The amendments to Polish corporate law are coming into force on 13 October 2022.
Unlike certain foreign legal frameworks, Polish law had, so far, only fragmentary provisions regulating relations between companies within the same group. The new law addresses this area and brings about fresh opportunities, obligations and challenges related to the operations of groups of companies in Poland. It offers closer control over subsidiaries by a parent, for a price of extended liability of a parent company and its officers.
A Parent Company at the Steering Wheel
The law introduces a definition of a “group of companies”. It includes a parent company and its subsidiaries, guided by the pursuit of a common economic goal. From now on, companies within the same group could make decisions based on the common interest of the group, instead of solely seeking merely individual benefits.
In order to form a group, shareholders of a subsidiary must express such an intention by adopting a resolution supported by a majority of three-quarters of the votes. The participation in the group shall be disclosed in the commercial registry of a parent company and a subsidiary. If the parent company is located outside of Poland, the disclosure is made only in the register held for the subsidiary.
Once the disclosure requirements are fulfilled, a parent company may issue binding instructions to its subsidiaries. Such instructions must be then accepted by the directors of a subsidiary, unless:
- Following the instruction would lead to or threaten the subsidiary with insolvency.
- The instruction contradicts the subsidiary’s interest and would result in a damage to the subsidiary not rectified within two following years. This second exception does not apply to single-shareholder subsidiaries.
Shareholders of a subsidiary may introduce additional grounds allowing for refraining from executing the binding instruction.
The new law also provides an extended possibility for buyback of minority shareholders in subsidiaries.
More Power to Supervisory Boards
A supervisory board of a parent company (if established) will now be allowed and obliged to oversee the actions of its subsidiaries, and will have the right to access its books and request information on its activities.
To facilitate the operations of supervisory boards and to strengthen the independence of the supervisory board from the management board, they will also be granted a power to appoint a committee of selected members of the board to perform specified tasks on behalf of the whole supervisory board.
The supervisory board will also be equipped with the authority to appoint an external expert, and authorise such an expert to perform necessary examinations of a company’s operations.
Rules of Liability Will Change
From 13 October 2022, the directors and members of supervisory boards of subsidiaries may be able to exempt themselves from liability for any damage sustained by their companies, resulting from performance of parent company’s binding instructions. The same holds true for potential criminal liability for abuse of fiduciary duties by the directors and members of the supervisory board of the subsidiary.
On the other hand, new regulations introduce a fault-based compensatory liability of a parent company towards its subsidiary, and the subsidiary’s shareholders and creditors, for damages that resulted from the performance of a binding instruction. The amendment grants the shareholders of the subsidiary the right to claim against the parent company for a decrease in value of the subsidiary’s shares as a result of performance of the parent’s instructions.
These changes may unexpectedly bring about a struggle between subsidiaries trying to hide behind binding instructions and parent companies seeking to exercise their influence more subtly without resorting to the new instruments.
Business Judgement Rule Introduced
There is one more important innovation being introduced, which is not strictly connected to the group of companies. The new regulations introduce, in a direct way, a business judgement rule.
Doing business requires taking risky decisions. Such decisions may drive the company forward but may also turn out to be wrong. Despite their knowledge and experience, managers are not able to foresee every possible consequence of their decisions, if only because the business world experiences various changes at a very dynamic pace. For that reason, members of governing bodies must be provided with as much decision-making sovereignty as possible.
The purpose of the business judgement rule is to provide defence to the corporate officers, whose actions were taken within a reasonable business risk, based on the information and analyses available while making the decision.
The introduction of the business judgement rule puts emphasis on the decision-making process and elevates the importance of advisors being part of it.
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We are prepared to answer any questions and help you navigate through these important changes to Polish law. Please do not hesitate to reach out to us.