Amendment to the Commercial Companies Code, Part 2. Increased competence of supervisory boards and other changes to operation of capital companies
On 4 April 2022, the President of Poland signed an act amending the Code of Commercial Companies and some other acts (“Amendment”), which is going to take effect on 13 October 2022. In addition to the notion of a “group of companies” introduced to the Polish legal order, the amendment also provides for some material changes to the operation of capital companies, including increased competence of supervisory boards. Presented below is a brief description of changes implemented by the amendment.
We have already discussed the regulations governing groups of companies here
(https://pl.andersen.com/en/newsletter/the-holding-law-amendment-to-the-commercial-companies-code/).
Changes to regulations governing supervisory boards and management boards:
Term of office
The amendment contains more precise provisions on the way in which the term of office of governing body members in capital companies is to be counted. According to the amended regulations, the term of office shall be counted in full financial years, unless the articles of association provider otherwise.
To put it simply: if a member of a governing body is appointed to hold his/her function in the course of a financial year, the year will not be included in the term of office. Example: a person was appointed to hold a function in the management board for a 3-year term of office on 1 May 2023, his/her term of office will end on 31.12.2026, and his mandate will expire upon holding an ordinary general meeting/shareholders meeting approving the financial statements for 2026. Importantly, the regulations will also apply to terms of office which are underway on the effective date of the Act.
Business judgment rule
The new wording of Art. 293 and Art. 483 of the Code of Commercial Companies implements the business judgment rule. It is intended to protect, inter alia, members of management boards against liability for damage caused to the company if the damage resulted from activities undertaken within the limits of reasonable business risk, and based on information, analyses and opinions which the person should have taken into account in the circumstances. The assumption underlying this regulation is that risk is an inevitable element of business, and activities undertaken by members of governing bodies should be evaluated in view of accuracy of a decision at the time of its making and associated circumstances rather than retrospectively, in view of its outcome. In practice it is difficult to predict whether this regulation will indeed offer such protection and fulfil its role. From practical perspective, it will be extremely difficult to assess whether specific activities were undertaken within the limits of reasonable risk or they exceeded such limits.
New crimes which prevent from holding the function of a governing body member, if committed
Art. 18 of the CCC expands the list of crimes which, if confirmed with a final judgment, prevent a person from holding the function of a member of the management board, supervisory board, review panel, a liquidator or a proxy, to include, without limitation, the crime of withholding information and documents from the supervisory board or supervisory board’s adviser/counsel (Art. 5871 – Art. 5872 of the CCC), bribery (Art. 228 of the Criminal Code), corruption (Art. 229 of the Criminal Code), influence peddling (Art. 230 and Art. 230a of the Criminal Code), abuse of rights by an officer (Art. 231 of the Criminal Code).
New obligations and powers of supervisory boards
Report on operations of the supervisory board
The supervisory board of each capital company will be obliged to prepare a report on operations of the supervisory board for the preceding financial year and submit it to the shareholders meeting or general meeting. The role of the report is to be similar to that of the directors’ report on operations of the company.
Right to access and audit company’s documents
The amendment extends the competence of the supervisory board in respect of activities of supervision (Art. 219 § 4 of the CCC, Art. 30071 of the CCC, Art. 30076 of the CCC, Art. 382 § 4 of the CCC). The amended provisions expand the list of persons obliged to provide information or documents to the supervisory board. The regulations provide that, apart from the management board and employees of the company, this obligation also applies to proxies and persons who perform certain activities for the company under a contract for specific work, contract of mandate or another contract of similar nature. The information and documents should be provided promptly, but no later than two weeks after they were requested, unless a longer term is provided. Failure to fulfil said obligations, i.e. provide such information on time, providing untrue information or concealing details which materially affects the contents of such information or documents is a crime subject to a fine ranging from PLN 6,000 to PLN 50,000 (Art. 5871 of the CCC).
