Draft amendments to the Commercial Companies Code: introduction of holding law

The Corporate Governance Reform Commission at the Ministry of State Assets has developed a proposal for a commercial law reform. The main objective is to introduce the holding law and increase the efficiency of supervisory boards.

Reform of the Commercial Companies Code: holding law

As a result of the Commission’s work, the Ministry of State Assets presented a draft amendment to the Commercial Companies Code and other areas of commercial law, the most important assumption of which is to introduce national laws regulating groups of companies, also known as the holding law. The solution aims to regulate the issue of group companies by clearly defining them.

The amendment assumes that a “group of companies” should be distinguished from the relationship of dominance and dependence between the companies referred to in Article 4 of the Commercial Companies Code. According to the assumptions of the project, a group of companies is a parent company and its subsidiary or subsidiaries, guided, in accordance with their articles of associations, by a common economic strategy (interest of the group of companies). Now, the draft law promoters propose to depart from the currently binding rule, according to which each company should be guided only by its own interests. A structure is proposed whereby both the parent company and its subsidiaries have to be guided, in addition to their own interests, by the interest of the group, unless it is against the interest of creditors or minority shareholders (if any).

Invoking participation in a group of companies will only be possible if it is recorded in the National Court Register.

The main legal institution ensuring the parent company efficient management of the group of companies will be the instruction from the parent company to the subsidiary.

The instruction will be issued in writing, in the form of document or electronically, and its execution requires a prior resolution of the subsidiary’s management board. As a rule, refusal to carry out an instruction will be possible, but only if it cannot be reasonably assumed that the expected damage resulting from the execution of the instruction will be remedied by the parent company or another subsidiary of the group of companies within the next two years, counting from the day on which the harmful event occurs, and the benefits obtained by the company in connection with its participation in the group of companies during the last two financial years should also be taken into account.

The conditions for refusing to carry out an instruction by a subsidiary in which the parent company issuing the instruction is the sole shareholder and one in which the parent company holds at least 75% of the share capital, are to be more restrictively regulated. In the first case, a single shareholder subsidiary will not be entitled to refuse to carry out the instruction at all. In the latter case, the subsidiary will be able to refuse to carry out the instruction only if its implementation would lead to insolvency of that company or a threat of insolvency. The essence of these changes boils down to excluding the liability of members of the subsidiary’s management board for acting to the detriment of the company in the event of carrying out the parent company’s instruction. Both civil and criminal liability shall be excluded. Also, members of the management board of the parent company, in the event of taking actions that objectively harm that company but are beneficial to the group, will be exempted from liability.

Moreover, the draft amendment introduces liability of the parent company towards the subsidiary, creditors of the subsidiary and minority shareholders of the subsidiary for the consequences of issuing a binding instruction, carried out by a subsidiary belonging to the group of companies.

Read also: Mergers and acquisitions – protecting Polish companies in the era of COVID-19

Greater powers and responsibilities of supervisory bodies

Moreover, the draft law envisages the strengthening of role of supervisory bodies in companies. The proposed changes include granting supervisory boards more powers and obligations, which should be partially regulated in the company’s articles of association. The draft amendment proposals include:  

• permanent supervision exercised by the supervisory board of the parent company over the implementation of the interest of the group of companies by subsidiary or subsidiaries belonging to the group of companies, unless the articles of association of the parent company and the subsidiary provide otherwise,
• the possibility for the supervisory board to establish an ad hoc or standing committee of the supervisory board, consisting of at least three members of the supervisory board, in order to perform specific supervisory activities (supervisory board committee),
• the possibility for the supervisory board to adopt a resolution to examine, at the company’s expense, a specific issue concerning the company’s operations or its financial condition, by a selected advisor (supervisory board advisor), if the articles of association so provide, in which case the supervisory board will represent the company when concluding a contract with an advisor,
• the possibility for the supervisory board of the parent company to request that the management board of its subsidiary or subsidiaries, present documents or provide information for the purpose of executing the supervision,
• the possibility of holding meetings by the supervisory board also without being formally convened, provided that all members consent to it and do not object to the placing of individual matters on the agenda,
• obligation to invite a key statutory auditor to a meeting of the supervisory body whose subject is the assessment of the company’s annual reports in the case of companies whose annual financial statements are subject to audit by a statutory auditor,
• the possibility for the supervisory board to use the services of a professional advisor (to be selected by the supervisory board, the provisions on the appointment of a supervisory board advisor apply accordingly),

The proposed regulations also include precise definition of the method of calculating the term of office of members of management boards and supervisory boards, as well as the introduction of the Business Judgment Rule when analyzing due diligence applied by members of company’s bodies.

To sum up, the proposed changes will introduce completely new solutions to the Polish legal system in the field of commercial law and will regulate the issues of groups of companies. Consultations on the draft amendment to the Commercial Companies Code will last until 19 September 2020, and the new regulations will enter into force within 3 months from the date of their publishing. The ministry assume that the project will be adopted in the fourth quarter of 2020.

Authors:

Grzegorz Witczak
Director of the Commercial Law and Property Department, Advocate
TGC Corporate Lawyers

Klaudia Szatan 
Junior Associate 
TGC Corporate Lawyers

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