Poland: Risk of invalidity in real estate transactions following supreme court ruling

13 August 2024

A recent Supreme Court ruling (II CSKP 144/22) has cast a spotlight on the potential risks associated with real estate transactions involving capital companies. According to the ruling, transactions may be at risk of invalidity if they lack the required consent from a company’s shareholders’ meeting or general assembly. This decision underscores the importance of securing proper authorization for such transactions to avoid legal complications.

“When a company’s shareholders’ meeting or general assembly does not approve a transaction, or if such consent is contested, the transaction is at risk of being deemed invalid,” explains Paweł Szumowski, a member of the Corporate Law and M&A team at Wolf Theiss law firm in Poland.

Typically, the disposal or acquisition of key assets, such as real estate, by a capital company requires approval from the shareholders. This requirement can be waived if explicitly stated in the company’s articles of association. However, this decision is usually made during the company’s formation, and changes to this provision can be made later, if necessary.

Article 229 of the Companies Act adds another layer of complexity, stipulating that transactions involving the acquisition of real estate or substantial assets within two years of a company’s registration require shareholder approval unless previously outlined in the articles of association. This requirement is often waived by property development companies to streamline real estate transactions. However, many companies retain this requirement to protect significant assets from unauthorized actions by management.

Without relevant exemptions in the company’s articles, any real estate transaction necessitates shareholder approval, regardless of the property’s role in the company’s business. To facilitate such transactions, the law allows shareholder consent to be granted up to two months after the transaction. However, the Supreme Court ruling in question introduces ambiguity by suggesting that a preliminary agreement lacking shareholder approval could prevent the completion of the promised transaction, potentially conflicting with Article 17 § 2 of the Companies Act.

“The Supreme Court’s stance could lead to significant uncertainty regarding the validity of real estate transactions that receive post-facto shareholder approval,” warns Iwona Huryn of the real estate and construction team at Wolf Theiss.

The ruling also emphasizes the importance of the consent obtained through a shareholders’ resolution as an integral part of a company’s declaration of will, which is essential for the legal transaction to be effective. If this consent is missing or challenged, the transaction is at risk of being invalidated. Purchasers who proceed with a transaction without confirming the necessary shareholder approval risk having the deal declared invalid, particularly if there is a challenge to the resolution.

However, purchasers acting in good faith are protected by the law, which ensures that any revocation of shareholder consent does not affect them. To mitigate risks, it is advisable for parties involved in real estate transactions with a capital company to verify that the necessary shareholder approval has been obtained, to understand the content of the resolution, and to assess the likelihood of it being contested.

The Supreme Court’s ruling highlights the critical role of shareholder consent in the validity of real estate transactions, particularly in cases where a company’s management may act without proper authorization. While the ruling aims to ensure the security of such transactions, it also introduces uncertainty regarding the timing and sufficiency of shareholder consent, leaving room for further legal interpretation.

Source: Wolf Theiss

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