Supervisory Boards in joint stock companies have broad powers to supervise the activities of the Management Board. One of these powers is the option to delegate members to temporarily perform the duties of board members who have been dismissed, resigned or are otherwise unable to perform their duties.
Conditions for the delegation of a Supervisory Board member to the Management Board
The delegation of a Supervisory Board member is possible when there are not enough members on the company’s Management Board to enable it to operate effectively and the immediate appointment of another person is impracticable or difficult (for example, if there are no candidates meeting the company’s requirements or a competition for the position would need to be held).
Most often, this occurs when a board member is dismissed, resigns, dies or their health deteriorates preventing them from performing management functions.
As a result of the delegation, a Supervisory Board member temporarily assumes the rights and duties of the Management Board member whose mandate has expired or who is unable to act. However, upon delegation to the Management Board and until the end of such delegation, the former’s rights and duties as a member of the Supervisory Board are suspended.
Delegation of a Supervisory Board member to the Management Board – what to bear in mind
In order to delegate a member of the Supervisory Board to perform management duties, the Supervisory Board must adopt a relevant resolution and the consent of the delegate must be obtained. Such a resolution (unless the company’s Articles of Association provide otherwise) is passed by an absolute majority of votes and the delegation takes effect either upon adoption of the resolution or on the date specified therein.
Nature of delegation to the Management Board of the company
A Supervisory Board member is delegated to perform the duties of a specific person, thus the distribution of duties within the company’s Management Board remains unchanged. In most cases, the delegate enters into all the rights and duties of the substituted person.
However, a literal interpretation of the provision in question, confirmed in legal doctrine, leads to the conclusion that a person may also be delegated to perform only selected duties and thus their rights and obligations may be restricted.
Originally, the Commercial Companies Code provided that a delegation was temporary, without specifying its maximum duration. Eventually, however, the lawmakers ruled on the maximum duration of the delegation, which may not exceed three months, with any delegation exceeding the statutory term expiring by operation of law. This means that if the Supervisory Board’s resolution in this regard does not specify the duration of the delegation, it must be assumed that it will last for three months, the maximum period allowed by law.
Remuneration of the delegated Supervisory Board member
The delegation entails a change in remuneration. According to the prevailing view, from the moment specified in the Supervisory Board’s resolution on the delegation of its member to temporarily perform the duties of a Management Board member, that person ceases to be entitled to their previous remuneration for their function on the Supervisory Board and will be entitled to receive the remuneration appropriate to a Management Board member, in accordance with the company’s rules in this respect.
Non-competition
It is generally accepted that while acting as a member of the Management Board, a delegated Supervisory Board member is prohibited from engaging in activities that are in competition with those of the company (as Article 380 § 1 of the Commercial Companies Code applies accordingly). The delegate may also be exempted from the non-competition obligation.
Delegation of a Supervisory Board member to the Management Board in limited liability companies
The lawmakers have not introduced a similar solution for Supervisory Boards of limited liability companies. However, the Supervisory Board may be granted such power by introducing appropriate provisions into the Articles of Association.
Summary
In order to avoid the risk of the Management Board of a joint stock company being incomplete due to the removal of a member of the Management Board from office, their resignation or the occurrence of other reasons preventing them from performing their duties, the delegation of a member of the Supervisory Board to act as a member of the Management Board may prove to be a helpful remedy for an emergency situation in the company.
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Source: Rzeczpospolita
Date: 21.07.2023
