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New provisions on supervisory board under Polish Commercial Companies Code

PINIOR, P.: New provisions on supervisory board under Polish Commercial Companies Code. Právny obzor, 105, 2022, special issue, pp. 44-59

New provisions on supervisory board under Polish Commercial Companies Code. The mandatory supervisory board is obliged to supervise the joint-stock company under Polish law. Supervision over the company’s activities in all aspects of its business is one of the most crucial elements in the corporate structure. This paper presents the new supervisory instruments in joint-stock companies and their assessment. The latest amendment to the Commercial Companies Code allows, among others, for the nomination of a supervisory board advisor, broader access to information, the appointment of committees, and the approval of transactions with related entities. Additionally, it aims to describe the impact of new provisions on the liability of the supervisory board  members.

Keywords: supervisory board, advisor, committee, liability

With the amendment to the Polish Commercial Companies Code
adopted by the Act of 9 February 2022
, the legislature introduced new supervisory instruments in the private limited company, the simple joint-stock company, and the joint-stock company. Moreover, the duties of loyalty and due care, and the business judgment rule were introduced in both types of companies.
This paper aims to present the new provisions on the joint-stock company as these involve a complete regulation in this respect. Essentially, the supervisory body is not mandatory in all private limited companies
, and there is a choice between a monistic and dualistic system in simple joint-stock companies
. Additionally, some of the new instruments, for example, the provisions on supervisory board advisor in a private limited company, must be applied exclusively if the articles of association so provide (the opt-in system); some issues have been regulated only in joint-stock companies (e. g. the obligation of the management board to furnish the supervisory board with information).
Firstly, this paper presents the new supervisory instruments along with their assessment, and secondly, the impact of those provisions on the liability of the board members concerning the duty of loyalty and due care, and the business judgment rule.
1. Company supervision
1.1 Overall powers of the supervisory board
The supervisory board of a joint-stock company plays a pivotal role in the corporate supervisory system. Under the provision of Art. 382 § 1 CCC, the supervisory board exercises permanent supervision over the company's activities in all aspects of its business. The competence allows for the influence of the supervisory board in joint-stock companies over the management board (appointment, removal, suspension of the management board, the power of representation in contracts and disputes with the management board, settling the remuneration of the management board members, giving consent for company operations where the law or the company's by-laws so provide). The powers of the supervisory board also include reviewing the financial statements and the report of the management board in terms of their compliance with the books, documents, and facts, reviewing the proposals of the management board concerning the distribution of profits or coverage of losses and drawing up and submitting to the general meeting an annual written report for the previous financial year (report of the supervisory board).
Additional powers may result from other provisions, in particular from the Act of 29 July 2005 on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organized Trading and Listed Companies
. In listed companies, pursuant to Art. 90g sec. 1 POA, the supervisory board of a company draws up an annual remuneration report presenting a comprehensive review of remuneration, including all benefits, regardless of their form, received by individual members of the management board and supervisory board in the last financial year. Moreover, under Art. 90i sec. 3 POA, the conclusion of a significant transaction requires the consent of the company's supervisory board (related-party transactions).
The new provisions introduced the possibility to nominate a supervisory board advisor, linked with the right to represent the company in a contract with the advisor, along with the right to determine the remuneration for the advisory activity. Further, the approval of transactions with a dominant company, a dependent company, or an associated company is now introduced. Apart from the said powers, the manner of exercising supervision was changed, including the right to information, document inspection, and supervision by nominated supervisory committees. Finally, regardless of the amendment to the supervisory system, the duty of loyalty and due care of the board members, the duty of confidentiality, together with the business judgment rule, were incorporated.
1.2 Nominating a supervisory board advisor