Moreover, the management board of a joint stock company will be obliged to provide the supervisory board with said information with no need to be requested to do so. Pursuant to Art. 3801 of the CCC, it applies to information regarding:
- the Management Board’s resolutions and the subject matter thereof;
- the situation of the company, including its assets and material circumstances in the area of managing the company’s affairs, in particular in the field of operations, investments and human resources;
- the level of achievement of directions set for the company’s development, provided that the management should identify deviations from previously agreed directions, indicating the reasons for them;
- transactions and other events or circumstances which materially affect or may affect the assets and financial situation of the company, including its profitability or liquidity;
- changes to information previously provided to the supervisory board, if such changes materially affect or may affect the company’s situation.
As a side comment, it should be noted that the Amendment does not change the core principles of supervisory board operation. In a joint-stock company, the supervisory board still exercises its obligations collectively and is authorized to request information about the company as a collective body, rather individual members thereof. The situation in a limited liability company is different: members of the supervisory board may exercise the right of supervision individually (Art. 219 § 5 of the CCC).
Obligation to notify the certified auditor about meetings convened to evaluate reports
The amendment introduces an obligation for the supervisory board to notify the certified auditor who audited the company’s financial statements about meetings convened to evaluate the directors’ report and the financial report (statements) (Art. 219 §6 of the CCC, Art. 30069 of the CCC, 382 §7 of the CCC). The company should ensure that the certified auditor or another representative of the auditing firm attend the meeting of the supervisory board, and that they present a report on audit and answer questions that may be asked by supervisory board members.
Relying on advisors. Appointment of committees
Supervisory boards will have the power to appoint ad hoc or permanent committees to perform certain supervisory activities. Importantly, exercising this right will not release supervisory board members from liability for supervision (Art. 2191 of the CCC, Art. 30076 of the CCC and Art. 3901 of the CCC).
The supervisory board will also be authorized to select an advisor and contract to him the task of auditing certain areas of the company’s operations, its assets, or preparation of certain analyses and opinions. In the agreement between the company and the supervisory board’s advisor, the company is represented by the supervisory board (Art. 2192 of the CCC, Art. 30071a of the CCC, Art. 3821 of the CCC). The management board is obliged to provide access to documents and information requested by the advisor. Failure to provide such information, providing untrue information or concealing details which materially affect the contents of such information or documents is a crime subject to a fine ranging from PLN 6,000 to PLN 50,000 (Art. 5872 of the CCC).
Consent for a joint-stock company to enter into an agreement with a related enterprise
A new solution in a joint-stock company is the obligation to obtain the supervisory board’s consent for conclusion of an agreement between the company and the parent company, a subsidiary and a related enterprise if the total value of transactions concluded with the same company during the financial year exceeds 10% of the sum total of the company’s assets within the meaning of the accounting law. Importantly, this rule does not apply to companies where at least one share is permitted to trading on regulated market, and companies which are members of a group of companies. It should be emphasized, however, that with respect to companies in which at least one share was permitted to trading on regulated market, a similar obligation was previously provided for in Art. 90i(3) of the Act on Public Offer and Conditions for Introducing Financial Instruments to Organized Trading System, and on Public Companies.
Arranging for and convening supervisory board meetings
The rules governing convocation and arrangement for meetings of supervisory boards in limited liability companies and joint-stock companies were made more formal. The regulations provide, among other things, for the obligation to convene meetings using invitations which indicate the date, hour and venue of the meeting as well as the agenda. It is also possible to hold meetings without formal convocation, if all members of the supervisory board consent to it and raise no objection to individual items included on the agenda (Art. 2211 of the CCC, Art. 389 of the CCC). Additionally, a rule was adopted that minutes of supervisory board meetings should be signed, as a minimum, by the chairperson of the meeting or the person who orders voting, unless the company’s articles / memorandum or rules of procedure of the supervisory board provide otherwise.
Taking record of management board resolutions
The Act provides for keeping record of resolutions adopted by the management of a limited liability company. So far, the regulations provided for keeping records of resolutions of the management board in a joint stock company and a simple joint stock company. Additionally, the Amendment introduces some common elements which should be included in minutes/records from meetings of the management board in a limited liability company and a joint stock company, namely: the agenda, names of management board members participating in voting, number of votes cast and dissenting opinions submitted by management board members (Art. 2081 of the CCC and Art. 376 of the CCC). The record should be signed by the management board member who chairs the meeting or orders voting, unless the company’s articles of association or its memorandum, or the management board’s rules of procedure, provide otherwise
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