The NDA should also clearly indicate the duration of the prohibition. Most often it binds employees or collaborators for the duration of their cooperation on a given project. However, nothing stands in the way of extending the confidentiality obligation also to the period after the termination of cooperation.
Beware, however, of introducing an indefinite ban. In the event of a court dispute, such a stipulation may be considered invalid!
- Sanctions for violations of NDA prohibitions
In practice, two types of consequences for non-compete violations are distinguished – monetary and non-monetary.
Pecuniary sanctions take the form of a contractual penalty, i.e. an additional contractual provision that obliges the other contractual party in the event of a breach of a specific non-monetary obligation (e.g. disclosure of classified information).
As a rule, it is assumed that in order to demand payment of a contractual penalty, it is not necessary to suffer damage and it is sufficient to prove the mere fact of breach of a contractual provision.
When stipulating a contractual penalty, one should remember to provide in the content of the agreement for the possibility to claim damages exceeding its amount. In this way, the company protects its interests in the event that the amount of the contractual penalty does not fully cover the incurred damage.
On the other hand, non-monetary penalties consist in immediate termination of an employment contract or cooperation agreement with an unreliable employee or co-worker.
A breach of a non-compete agreement by an employee (e.g. by moving to a competitor in the course of an M&A transaction) may also be a cause of dispute. To be effective, this contract, like the NDA agreement, must specify as precisely as possible such information as:
- the extent of competition
It may be specified geographically (e.g. the territory of a province) and in terms of subject matter (e.g. a prohibition on engaging in a particular activity). It is important that both pieces of information are given in such a way as to be unambiguous for the employee. Otherwise, in the event of a court dispute, the contract may be invalidated.
A non-compete agreement can be entered into before the start of the relationship as well as during the relationship. Its duration usually extends throughout the employment period and also after its termination. However, it is important not to specify an indefinite period in the agreement.
The contract should state exactly what the employee is responsible for. In this way, the parties prevent the need to interpret vague terms.
For compliance with a non-compete, a person with an employment contract is entitled to compensation in an amount not less than that set out in the Labour Code. In the case of civil law or B2B contracts, the need to provide for a financial equivalent is based on case law and helps to ensure the equivalence of benefits.
When concluding a non-compete agreement, remember to keep it in writing in the case of an employment contract (although this form will also work perfectly well for other employment bases.
Disputes within the acquired company
A merger may also result in the acquiring company becoming involved in litigation initiated by the acquired company. In what areas can a law firm help you?
- Disputes with counterparties
Running a business involves the risk of entering into litigation, which can arise for a number of reasons. Among the most common are:
- non-performance or improper performance of a non-monetary contractual obligation (e.g. late delivery of goods,
- failure to pay an invoice issued.
Each time the litigation tactic must be appropriately adjusted to the subject matter of the dispute, the evidence gathered. The task of lawyers in this situation is to use the interpretation of legal regulations, case law lines and views expressed by doctrine to obtain a positive outcome or minimise losses.
This applies both to proceedings before the court of first instance, the court of appeal or the Supreme Court.
Litigation with persons employed by the company may cover all issues relating to the performance of employment duties. This will include e.g.:
- termination of the employment contract,
- delay in payment of remuneration,
- calculation of holiday pay,
- determining the existence or non-existence of an employment relationship,
- disputes under collective labour law.
It is worth emphasising that employment cases involve the need to follow a separate procedure and appear before an employment court. This requires not only a good knowledge of the law, but also a practical view of the problem and the ability to find an optimal way to resolve the dispute taking into account the preferential treatment of the employee.
Consumers are a special group of recipients of goods and services, which has been given special protection by the legislator. This privileged position is reflected in many legal regulations contained in:
- Civil Code,
- The Act on the Protection of Consumer Rights,
- the Telecommunications Act,
- Act on out-of-court settlement of consumer disputes.
Conducting a dispute with a consumer also requires experience in proceedings before the Office of Competition and Consumer Protection or the Office of Electronic Communications. Many disputes involving consumers can be resolved at the pre-court stage using the Alternative Dispute Resolution (ADR) procedures.
Developing an optimal strategic cost management model
Transforming a business always involves committing significant financial resources to stimulate the entity’s growth. This may limit the potential of merging companies and, as a result, reduce the expected effect of the merger or acquisition.
Strategic cost is the term used to describe every financial item in an enterprise – from the cost of producing a single item of goods to the price paid by the end customer.
In practice, it is not possible to create a single, universal model for strategic cost management, because it depends on too many factors (e.g. company’s industry, scope of operations, competition, regional and global demand).
