26.07.2018 Litigation and arbitration

Liability of collective entities – soon on new terms


The Ministry of Justice is working on changes concerning tightening of liability of collective entities. The bill is already at the stage of interministerial consultations.

On 28 May 2018, the Ministry of Justice published a new bill on liability of collective entities which is to replace the previous act.

As shown in the justification of the bill – “(…) the solutions adopted in the drafted act are aimed at increasing the effectiveness of the tools used to impose sanctions on collective entities, especially in cases of combating serious economic and fiscal crimes with which we are dealing in the case of large entities with complicated structure (…)”.

According to the authors of the bill, the new act is a response to international obligations imposed on Poland and arising from EU and OECD legal instruments binding for Poland which order that legal entities bear liability equally to natural persons and that the sanctions for not complying with law are proportionate to the significance of the commented crime, and penalties had a deterring nature.

As shown by the calculations of the Ministry of Justice, in 2015, for instance, only 14 actions against collective entities were brought to courts and the conducted analyses show that the penalties imposed under the act in force are rather slight, which proves ineffectiveness of the currently applicable legal regulations.

1.    Scope of changes – direct liability of the collective entity

The basic assumptions of the proposed bill which, at the same time, are significantly different from the currently used solutions, consist in extending the scope of liability of collective entities by:

•    including in it also acts considered as own acts of collective entities showing all features of a prohibited act
and
•    resigning from the requirement of previously obtained precedent (final and binding judgment of conviction of a natural person).

To this aim, the new act, following the solutions applicable in German or Austrian law, will introduce liability based on the idea of the so-called anonymous fault. According to this conception, liability of a collective entity may take place in each case where it is proven in the course of the proceedings that a prohibited act was committed – which is a minimum condition of such liability. At the same time, it is not required to determine a specific natural person as the perpetrator of the crime.

A collective entity will also be held liable in a case where many people and bodies meet the prerequisites of a prohibited act. Sanctions will be imposed in all kinds of situations as a result of which the collective entity may generate a prohibited act by way of collective conduct. What is meant in such an event is risk management not complying with requirements of law or reasonable assessment, or shortcomings in professional diligence.
Collective entities will be liable for properly securing organisational measures, sensibly delegating competencies and adopting and applying special rules of control and supervision.

2.    Rules of bearing liability

Pursuant to the bill, a collective entity will bear liability in the following cases:

•    the prohibited act was committed in relation to the conducted business activity, in particular if its commission results from an intentional act or omission,
•    failure to apply care required in particular circumstances,
•    additionally, in the cases specified in the bill, the prerequisite for liability will be the so-called fault in selection or supervision and organisational fault,

Individuals for whose actions the collective entity will be liable are, among others, individuals acting based on a power of attorney or proxy, or members of a governing body of a given collective entity and employees of the collective entity.

A foreign entity will be held liable in a case where the prohibited act was committed in Poland or against the interests of a Polish natural person, the interests of a Polish collective entity, or against the interests of Poland.

The drafted act introduces a broad definition of a prohibited act, according to which:

•    The prohibited act has to fall within the scope of the business activity of the collective entity, namely it may concern all matters subject to the entity’s business (the act does not provide for any exceptions in this regard),
•    The act has to be committed – it is irrelevant whether or not it is possible to determine the person or body liable for this act,
•    The act has to be directly related to the business activity of the entity (this means that the entity will not bear liability for acts committed, e.g. by natural persons who perform the function of the body completely independently of this act).

3.    Discharge from liability

The collective entity will be able to release itself from liability covering fault in selection or supervision and the so-called organisational fault, if all obliged bodies and individuals entitled to act on behalf or in the interest of that entity applied due diligence required in particular circumstances,  in organisation of the entity and in supervision over the business. At the same time, the act does not define the notion of due diligence, applying the definition from Article 355 § 2 of the Civil Code.

Since the drafted act will refer, first of all, to businesses, it is reasonable to refer to the general model of due diligence in professional commercial transactions, namely the model of the diligent entrepreneur.
Pursuant to the drafted act, the burden of proof with respect to applying due diligence will be on the collective entity.

4.    Scope of application of the act

The new act will apply to collective entities, thus, first of all, to commercial companies – including with participation of the State Treasury, and local governments, as well as to foundations, associations, state-owned enterprises or investment funds.
The new act will apply to foreign entities operating in Poland, and more precisely, it will concern crimes committed in Poland by a governing body or a member of a governing body of a foreign collective entity.

5.    New solutions

The bill specifies prerequisites which will not be an obstacle to determining liability of a collective entity. Among such prerequisites there is occurrence of circumstances excluding punishment of the perpetrator of the prohibited act being a natural person – thus existence of the circumstances referred to Article 17 of the Code of Civil Procedure (e.g. expiration of validity of liability of a natural person for the committed act).

Additionally, what may be noted is detailed regulation of the rule of liability of the collective entity for committed acts towards individuals reporting irregularities. Thus, these regulations govern the institution of the so-called whistleblowers. The bill provides for legal protection of individuals who in the public interest report material irregularities in the organisation of collective entity which may lead to commission of a prohibited act.

The bill provides for a possibility of voluntary submission to liability on the part of the collective entity (the convicting judgment issued in the course of such a procedure will not be registered in the National Criminal Register). What is new is introduction of regulations which enable collective entities to be held liable in the case of a merger, division or transformation. The previous regulations did not govern these issues in an express way.

6.    Penalties and punitive measures

The drafter of the bill provides an extended list of penalties and measures adjudged towards collective entities as compared to the provisions of the act currently in force. This list includes:

•    dissolution or liquidation of the collective entity (the most severe of the penalties),
•    pecuniary penalty of up to PLN 30 m,
•    ban on conducting business activity of a specified type towards the collective entity,
•    ban on applying for public procurement contracts by the collective entity,
•    ban on the use of grants or subsidies by the collective entity,
•    ban on promotion or advertising of the collective entity.

One should expect that the described bill regarding changes to liability of collective entities, having followed the legislative path, will come into effect in the several following months.

Author:

Piotr Jakubowski
Senior Associate, Adwokat
TGC Corporate Lawyers

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