Penalties imposed by the Polish Financial Supervision Authority for violation of the laws regulating large blocks of shares

The amendments to the Act on public offering, conditions governing the introduction of financial instruments to organised trading, and public companies effectuated by way of the statute of 10 February significantly increased the maximum penalties which the Financial Supervision Authority (KNF) may impose where violations have been established by way of an administrative decision. In general, increase of the penalties applicable for specific classes of violation proceeded in implementation of Directive 2014/57/EU of the European Parliament and of the Council of 16 April 2014 on criminal sanctions for market abuse so as to enable effective enforcement of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (the Market Abuse Regulation, or MAR).

Apart from new measures directly traceable to MAR, especially as regards the confidential information regime (first and foremost for the members of Management Boards and Supervisory Boards of publicly listed companies), the present amendments bring a pronounced increase of the penalties which may be imposed for what are known as administrative torts, including violation of Chapter 4 of the Public Offering Act (which deals with large blocks of shares). The administrative torts in question are defined in art. 97 of the Public Offering Act as including violations with respect to:

• Announcement and effectuation of tenders for large blocks of shares, as discussed in arts. 73 and 74 of the Public Offering Act (in cases of intended, or actual, exceeding of specified General Meeting vote percentage thresholds);
• Notification of shareholders, via the procedure defined in art. 69 of the Public Offering Act, of changes to the shareholding status (resulting in increase or decrease of the percentage in the overall number of shares).

For each of these general transgression categories, the maximum penalty has been increased ten times, from PLN 1,000,000 to PLN 10,000,000. Moreover, the KNF will now have the power to apply an alternative penalty, substituting the above with a penalty corresponding to up to three times the profit accrued, or the loss avoided, in cases where quantification of the gain secured, or loss avoided, by commission of the given administrative tort is possible.

Breach of notification duties imposed by art. 69 of the Public Offering Act with respect to change of the share in the overall number of votes, meanwhile, may now incur the following penalties:

• For natural persons – up to PLN 1,000,000;
• For other entities – up to PLN 5,000,000 or an amount corresponding to 5% of the total annual revenue posted in the last audited financial report for a financial year, provided that this is in excess of PLN 5,000,000.

This sanction may likewise be substituted with the alternative penalty corresponding to up to two times the profit accrued, or the loss avoided, in cases where quantification of the gain secured, or loss avoided, by commission of the given transgression is possible.

In light of the above, entities subject to the rules concerning large blocks of shares (first and foremost professional investors) are advised to exercise especial caution at the planning stage in that, given potential penalties on this scale, the cost which must be borne in the event of any irregularity may well render the entire transaction unprofitable.

The penalty imposed on Murapol S.A. 

A recent case study illustrating that this is more than just a theoretical risk is presented in the recent KNF decision concerning Murapol S.A. Sitting in session on 20 August 2019, the KNF imposed on Murapol S.A. a penalty of PLN 9,900,000 (just short of the new maximum), having established in proceedings that, in 2017, the company had failed to comply with its statutory duties:

• Concerning announcement by Murapol S.A. of a subsequent tender in accordance with art. 73.2 of the Public Offering Act to subscribe for sale or conversion of shares in Skarbiec Holding S.A. in a number causing achievement of 66% of the total number of the votes in connection with exceeding by Murapol S.A. (along with Venture FIZ, a fund managed by Trigon TFI S.A., presently Lartiq TFI S.A.) of 33% of the total number of the votes in Skarbiec Holding S.A. or
• By failing to divest shares in this company in a number causing achievement of not more than 33% of the total number of the votes (within 3 months after the 33% threshold had been exceeded).

Please note that this decision by KNF is not final, and that Murapol S.A., in its press release, has announced that it shall apply for renewed consideration of the entire case. This decision nonetheless signals a readiness on the part of KNF to take a hard line in enforcing art. 97 of the Public Offering Act. In this connection, we note that, over the past two years, KNF has been imposing stiffer penalties also with regard to other transgressions against the Public Offering Act and the legislative Act on trading in financial instruments (by issuers, by licenced entities, and by natural persons alike).

Should you have any questions with regard to the above, please contact GESSEL at your convenience.