Developing an effective strategy requires time and cooperation of specialists in economics, accounting and taxation, but it opens new horizons for the company.
Benefits of implementing strategic cost transformation
What are the goals of implementing cost transformation plans?
- Focusing on cost reduction increases a company’s liquidity, stabilises its position and reduces potential losses.
- Cost transformation allows for the reduction of expenses that do not directly translate into strengthening the company’s economic position.
- Cost scalability makes it easier to match growth rates to changing circumstances.
- Ability to apply Agile management strategies that work well in a dynamic business environment.
By implementing strategic cost management, the client gains financial transparency and the ability to monitor the relationship between profit and the costs of individual activities on an ongoing basis.
By implementing strategic cost management, the client gains financial transparency and the ability to monitor the relationship between profit and the costs of individual activities on an ongoing basis.
M&A legal and tax services
Comprehensive legal and tax services during and after an M&A can cover many areas of law that are related to the business activities of the entities.
Aspects of legal support to M&A
In terms of labour law, M&A processes force the employer to develop a new organisation of employee obligations so that they are assimilated in the new organisation. Although the merger itself does not necessarily result in a change of contracts, it raises the potential need to consult with works councils representing employees regarding
- changes in the employer’s establishment,
- changes in the employment structure,
- economic measures aimed at maintaining employment levels.
The purpose of such interaction is to develop a common position with the participation of both parties.
Under labour law, the transfer of a workplace to a new employer also gives rise to a number of information obligations:
- to notify employees or trade unions of the date, reasons and effects of the transition,
- informing employees about the responsibilities of the merging entities towards employees,
- indication of the scope of the terms and conditions of employment and pay, which result from the internal regulations and which are taken over by the new employer,
- informing about the scope of binding a company collective labour agreement
Legal assistance in the course of M&A in the field of administrative law primarily includes comprehensive support in obtaining for the client the authority to carry out a specific type of business activity.
The law provides for several types of administrative approvals, which may take the form of:
- concession (e.g. performance of air transport),
- permit (e.g. production of medicinal products)
- license (e.g. performance of road transport)
- consent (e.g. for operation of machinery and equipment requiring technical supervision)
- entry in the register of regulated activities (e.g. in the register of telecommunications undertakings).
Legal services include participation in administrative proceedings before competent administrative authorities as well as in administrative court proceedings before the WSA and NSA,
Legal assistance in the sector of competition protection includes not only the creation and consultation of documentation that arises in the process of M&A, but also support during the proceedings before the Office of Competition and Consumer Protection concerning the planned concentration (so-called antimonopoly proceedings).
Competition protection also includes non-compete agreements signed with sellers of an enterprise. Their precise formulation is necessary to enable the enforcement of potential contractual penalties in the event of a dispute.
Legal support in the field of real estate in M&A transactions mainly concerns the examination of their legal status. This includes not only a detailed analysis of land and mortgage registers, but also the rectification, deletion and making of entries and the establishment of new registers.
Thanks to this, a company acquiring assets of another company is certain that the transaction is safe and subject to the protection of the warranty of public credibility of land and mortgage registers in Poland.
The analysis of the legal status also includes transaction restrictions resulting from:
- pre-emption rights
- easements encumbering real estate by virtue of a statute or decision of an administrative authority.
Property surveys also make it possible to assess the risks involved in purchasing a property and to plan actions in the event that physical or legal defects in the plot of land become apparent.
Legal assistance in this field requires excellent knowledge of real estate regulations, but also of the practice of land registry courts and of the technical requirements for commercial real estate.
Tax support aspects of M&A
The current provisions of the Tax Code, and in particular the GAAR (General Anti-Avoidance Rule) clause, may be used by tax authorities to initiate proceedings in connection with structural changes of an enterprise.
When assessing the prerequisites specific to proceedings based on the GAAR clause, the tax authorities assess whether:
- the achievement of the tax advantage was contrary to the purpose of the Act,
- the achievement of the tax advantage was the main or one of the main purposes of the activity,
- the manner in which the entity acted was artificial.
Tax advantage is a very broad concept, which includes, inter alia, non-or postponement of tax liability, reduction of tax liability or creation or exaggeration of tax loss.
The assistance of a law firm in the aspect of the GAAR clause consists, among others, in:
- obtaining a protective opinion, the content of which will show that the actions planned by the entity are in compliance with the law,
- comprehensive handling of tax avoidance proceedings if they have already been initiated by the Head of the National Tax Administration.
- Assessment of transactions with respect to individual taxes
M&A transactions may give rise to tax consequences on many levels:
- CIT,
- indirect taxes VAT, PCC.
