Amendments in company law
On 1 March 2019, important amendments came into force introducing certain simplifications for businesses in tax and commercial law matters (known as legislative package for SMEs). In our newsletter of 27 November 2018, we wrote about resignation of a sole or the last board member. Now, we outline other, in our opinion most important amendments that affect commercial companies.
1. Waiving the requirement of adopting only during a formally held meeting of shareholders the shareholders’ resolutions examining and approving the board’s report on the company’s activity and the financial statement for the previous financial year, resolution on distribution of profit or coverage of loss and granting the vote of acceptance to the company’s governing bodies.
Under the previous legal regime, a written voting in matters reserved to the competences of the annual meeting of shareholders was prohibited. The introduced amendments now allow not only for a written voting, but also in our opinion - by way of analogy – to adopt these resolutions by an alternative method of voting provided for in Article 227 §2 Commercial Companies Code (“CCC”), i.e. by expressing by each shareholder a written approval of the voted resolutions. It should be noted, however, that in order to vote in writing, a consent of all shareholders, regardless of the number of shares they hold, will be required. In practice, even if one shareholder opposes to a written vote, the decision will have to be taken during a formally held meeting, and voting in writing - if not all shareholders agreed to it - will result in invalidity of a resolution adopted this way.
2. According to the newly introduced provisions, a general meeting of shareholders may only be revoked by the body which convened it, but in the case of extraordinary meeting of shareholders only a shareholder or shareholders who requested the convocation will have the right to revoke the meeting.
This change should enhance the status of minority shareholders who, individually or jointly, hold not more than 10% of share capital as under the previous regime there was no explicit provision determining who was authorized to revoke an already convened meeting. This situation frequently led to internal corporate disputes and the loophole was used by management boards to block meetings convened by minority shareholders. By adding Article 235 §4 and Article 236 §3 CCC, the legislator concluded that only the body which convened the meeting would be authorized to revoke it.
3. If no dividend payment date has been set in the resolution of shareholders, it will be set by the management board but dividend must be paid out forthwith after the day on which the resolution on profit distribution was adopted.
This change should resolve practical doubts as to the date on which the profit allocated for distribution should be paid out. The previous wording of Article 193 §4 CCC pursuant to which dividends shall be paid out on the date set in the resolution of the shareholders and if the resolution of the shareholders does not set such a date, then the dividends shall be paid out on the date set by the management board, did not precisely specify the date on which the profit for distribution was to be paid out. It also failed to indicate what would happen in a situation where neither the shareholders nor the management board decided on the payment date of the dividend approved for distribution. Such statutory provision often left it to the discretion of the management board to freely determine the dividend payment date without any time limits, often to the detriment of the company’s shareholders. The phrase “forthwith”, now introduced, is still not very precise, but in the case of a dispute it will be the management board who will have to prove that the dividend was not paid without undue delay.
4. The above change is not the only change related to the payment of dividend. The legislator, to protect company’s creditors, introduced provisions which allow the advances on the expected end-of-year dividend be returned when a company incurred loss or failed to generate target profit.
Paying an advance on the expected dividend was a widespread practice among the shareholders even if they were aware of the company’s poor financial results. Even if the company incurred loss or profit smaller than target, there was no legal basis to request the refund of an advance. Under the new provisions, a shareholder will be obliged to return the entire advance dividend if the company incurs loss, or an appropriate difference between the profit attributable to that shareholder for the financial year and the amount of the received advance.
5. Yet another amendment to the Civil Code (“CC”) deserves attention. It provides for the validation of contracts concluded on behalf of the company by unauthorized member of a governing body or by defectively composed management board (e.g. a president whose mandate expired).
New wording of Article 39 CC provides for a long-awaited possibility for a legal person to validate the contracts (acts in law) concluded by its governing body acting without authorization or in excess of the scope of authorization. Under the previous legal regime there was no regulation on the validation by companies of contracts concluded by persons acting in the capacity of a board member. It raised serious doubts as to legal relationships existing between parties to such contracts being corporate entities. In business practice it happens fairly often that a management board is not composed of a minimum number of members required by the company’s articles or a board member’s mandate has not been extended for another term of office.
New regulations precisely determine that conclusion of a contract with a governing body acting without authorization or in excess of its scope of authorization, may be held invalid if it is not confirmed within the time limit set by the other party. Failure to obtain confirmation authorizes the other party to raise claims for damages against an “unauthorized” body.
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