Will every right and obligation pass to the acquiring company?

General succession of rights and obligations is an important institution that is applied in the process of merger of companies. What is this institution about? What benefits does it provide? Are there any exceptions to it? We describe this institution by discussing general succession using the example of a merger of companies by acquisition. 

What is general succession of rights and obligations?

General succession means that on the date of registration the merger in the National Court Register, the acquiring company automatically enters into all the rights and obligations of the acquired company[1].

It is not necessary to conclude additional agreements, annexes or sign documents in the appropriate form – registration of the merger of companies is sufficient.

General succession of rights and obligations is particularly important for entities that have a large number of contractors and concluded agreements. Thanks to the succession, the acquiring company by law becomes a party to the contracts concluded by the acquired company (without taking any additional action in this regard).

Does general succession apply in every situation?

General succession is the rule. The provisions of the Commercial Companies Code indicate, in particular, that:

• permits,
  
• concessions,
• reliefs

that have been granted to the acquired company pass to the acquiring company (unless the law or the decision granting them provides otherwise)[2].

On the other hand, in each case it is necessary to analyze the documents governing the individual rights and obligations of the acquired company that will  be transferred to the acquiring company.  

In particular case, it may turn out that a law, decision or agreement contains different provisions in this regard and the transfer of certain rights of the acquired company to the acquiring company will not occur or the fulfillment of additional obligations will be required.

Additionally, in case of acquired companies that are financial institutions, the authority that issued the permission or concession may lodge an objection preventing the general succession[3].

Updating information in registries  

Although the transfer of the rights of the acquired company to the acquiring company occurs automatically, the disclosure of the changes in the relevant registers requires additional actions. These are taken by the acquiring company’s Board of Directors.

Submission of an application to update the data will be required, in particular, in case of rights disclosed in: 

• land and mortgage register;
• register of pledges;
• registers maintained by the Patent Office (e.g., patent, trademark or industrial design registers).

Is general succession always an advantage?

It is significant to know that that general succession also results in the transfer of the acquired company’s obligations to the acquiring company. Obligations that are unknown to the acquiring company at the time of the merger are also a subject of general succession.

Therefore, it is very important to conduct due diligence on the acquired company before the merger. Through such a check, the risks associated with the merger can be identified

Examination of the acquired company’s situation is particularly important in acquisition of a company that does not belong to the same group.

Verify the acquired company’s rights and obligations!

General succession is a very helpful institution, as it eliminates the unnecessary multiplication of documents and activities related to the merger of companies. However, it should be remembered that succession is not always applicable. Additionally, this institution results in transfer of not only rights but also obligations of the acquired company. Therefore, before the merger of companies, it is significant to thoroughly verify the rights and obligations of the acquired company. 

If you have any questions related to the issue or need support in the merger process, feel free to contact our specialists! We can help at every stage of a process, including due diligence on the acquired company.

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[1] Article 494 § 1 of the Code of Commercial Companies.

[2] Article 494 § 2 of the Commercial Companies Code

[3] Article 494 § 5 of the Code of Commercial Companies.