Pursuant to Art. 3821 CCC, the supervisory board may adopt a resolution on examining a specific case concerning the company's activities or assets by a selected advisor (supervisory board advisor) at the company's expense. The advisor to the supervisory board may also be appointed to prepare specific analyses and opinions. The advisor may be a natural or a legal person, but the law does not provide for any other requirements, such as the experience or knowledge of the advisor. Nonetheless, the advisor must possess the knowledge and experience necessary to examine the activity or to prepare the analysis devoted to him by the supervisory board, as the nomination of unqualified persons may lead to the liability of the supervisory board for being negligent in the selection of candidates and, in particular, due to the unjustified expenses incurred by the company.
It must be underlined that nomination of advisors has already existed in the companies' practice. However, the supervisory board has become independent in this respect because the supervisory board will represent the company in the contract between the company and the advisor of the supervisory board
. The right to nominate the advisor constitutes a vital competence that may strengthen the supervisory board to exercise independent judgments. The appointment of the advisor may also influence the presumptive liability constituting a premise of the business judgment rule (see below p. III.2.). The advisor may provide for an external audit
ad hoc
and prepare opinions and analyses necessary to adopt an independent and substantive resolution in the company's best interest.
The choice of the form of contract with the advisor rests in the competence of the supervisory board, unless the company's by-laws provide otherwise. In the said types of services, covering the preparation of analyses, opinions, or the examination of the selected issues, a contract for performance a specified work
shall usually proceed (art. 627 CC
) or an innominate contract for services to which the provision of the mandate contract applies accordingly
. Additionally, the supervisory board is responsible for determining the advisor's remuneration.
Nonetheless, the company's by-laws may exclude or restrict the right of the supervisory board to conclude agreements with the supervisory board advisor, in particular by empowering the general meeting to determine the maximum total cost of remuneration of all advisors of the supervisory board that the company may incur during the financial year. This restriction is mentioned only as an example. The company's bylaws may impose further restrictions, in particular, a limit of contracts concluded yearly or a limit of resolutions nominating advisors, as well as the scope of the advisor's examination. Moreover, the company's by-laws may entirely exclude the right to nominate advisors.
The manner of representation by the supervisory board has not been statutorily detailed. Hence it must be treated equally to the manner of representation of the company by the supervisory board in contracts and disputes with the management board members. Owing to the doctrinal and judicature views, the representation power addresses the body in its entirety, meaning that the resolution of the supervisory board on concluding the contract is required, which empowers the board chairman (or any other of its members) to sign the contract or eventually the contract needs to be signed by all the members of the supervisory board
. In practice, the empowerment of the chairman appears consistently.
The management board must provide the supervisory board's advisor with access to documents and provide the information requested. Thus, the advisor to the supervisory board and the natural person performing activities in his name or on his behalf is bound to maintain confidential all not publicly revealed information and documents received from the company. The obligation of secrecy is not limited in time. Breaching the confidentiality duty may result in the liability of the advisor or any natural person under the provisions of the Civil Code. In the case of the advisor, this must be a contractual obligation under the contract concluded with the advisor. Additionally, it may result in criminal liability indicated in the Penal Code
. Under Art. 266 PC, whoever-against the statutory provisions or an accepted obligation-discloses or makes use of information they have learned in connection with an office held or work they have performed or public, social, business, or scientific activity they have conducted, is liable to a fine, the penalty of limitation of liberty or the penalty of deprivation of liberty for up to 2 years
On the other hand, under Art. 587 (2) CCC, whoever-acting contrary to the obligations resulting from Art. 3821 § 3 CCC- fails to furnish the information, documents, reports, statements, or explanations in due time or submits the same that are inconsistent with the facts or conceals data significantly affecting the content of such information or document is liable to a fine no lower than PLN 20,000 and no higher than PLN 50,000 or a penalty of limitation of liberty. Where the perpetrator acts unintentionally, he or she shall be liable to a fine no lower than PLN 6,000 and no higher than PLN 20,000. The introduction of penal provisions for submitting inconsistent information and documents or concealing the data might be justified. In contrast, the penalty of limitation of liberty for failing to furnish the information in due time seems too stringent. Nonetheless, using the term "significantly affect" may raise disputes about the discretionary form of this provision.
The supervisory board may make the advisor's work results available to shareholders unless this could harm the company, an associated company, dependent company,
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