Controversial amendment to the Commercial Companies Code

2 November 2022 | Knowledge, News

On 13 October 2022, the Act amending the Commercial Companies Code and certain other acts (the “Act”) entered into force. The following is a summary of the most significant changes and the effects they may have, including those which may turn out to be problematic for management boards of subsidiaries.

Holding law

When it comes to holding law, the Act has introduced a definition of a “group of companies” consisting of a parent company and its subsidiaries.

Companies belonging to a group of companies are to follow a common business strategy, respecting the interests of the group. The formation of a group of companies requires the adoption of a resolution on participation in that group and the group of companies being then registered with the National Court Register.

Mechanisms have also been introduced to enable parent companies to exercise uniform management over the company or its subsidiaries. Parent companies are also allowed to issue binding instructions to their subsidiaries, and refusing to comply with such directions will only be possible in certain cases.

In addition, parent companies are liable in damages to their subsidiaries (based on the principle of fault) for damage brought about by the subsidiary complying with a binding instruction, which has not been remedied within the time limit specified in such an instruction, and in certain cases are also liable to the creditors of a subsidiary.

The Act has aroused a great deal of controversy, with the legal community pointing to a number of problems arising from the introduced changes, in particular the marginalisation of the role of subsidiary management boards and the dilution of liability for damage caused to the company due to the introduced institution of a binding instruction.

New regulations for company bodies

The amendment also introduces new supervisory board tools which, according to lawmakers, are intended to enable more effective corporate governance. The most important changes in this respect include:

  • the obligation of the management board to provide certain information to the supervisory board on its own initiative without further request;
  • the right to select an advisor to the supervisory board to examine a specific matter concerning company operations or assets, and to prepare certain analyses and opinions;
  • the obligation to obtain approval for the conclusion of a transaction of significant value with a parent company, a subsidiary or a related company;
  • wider possibilities to request information and documents from i.a. management board members and employees;
  • extended obligations of reporting to shareholders (annual supervisory board reports to be submitted for the previous financial year).

The amendment has uniformly and comprehensively regulated the obligation to keep minutes of company management and supervisory board meetings, including their content.

The amendment has also clarified the moment of expiry of a mandate in connection with the expiry of the term of office of management and supervisory board members.

Under the new regulations, in the case of an appointment for a term of office exceeding one year, the mandate expires on the date on which shareholders’ meeting approving the financial statements for the last full financial year of office is held, with the term of office being calculated in full financial years. However, lawmakers allow this issue to be regulated differently within the articles of association.

Business Judgement Rule

Another major change is also the introduction of the Business Judgment Rule, which has been functioning so far in case law and considered valid in the views of legal scholars and commentators, allowing management and supervisory board members to avoid liability for damage caused to the company as a result of erroneous decisions, provided that these were taken within the boundaries of legitimate business risk and based on information adequate to the circumstances.

Accordingly, the activities of the bodies will be assessed not only through the prism of performance, but also taking into account the correctness of the decision-making process. In this context, professional reports or legal opinions may assume even greater importance.

How can we assist

Having analysed the changes to the Commercial Companies Code, we have developed specific solutions to make it easier for entrepreneurs to adapt their structures to the new regulations. We are ready to assist you with all activities aimed at implementing the amended regulations, and to answer all your questions in this respect.

Any questions? Contact the author directly

Adam Czarnota

Aneta Serowik

 


See also

Draft amendment to the Commercial Companies Code

Amendments to the Commercial Companies Code – the Business Judgment Rule and the interest of a group of companies

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