Piotr Mrowiec

Attorney at law (Poland), Mediator
Associate Partner
Phone: +48 58 582 65 81

A decision revoking a permit for business in a special economic zone in Poland (SEZ) should take into account the social and economic implications especially for the local job market. A discontinuation of business pursued in a SEZ on the basis of a permit or a gross violation of the permit terms does not always lead to a forfeiture of the permit.

This is the gist of the Supreme Administrative Court's ruling of 13 December 2016 (II GSK 1375/15). A company obtained a permit for business activity in a special economic zone. The permit obliged the enterprise to, among other things, hire 45 people by 31 December 2008 and maintain that workforce until 31 December 2013. However, the company was unable to keep the conditions due to a contract for lease of the enterprise to another company signed in December 2012. At the same time, with its order of 11 July 2012 the District Court in Łódź declared the company bankrupt and then, by virtue of an order of 18 December 2012, changed the bankruptcy procedure from a bankruptcy with an option of voluntary arrangement into a liquidation bankruptcy. The Minister of the Economy decided that the company ceased its business activity in the SEZ. Pursuant to the SEZ Act (Article 19(3)(1) and (2)) the permit may be revoked, or its scope or subject matter restricted, if the enterprise discontinues the business under the permit in the zone, or grossly violates the permit terms. In the decision of 20 June 2013 the SEZ administrator expressed his positive opinion for the minister without raising any objections to the pending procedure for the permit revocation.

Company bankruptcy does not have to be tantamount to a discontinuation of business in a special economic zone

The company claimed that the fact that a business activity identical to the one specified in the permit would be continued in the company's location and using its property was disregarded. The company further claimed that the declaration of bankruptcy, even liquidation bankruptcy, was not tantamount to a discontinuation of business. The Supreme Administrative Court (SAC) pointed out that the SEZ Act does not stipulate what the decision referred to in Article 16(5) must include. The authority should clarify and refer to all circumstances that have to be considered while deciding on permit revocation. A discontinuation of business in a SEZ or a gross violation of the permit terms as such does not lead to a decision on the permit forfeiture (Article 19(3) of the SEZ Act). 

Balancing the matter in deciding on permit revocation

The SAC stated that a decision on permit revocation as referred to in Article 19(3) of the SEZ Act should be issued with administrative discretion. Consequently, the evaluation of the circumstances referred to in that Article should take into account Article 7 of the Polish Code of Administrative Procedure (CAP). If an issue is left to administrative discretion, the authority must balance the social interest and the legitimate individual interest in resolving it. The balancing obligation applies also to the opinion on permit revocation as it constitutes material evidence in deciding on permit revocation. The SAC stated that the SEZ administrator's opinion did not account for that obligation. It lacked the consideration of social and economic implications of the permit revocation, especially for the job market. The permit revocation would lessen the positive effects of maintaining the workforce required under the permit.

A declaration of bankruptcy as such is not tantamount to a discontinuation of business in a SEZ. The Court held that in the case of liquidation bankruptcy the bankrupt's enterprise could carry on business if an arrangement with creditors was possible or a part or the whole enterprise could be sold. The bankrupt's leased enterprise was indeed sold. According to Article 317 of the Bankruptcy and Restructuring Act the permit could be transferred to the bankrupt, unless statute or the permit decision stipulated otherwise. Neither the SEZ Act nor the permit decision contained such limitations, so the permit for business in the zone could be transferred to the buyer of the bankrupt enterprise. As a consequence, the SAC reversed the appealed ruling and decisions including the administrator's opinion that laid the path for the permit revocation.

The above judgement demonstrates the court's reasonable approach to the matter which is so fundamental for every enterprise doing business in a special economic zone. That SAC's ruling is another one (after the ruling of 5 May 2016, file no. II GSK 2581/14) that forces the authority which revokes or restricts the permit for business in a SEZ to a more thorough and all-encompassing analysis of the facts and circumstances. The Minister should assess not only if the business has been terminated but also properly apply Article 7 of the CAP to decide if a formal fulfilment of the conditions should indeed cancel the permit. The authority should examine all issues and consider the social and the legitimate individual interests. The claims raised in the appeal, namely violation of Article 7 of the CAP read together with Article 3 of the SEZ Act, proved valid because the authority was completely ignorant about the social and economic implications, especially for the local job market. The leased and then sold bankrupt enterprise increased the workforce beyond the minimum required in the permit. If the decision revoking the permit had not been reversed, the enterprise would have been obliged to return the state aid it received. As a consequence, it could have incurred enough debt to be compelled to downsize.

The Special Economic Zone in Poland administrator as an important link in opining the permit revocation

The Court emphasised the important role of the zone administrator as a body that delivers opinions, which is in practice the only source of information for the minister who makes the actual decision. It is the administrator who should clarify and consider all circumstances that have to be accounted for while deciding on permit revocation. Thus, consideration has to be given to the overall situation of the entity which pursues a business in a special economic zone. The permit revocation and the obligation to return the state aid would defeat the purpose of special economic zones. The enterprise itself met the permit conditions by hiring more than the required minimum. 

We were pleased to see the Court's effort to look into the matter through the general clauses of Article 7 of the CAP, that is, in consideration of social and legitimate individual interests. The Court saw the purpose of the SEZ stipulated in Article 3 of the SEZ Act and considered the social and economic consequences if the state aid had to be returned.

Furthermore, Rödl & Partner offices in Gdansk, Gliwice, Cracow, Poznan, Warsaw and Wroclaw can offer professional tax advice in Poland and legal advice in Poland on special economic zones and other areas of your specific interest.