Significant changes to the Polish commercial companies code

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Significant changes to the Polish commercial companies code

Significant changes to the Polish commercial companies code

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May 30, 2022

Holding companies law

The main goal of the recent amendments is to introduce laws governing holding companies into the Polish commercial companies law. The basic tenets of the new laws are as follows:

To introduce into the Polish legal system the notion of a ‘group of companies’, which denotes a qualified relationship of dominance and dependence between companies, viz. a de facto holding structure formed by a parent company and one or more subsidiaries (all of them being corporations), where the companies do not merely pursue their own interest but also act in the interest of the ‘group of companies’, and the parent company exercises what is known as ‘uniform management’ over the subsidiary(-ies);
A subsidiary may not be, i.e. in this regard, holding company laws do not apply to:

Public companies,
Companies in liquidation which initiated the process of distributing its assets,
Companies in bankruptcy,
Companies subject to financial supervision within the meaning of the Financial Market Supervision Act;

The companies’ freedom to pursue the interest of the group of companies may, however, be overridden by the interests of a subsidiary’s creditors or minority shareholders;

For companies to participate in a group of companies:

A resolution must be adopted by the shareholders’ meeting of the subsidiary on its participation in the group of companies. The resolution must stipulate the name of the parent company and approve the common business strategy of the group of companies. The resolution requires three-quarters of the votes exercisable at the shareholders’ meeting;
Participation must be disclosed in the National Court Register (‘declaratory entry’);

Termination of participation entails:

a. A resolution of the subsidiary’s shareholders’ meeting adopted by a three-quarters majority of the votes, or

The parent company submitting a statement on termination of participation to the subsidiary;

Consequently, it appears that a change in the group structure and the expiry of the dominance relationship will not automatically trigger the expiry of participation in the group. Based on a literal interpretation of the wording of this provision, in the case of a sale of shares in a group company, it will be necessary for the shareholders’ meeting of the subsidiary to adopt a requisite resolution or for the parent company to make the statement referred to above.

The parent company will now have the right to issue binding instructions to a subsidiary provided that:

For such instructions to be valid, they must be given in written or electronic form;
Their minimum content is statutorily defined (in the new Article 21²(3) of the Commercial Companies Code);
The instruction must be justified by the interest of the group of companies, provided that specific provisions may further waive or limit the right to give such instructions;
The subsidiary must decide to comply or refuse to comply with the instruction in the form of a management board resolution and must communicate its resolution to the parent company;
The subsidiary must state its reasons for refusing to comply with a binding instruction. It must refuse to comply with a binding instruction in the following events:
1. If compliance with the instruction will lead the subsidiary to insolvency or pose a threat of insolvency;
2. If the subsidiary has a good reason to believe that the instruction contradicts the interests of, and is likely to bring irreparable harm to, the subsidiary’s interests (this applies to companies with more than one shareholder);
The Articles of Association may provide other grounds for the subsidiary’s refusal to comply with a parent company’s instruction;

The amendments also introduce the parent company’s obligation to indemnify the subsidiary for:

Damage caused to the subsidiary as a result of the subsidiary complying with a binding instruction (unless the parent company is not at fault, with the proviso that in the case of single-member subsidiaries, the parent company is only liable for damage if a subsidiary’s insolvency comes as a result of the subsidiary complying with a binding instruction);
Reduction in the value of the shareholder’s shareholding in a subsidiary (if the drop in value was a consequence of a binding instruction implemented by the subsidiary and the parent company is able to independently adopt a resolution on participation in a group of companies and to amend the articles of association of the subsidiary);
Damage caused to a creditor of a subsidiary (if enforcement against a subsidiary participating in a group of companies proves ineffective, unless the subsidiary is not at fault or the damage did not arise as a result of the subsidiary’s compliance with a binding instruction).

Corporate officers (e.g. members of the management board, supervisory board, commercial proxies) of a company participating in a group of companies may cite the fact that they acted/omitted to act while pursuing a specific interest of the group of companies as a defense to avoid personal liability;
The members of managerial bodies of a subsidiary and the parent company will also be able to sidestep civil liability in a situation where:

The subsidiary complies with a binding instruction of the parent company absent any grounds for refusal;
The subsidiary refuses to comply with a binding instruction where there are reasons to do so;

The management board of a subsidiary must prepare a report on the company’s contractual ties with the parent company in the last financial year. Notably, the report must include all binding instructions given to the company;
Shareholders representing 10 procent of the voting rights/share capital have the right to request that the registry court appoints an auditor to audit the accounts and operations of the group of companies;
Sell-out mechanism - minority shareholders of a subsidiary may request the parent company to repurchase their shares:

The new regulations will now make it possible for limited liability companies to use this mechanism. They also introduce liberalized prerequisites for this mechanism to be used;
Available to minority shareholders representing no more than 10 procent of the subsidiary’s share capital;
No limits on the number of repurchasers;
The prerequisite that the parent company must hold at least 90 procent of the subsidiary’s share capital may also be fulfilled indirectly or by means of agreements with other persons;
Time restrictions on exercising this right — only once per financial year.

