On 5 August this year the Ministry of State Assets published a bill amending the Act - Commercial Companies Code. In response to the uncertainties related to the functioning of groups of companies in Polish trade, the bill proposes to regulate the holding company law, strengthen the position of supervisory boards and reformulate the principle of the management board members’ liability for damage caused to a company. The bill is currently under public consultation, which is due to end in the second half of September. Below we summarize the most important proposed changes.
The Companies will act in the interest of their capital groups
The bill proposes to introduce a definition of a “group of companies” based on the premise of a common economic strategy and the parent company’s ability to exercise uniform management over its subsidiaries. Group companies are to be required to be guided not only by the interests of a given company, but also by the interests of a group of companies (taking into account the interests of creditors and minority shareholders of the subsidiary). The parent company and the subsidiaries are to be required to disclose their participation in a group in the register. The new rules on groups of companies will apply accordingly to, inter alia
, investment funds and cooperatives, foundations and associations engaged in business activities.
Parent companies will more easily squeeze out minority shareholders
The bill provides for the liberalisation of the squeeze out and sell out mechanisms for groups of companies. It proposes to introduce the possibility of these mechanisms being used also by limited liability companies and to lower the relevant equity thresholds to 90% of the equity represented in the subsidiary by the parent company. Once the threshold is exceeded, the parent company will be able to squeeze out the shareholders and, similarly, the shareholders will be able to demand the buy-out of their shares by the parent company.
The parent company will be able to issue binding instructions to its subsidiaries
The bill proposes that the parent company will be able to issue binding instructions to the subsidiary as regards conducting its affairs. Both the execution of the instruction and the refusal to execute it are to require a resolution of the management board of the subsidiary. At the same time, refusal will be possible only in certain cases depending on the capital relations between the group companies (e.g. threat of insolvency of the subsidiary, conflict with the interest of the subsidiary, damage and threat to the continued existence of the subsidiary). The companies that are 100% dependant on the parent company will not be able to refuse to execute such an instruction under any circumstances. The instructions are to be indicated in the report on relations between the group companies drawn up by subsidiaries as part of the management board’s report on the company’s activities (irrespective of the information obligations of public companies).
The companies’ liability towards each other and towards members of the governing bodies for their actions within the group
The fact of allowing the issue of instructions affects the proposed principles of damage liability of companies towards each other and members of their governing bodies. The first group of solutions is to ensure the protection of minority shareholders and stakeholders; the second group of solutions is to enable members of the governing bodies within the group to act without exposing themselves to the risk of civil or criminal liability.
The liability rules have been adapted to the degree of risk for minority shareholders and stakeholders. The parent company is to be liable for damages if the execution of a binding instruction has led to the insolvency of the subsidiary. This proposal applies to companies where the parent company represents at least 75% of the equity (unless this liability is excluded in the articles of association/statutes of the subsidiary). As regards the other companies (where the risk of infringing the interests of other entities is greater), the liability is related to infringing the interest of the group and cannot be excluded in the articles of association/statutes. Importantly, the parent company will be able to defend itself by acting within the framework of a reasonable economic risk (Business Judgment Rule), as will the members of the governing bodies - against liability for damages. If a subsidiary does not bring a damages action, any shareholder of the subsidiary will be able to do so (actio pro socio
In order to enable effective group management, the bill excludes civil and criminal liability of managers for acting in the interest of a group of companies that is not in the particular interest of the parent company or its subsidiary. The condition for the absence of liability is the binding nature of the instruction or the absence of grounds for refusing its execution within the meaning of the proposed solutions, as well as the disclosure of participation in a group of companies in the register. However, the bill does not exclude all the criminal liability, pointing only to the criminal offence of mismanagement (Article 296 of the Criminal Code) and leaving, for example, liability for failure to file a petition for bankruptcy.
The parent company will gain wide access to information
In order to efficiently manage a group, the parent company is to be granted essentially unlimited access to documents and information from its subsidiary (with the possibility to apply to the court to oblige the management board to provide such information). The solutions proposed in this respect have not been discussed in detail in the bill’s explanatory memorandum and may be controversial in the light of, inter alia
, regulations concerning public companies.
The Supervisory Board will be stronger
The supervisory board (or, in the absence thereof, the management board) of the parent company is to supervise the implementation of the group’s interest by individual group companies and request that documents and information are provided for this purpose. Thus, the exercise of supervision is to apply not only to the parent company but also its subsidiaries.
In addition, the bill proposes an extended model of cooperation between the management and supervisory boards. In the case of joint-stock companies, this is to manifest itself through, inter alia
, the obligation of the management board to provide the supervisory board with certain information (without an additional request to do so). In addition to the above, the bill provides for strengthening the supervisory board’s ability to request information and documents with regard to all types of companies (by, inter alia
, setting a two-week deadline, an explicit ban on limiting access to information by the management board and sanctions).
The supervisory board is also to be given the power to independently elect (at the company’s expense) an advisor to examine specific issues concerning the company. The advisor is to be entitled to obtain information and documents from the company and its contractors (e.g. banks and legal advisors).
The bill plans to introduce an obligation to obtain the supervisory board’s consent for the company to conclude a transaction with its parent, subsidiary or affiliated company if the transaction value exceeds a certain threshold (taking into account a 12-month period).
A member of the Management Board will not be liable for acting within the limits of reasonable economic risk (Business Judgment Rule)
In addition to regulating the liability of members of the governing bodies operating in the group, the bill provides for a change in the principles of liability of the members of the governing bodies for damage caused to the company. As before, members of the governing bodies are to be liable for damage caused by an act or omission being contrary to the law or the provisions of the company’s statute or articles of association. However, the bill’s drafter aims at a more detailed specification of the principles of exclusion of this liability.
A member of the Management Board would not be liable if (i) his/her actions were loyal to the company; (ii) he acted within the limits of a reasonable economic risk (Business Judgment Rule). These limits would be respected in particular when a member of the Management Board has sought relevant information, analyses and opinions, which should be taken into account in a given case before a decision is taken. The bill also provides for a clear requirement for members of the company’s governing bodies to be loyal to the company and observe the confidentiality obligation (even after the expiry of their mandate). So far, the loyalty requirement has been derived from the essence of the member’s relationship with the company (fiduciary duty
What is next?
The companies and other regulated entities should familiarise themselves with the proposed solutions and take note of the further work on the bill, while preparing for the introduction of the required organisational changes, including in the so-called group codes and statutes/articles of association of companies, as well as additional registration and reporting obligations.