns
• CIT calculations
• classification of expenses and revenues
• correctness of the tax deductible expenses
• VAT returns and VAT refunds
• applicable VAT rates verification
• correctness of the tax point
• input VAT
• international transactions on goods and services

Due diligence – details of investigation

Corporate

• shareholders’ structure
• title to shares
• restrictions in share disposals
• pledge, usufruct and other shares encumbrances
• verification of the Articles of Association
• verification of Shareholders’ Agreements
• verification of internal regulations
• shares and bonds emissions
• capital and personal relations with other entities
• surcharges, additional payments
• verification of National Court Register
• verification of UBO register
• verification of reporting obligations
• analysis of Financial Repository
• analysis of corporate governance
• verification of POAs and authorizations
• corporate disputes

Real estates / real property

• ownership title (legal title)
• mortgages and easements
• perpetual usufruct rights
• usufruct and other encumbrances
• development conditions
• local zoning plans
• conservation requrements
• construction process
• reprivatisation claims
• management and maintenance
• property services and utilities

Here you may find more about: real estate due diligence.

Key movables / fixed assets

• vendor’s legal title
• lease agreements
• pledges, usufruct
• other encumbrances

Agreements / Commercial

• change of control clauses
• key commercial contracts
• insurance agreements

Competition law

• non-competition agreements
• exclusivity clauses
• consortium agreements
• market sharing agreements

Antitrust law

• examination of common markets
• merger control / clearance

Litigation

• pre-court disputes and claims
• court and administrative proceedings
• arbitration and mediation

Regulatory

• review of regulatory requirements
• permits, concessions and licenses

Financial matters

• review of financial documents
• credit facilities
• key loans
• sureties
• grants and subsidies
• guarantees and warranties
• contracts with financial institutions

Employment

• employment structure
• internal employment law regulation
• HR policies
• employment and B2B contracts
• material liability agreements
• non-competition agreements
• non-solicitation agreements
• collective labour agreements
• trade unions
• collective labor law regulations
• labour law disputes
• employment termination disputes

Environmental

• review of environmental decisions
• environmental clearance
• environmental regulations, restrictions
• environmental standards and policies
• environmental fees

Data protection

• GDPR implementation status,
• subject and scope of personal data processing
• contracts for entrusting of personal data
• personal data protection inspector
• data protection complaints and proceedings

Intellectual property rights

• verification of title to copyright and IP
• IP transfers and license agreements
• software licenses
• patents, trademarks
• industrial signs and utility models
• confidential information, NDA
• know-how and trade secrets
• copyright disputes and claims
• proceedings before Polish Patent Office

Public aid

• state grants and subsidies
• EU grants and subsidies
• tax exemptions
• exemption from social security contributions
• co-financing from PFR
• disputes and proceedings related to state aid

FAQ – Legal due diligence

What is the timeline for legal due diligence in Poland?

Time and scope due diligence process depends on size of the acquired company / asset and time framework of the transaction. It may require from couple of days to couple of months.

Who may perform legal due diligence in Poland?

Legal due diligence services may be provided only by licensed lawyers, i.e. attorneys and barristers; and licensed Law Firms.

What that the risks markers in due diligence investigations?

Risks are usually evaluated in accordance with the following scale: high, medium and low. High risks are non-removable and highly probably, while low risks are usually removable and may not necessary materialize.

Due diligence – Legal Services / Poland

Are you looking for experienced due diligence law firm in Poland? Check out our case studies and awards. Feel free to approach our corporate and M&A attorneys – we will tailor the offer to your needs. We provide transaction advisory all around Poland trough our offices in Warsaw, Kraków, Poznań, Wrocław.