Squeeze-out mechanism - compulsory buy-out of shares owned by minority shareholders:

Again, now available in limited liability companies, more liberal prerequisites apply;
The threshold of 90 procent of the subsidiary’s share capital must be met by the parent company directly (optionally, the articles of association may grant this right to a shareholder holding directly or indirectly less than 90 procent, but not less than 75 procent of the share capital);

Extended supervisory powers of the parent company, in particular:

It will now be able to review at any time the accounts and documents of a subsidiary participating in a group of companies and to request information from the subsidiary (as well as to apply to the registry court if access is not granted/information is not provided);
The parent company’s supervisory board will now be able to monitor on an on-going basis whether the subsidiary pursues the interests of the group of companies (if the parent company does not have a supervisory board, these powers will be vested in its management board);

The group of companies must be mentioned on the company’s letterhead (on all commercial correspondence, etc.).

Introduction of the business judgment rule

This rule allows corporate managers (including, but not limited to, members of the management board and supervisory board) to avoid liability for damage caused to the company by making decisions that eventually prove to be wrong despite having been originally made within the limits of reasonable economic risk, including on the basis of information, analyses and opinions that should have been taken into account under the circumstances in making a careful assessment.

Extension of the duties and powers of the supervisory board

After the amendments come into force, the supervisory board will gain new special duties and powers, including:

Preparing and submitting to the shareholders’ meeting a written report on the supervisory board’s activities in the previous financial year (supervisory board report);
Requesting management board members, commercial proxies and persons hired by the company on the basis of a contract of employment or otherwise regularly performing certain activities for the company on the basis of a contract for specific work, contract of mandate, etc., to prepare or submit any information, documents, explanations, etc. concerning the company, its subsidiaries and affiliates (with the proviso that the management board must not restrict access to this information, etc., and ought to provide it immediately and in no event later than within two weeks from notification);
Ongoing supervisory powers with respect to the subsidiary (as discussed in clause i above);
The requirement to obtain the supervisory board’s approval for the company to enter into a transaction with a parent company, subsidiary or affiliate if the value of the transaction exceeds 10 procent of the company's assets (this only applies to joint stock companies);
An option to set up an ad hoc or standing committee of the supervisory board;
An option to adopt a resolution to have a certain matter relating to the company's business/assets examined by a selected advisor (advisor to the supervisory board) at the company's expense;
The obligation to convene meetings by sending off invitations (as in the case of shareholders’ meetings), although supervisory board meetings may also be held without being formally convened if all members agree to the meeting being held;
The right to adopt resolutions in matters not included in the agenda, provided that none of the supervisory board members attending the meeting objects;
The obligation to keep minutes of meetings (the same obligation will now also apply to management board meetings).

Clarification of provisions governing the term of office and mandate of corporate officers

The amendments clarify the rules for calculating the term of office for management and supervisory board members:

Unless otherwise provided in the articles of association, the term of office is a multiple of a full financial year;
Consequently, the mandate of a management board member appointed on 1 June 2021 for a two-year term of office will expire on the date of the general shareholders’ meeting held to approve the company’s accounts for the financial year of 2023 (if in a given company the financial year equals a calendar year);
The new rules for calculating the term of office will apply to corporate officers already in office as at the effective date of the new legislation.

New categories of persons banned from from holding corporate office

The new categories of persons banned from corporate officer positions will now include persons finally and non-appealably convicted of the following criminal offenses:

Corruption, bribery, influence peddling or malfeasance in office;
Failure to provide information, documents, reports or explanations to the supervisory board (the newly introduced Article 587¹ of the Commercial Companies Code);
Obstructing access to documents and withholding information from an advisor to the supervisory board (the newly introduced Article 587²of the Commercial Companies Code).

New criminal sanctions for breaching the obligation to disclose information to the supervisory board or an advisor to the supervisory board (see also: point iii above) include a fine of up to PLN 50,000 or restriction of freedom.