LEVERAGED BUY-OUT (LBO)

This paper deals with a special kind of company takeover called Leveraged Buy-Out (LBO). The main characteristic of this type of transaction is a very low amount of own capital and a great deal of external funds used by investors in order to finance the takeover. This paper aims to systematize the legal aspects of LBOs in Poland, particularly those involved in securing external funds before the transaction and servicing the debt after taking control of the target company. The legal discussion of those aspects is strongly placed in the financial context and is also based on the author’s practical experiences. At the beginning the focus is put on the essence of the problem, the terminology and the successive steps of a typical LBO transaction. Furthermore, the issues of securing external financing are discussed. In particular, the author pays heed to the possibilities of securing the loan by the target company in the light of article 345 of the Polish Company Law Act (equivalent of art. 23 of 2nd Directive of EC Council) and some other legal limitations. Subsequently, the author touches upon the issues related to debt servicing after a LBO. Discussion is presented of debt incorporation into the target company, or alternatively, methods of relevant funds transfer from the target company for the repayment of the loan drawn earlier in order to finance the takeover. In this context, special emphasis is put upon the rights of minority shareholders and the protection of creditors. Key words: Leverages Buy-Out (LBO), mergers and acquisitions, debt security, protection of creditors