As of 1 October 2023, Polish shareholders in a both joint stock and a limited liability company will be able to file a request for prosecution for a crime of mismanagement not resulting in an actual loss (Article 296 § 1a of the Polish Criminal Code). This provision criminalises actions that cause an imminent threat of financial loss exceeding PLN 200,000 by persons responsible for managing the financial matters or business activity of another person or entity (i.e. primarily by members of the management board).
Who will be able to file a request for prosecution?
Until now, a request from an injured party, such as the company, was needed to prosecute this crime, although no request is needed if the State Treasury is threatened with harm. Because the board was required to complete this task, few requests were filed. Based on the recent amendment, however, prosecuting authorities will be able to conduct proceedings not only at the request of the injured party, but also at the request of a shareholder of the injured company.
What does this mean?
The amendment is expected to increase the number of proceedings initiated and conducted. This, in turn, will increase the risk of criminal liability for board members and other persons required to manage the financial matters or business activity of another person or entity. Shareholders can also use this new option to exert pressure on the board of directors or indirectly on other shareholders, especially in companies affected by a corporate dispute. Given the broad scope of criminalisation of the crime set forth in Article 296 § 1a of the Polish Criminal Code (primarily that no actual financial loss needed to occur), there is a great chance that the instrument discussed will be used and perhaps abused. The right to file a request for prosecution will not depend on the number of shares held. This means that investors holding as little as one share will be able to launch strategic proceedings in an attempt to “punish” the management for business decisions they deem incorrect.
Special attention will need to be paid to any risk arising from the crime of mismanagement outlined in Article 296 § 1a of the Polish Criminal Code when making business decisions, and it will be necessary to make sure that these decisions are taken within the limits of reasonable business risk (i.e. acting on the basis of relevant information, analyses and opinions justifying these business decisions). The data used for decision-making should also be properly preserved so it can be used as evidence.
The amendment will come into effect on 1 October 2023, but will also apply to offences committed before 1 October 2023.
For more information on this amendment and how it could affect your Poland-based business, contact your CMS client partner or these local CMS experts: Arkadiusz Korzeniewski and Mateusz Gerlach.
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