A friend visited me recently. At the outset he announced that, as if anything, he had a “nice company” with a concession to sell. As he stated, the “company” clean, nothing going on there ready to start operations. Curious, I asked when he acquired it and what they had checked before buying it in the context of fulfilling concession obligations and regulatory obligations to the ERO and other authorities. It turned out that he had received contractual assurances that no proceedings were pending against the company, it had been checked on the ERO website that the license had not been revoked and that it was still in force and had not expired. In addition, he announced that the company is not engaged in licensed activities, hence no other reporting, record-keeping or certificate redemption obligations need be performed.
Out of curiosity, I asked for the full KRS extract, I downloaded the contents of the license from the ERO website, and we started checking. After verifying the KRS extract, it turned out that:
a) Failure to apply for a change of the company’s registered office both before and after the purchase – a possible penalty of PLN 10,000 to PLN 50,000. In addition, according to Article 41(4)(3) of the Energy Law, the ERO President may revoke a license in an extreme case of failure to file an application to change the licensee’s registered office.
b) Failure to report, both before and after the purchase, a change in the data of the company’s management board members – a violation of the concession obligation – possibly a violation of Article 37(2d) of the Energy Law – a possible penalty of between PLN 10,000 and PLN 50,000. It should be signaled that there are divergent interpretations regarding the application of the standard of Article 37.2d of the Energy Law to energy companies other than companies producing liquid fuels or trading in liquid fuels. Nevertheless, even assuming that Article 37(2d) of the Energy Law does not apply to electricity or gas trading companies – the obligation to inform about changes in the data of persons authorized or included in the body authorized to represent the Concessionaire is currently included by the ERO in the content of concession obligations. Therefore, a possible penalty may be imposed through the disposition of Article 56(12) of the Energy Law.
(c) Failure to report, both before and after the purchase, a change in shareholders holding at least 20% of shares – which, according to information from the ERO, constitutes a violation of Article 37(2d) of the Energy Law – a possible penalty of between PLN 10,000 and PLN 50,000. In this regard, it should also be signaled that there are discrepancies in interpretation regarding the application of Article 37(2d) of the Energy Law to energy companies other than those producing liquid fuels or trading in liquid fuels.
In addition, it turned out that the company will definitely not start licensed activities within 6 months from the date of granting the license, which, according to Article 41(2)(1) of the Energy Law, can also lead to the revocation of the license, if the company fails to start licensed activities within the prescribed period. If the entrepreneur does not start the licensed activity within 6 months from the date of granting the license, he is obliged to inform the ERO President and indicate the reasons for not starting the activity. The mere failure to start the licensed activity does not automatically result in the revocation of the license, however, the ERO President may set a deadline for the entrepreneur to start the licensed activity, and upon its ineffective expiration may take further steps to revoke the license. In the case of energy or gas trading companies, to meet the prerequisite for carrying out licensed activities is the start of sales to end users, other companies or the start of trading on POLPX. It should be borne in mind that the operational implementation of these processes is quite time-consuming and thus it is worth reserving an adequate time reserve.
As you can see, just a cursory review of the excerpt from the National Court Register identifies potential risks of proceedings by the ERO and fines of tens of thousands of zlotys or the risk of license revocation. And after all, there are many other regulatory obligations that such a company, even not yet conducting licensed activities, is obliged to perform.
Of course, this is an example of a company that has not started licensed operations. The scope of due diligence will be much broader in the case of companies subject to sale and engaged in licensed activities (energy or gas trading). There are dozens of such obligations, they are located not only in the Energy Law or the Renewable Energy Sources Act, and they are performed before various authorities – the ERO, the Ministry of Energy, the ARE, the Customs Office, the POLPX, the FSC and others. In addition, some of these violations cannot be retroactively remedied (e.g., obligations to redeem certificates of origin, failure to keep accounting records for closed periods, failure to prepare notes to the financial statements), hence they must be taken into account in the valuation and risk assessment of continued business operations.
In summary, even when buying a so-called clean company without liabilities, which holds a license however does not conduct licensed activities, it is worth conducting basic regulatory due diligence to exclude or mitigate possible risks. After the purchase of shares and corporate changes, it is also worth keeping in mind information obligations to the ERO. In addition, during due diligence of a company with a concession, it often turns out that the offered companies do not really have anything other than a concession, often not even registered with ACER, not to mention the possession of transmission contracts, provided schedule units, concluded general distribution agreements, or access to the exchange, which significantly affects the possible start date of the concession business.
Legal counsel Kacper Skalski head of the energy law team.