Our task is to identify and optimise the public and legal burdens so that entities involved in a structural transformation can benefit from the optimal tax model.
On behalf of our clients, we apply for tax interpretations and expert opinions that secure the interests of entities and allow for transaction risk management. We also take advantage of the latest jurisprudence of administrative courts and NSA resolutions in tax matters.
Applying for an interpretation of tax law involves the preparation of an application that describes the planned transaction or tax event, the expected legal consequences and the applicant’s position in this respect.
- Transakcje dotyczące akcji i aktywów
In practice, two types of M&A operations can be distinguished:
- transactions on shares (the so-called share deal),
- transactions on assets (the so-called asset deal).
In the first case, the object is shares in a company, while in the second – tangible and intangible assets that comprise the company. Legal assistance in this respect consists in identifying the best method of carrying out the M&A and its consequences, which, depending on the type of economic operation, will differ.
In the context of income tax, share deals are taxed at the level of the shareholder. For the company it is tax neutral. The amount spent on the acquisition of shares will be tax deductible.
On the other hand, asset deal transactions are taxed twice – at the level of the company and the dividend paid. For these activities, the tax deductible cost will be the amount spent on the acquisition of the assets less depreciation.
As far as VAT is concerned, the share transaction is exempt from it and the asset transaction is not subject to the VAT Act. However, in both cases the buyer is obliged to pay PCC in the amount of 1 or 2%, depending on the subject of the sale.
Compliance
Comprehensive legal support includes more than just legal and tax assistance. It also includes overseeing the implementation and updating of relevant compliance policies and procedures. This is particularly important in M&A transactions involving companies that are independent of one another, representing a different level of organisational culture, process flow and employee policy. Why implement compliance management in your company?
- The implementation of compliance ensures that the company’s processes run smoothly thanks to a precise division of duties and responsibilities among employees at every level,
- Compliance leads to a reduction in the number of incidents and unethical actions in a company, and facilitates the functioning of the entire structure in compliance with the law
- The implementation of compliance allows the entity responsible for the breach to be identified immediately and a corrective or sanctioning procedure to be initiated.
- The compliance policy builds the company’s image as a trusted and responsible partner and increases its competitive advantage.
- The documentation produced as part of the compliance investigation provides evidence of due diligence in the management of the company’s structure. This is important in the context of the statutory liability of collective entities.
It is worth remembering that compliance policies may relate to many areas of the company’s functioning such as the aspect of:
- legal (RODO, AML, anti-mobbing and whistleblowing procedures),
- external (e.g. code of good practices, guidelines for handling contractors),
- tax (hedging opinions and tax interpretations, advance pricing agreements, reporting on tax schemes),
- industry-specific (e.g. IT, pharmaceutical).
The implementation of compliance ends with the preparation of a detailed report, which also includes guidelines and recommendations for further action.
Post Merger Integration
Every M&A procedure ends with the merger of two or more entities into one. However, this does not yet mean that the efficiency of all processes is maximised.
Post Merger Integration (PMI, also known as Post Acquisition Integration) is designed to increase synergies between individual areas. It is a complex and multithreaded process that supports optimisation of the new company’s resource utilisation and increases the likelihood that the planned goal of the merger or acquisition will be achieved.
PMI is the responsibility of senior management, stakeholders, the compliance team and the so-called Change Management Expert. Many entrepreneurs also underestimate the importance of the human factor, i.e. the employees who should actively participate in the completion of the M&A.
Our law firm’s task is to cover all these groups with an umbrella of support and provide comprehensive formal, legal and organizational assistance in the most important areas of PMI.
Key areas of PMI
Post Merger Integration can be delivered on a number of levels (often in parallel to ensure that the call is made quickly and efficiently). The most important of these include:
- Combining information and knowledge about customers, services and products.
- Merging a portfolio of separate products and services so that they can be sold by the new company and present a consistent corporate image.
- Integration of customer relationship management systems (implementation of so-called CRM, or Customer Relationship Management).
- Developing common internal policies in relation to salary changes, transfers between positions, training of new employees, but also downsizing.
- Creating joint sales plans, development strategies and a plan for future M&A.
- Developing a new division of the internal structure into cells, divisions, departments and other organisational units.
- Developing a single organisational culture; this concept encompasses everything that makes up the proper functioning of any company – from working hours and holiday plans to the dress code and relations between employees and superiors.
PMI integration may take various forms. From the extreme – like taking over the functioning model of one company by the other or merging only in key areas (e.g. finance), to the development of full symbiosis on selected levels.
Our law firm’s task is to conduct PMI in such a way as to maximise the benefits from the merger and ensure full compliance with legal standards during the integration.
