On March 9 – 11, 2022, the 38th session of the Senate was held to consider the long-awaited government bill on amendments to the Law – Commercial Companies Code and certain other laws – Parliamentary print no. 1515 (hereinafter: , “the Act”), aimed at strengthening supervision in capital companies and introducing holding law into Polish legislation. In a nutshell, the premise of the amendment was to codify the law of corporations, or colloquially known as, the law of groups of companies. Given the complexity of the proposed changes, the amendment is rightly referred to as the biggest reform of the Commercial Companies Code in 20 years.
After heated discussions, numerous motions of a legislative nature, as well as an obligation on the first day of the meeting of the Legislative Committee and the Committee on National Economy and Innovation to take a position on the proposals presented and prepare a joint report, the Senate finally voted to reject the amendment on March 11, 2022.
Sixty senators voted in favor of the motion to reject the law, 25 opposed and 14 abstained.
Assumptions of the amendment
As we read in the Opinion to the Project (print No. 634), the key assumption of the new regulation is the introduction into Polish commercial company law of the so-called holding law (the law of groups of companies, the law of conglomerates), the purpose of which is to regulate the issue of relations between a parent company and its subsidiaries. The amendment is also intended to increase the effectiveness of supervision in companies carried out by supervisory boards of capital companies. As part of the amendment to the regulations, there is to be:
- regulation of the principles of operation of groups of companies,
- strengthening the competence of supervisory boards,
- clearly define the key responsibilities of members of supervisory boards and management boards,
- clarification of mandates and terms of office,
- exclusion of the possibility for persons convicted of bribery, paid patronage or abuse of power to sit on company bodies.
According to the proposed amendment, Chapter IVa (“Group of companies”) will be added to the CCC, and will include, among others, Article 21(16) § 2, according to which, the provisions of the Act on a subsidiary company participating in a group of companies will not apply to a public company, a company that is a company in liquidation and has begun to distribute its assets or is a company in bankruptcy, and a company that is an entity subject to financial market supervision within the meaning of Article 1(2) of the Financial Market Supervision Act of July 21, 2006.
After the amendment enters into force, parent companies will be granted, in particular, the right to issue binding instructions to subsidiaries, and will be given the ability to obtain information from subsidiaries on a special basis and the ability to buy out minority shareholders. The powers granted to parent companies will entail its additional responsibility to creditors and minority shareholders.
The amendment also envisages strengthening the supervision exercised by owners and supervisory boards by providing members of the supervisory body with ongoing access to relevant information, data, news relating to the company, and thus give them a chance to react and initiate appropriate actions to protect the company’s interests. The amendment introduces provisions shaping the management board’s obligation to regularly or promptly provide the supervisory board with specific information and data on the main areas of the company’s operation that are of interest to the supervisory authority.
The proposed regulations will also broaden the supervisory board’s powers of control over the company’s assets by introducing an obligation to obtain the board’s consent for a company to enter into a transaction with its parent company, subsidiary or affiliated company, if the value of the transaction in question exceeds the threshold indicated in the Commercial Code or the Articles of Association. The amendment organizes the issue of the term of office and mandate of members of managerial bodies, introduces a provision on the duty of loyalty and secrecy even after the expiration of a supervisory board member’s term of office and the principle of business judgment.
The amendment adds to the Commercial Companies Code. also a business judgment rule (Bussiness Judgement Rule), which will make it possible to definitively exclude liability for damage caused to the company as a result of an erroneous decision of the body, provided that the decision was made within the limits of reasonable business risk and based on information adequate to the circumstances. The members of the body, who carefully and loyally performed their duties and who decided to take the company’s risk, will gain protection, in the event that ex post it turns out that the decision was wrong and led to damage to the company. However, reckless actions will continue to be sanctioned.
Course of legislative work
As we can read on the Senate website, the changes are introduced by the government bill. The Minister of State Assets has been authorized to present the government’s position in the course of parliamentary work. The purpose of the bill is to introduce private-law regulation of holding law into the Polish legal order. It concerns the regulation of private-law relations between a parent company and its subsidiaries, in a manner that takes into account the interests of creditors, members of the bodies and small shareholders (shareholders) of the subsidiary. The law also equips supervisory boards with tools to conduct more effective corporate governance as well as changes the rules for determining the basis for health insurance premiums in 2022. The Sejm passed the law at its 48th session on February 9, 2022. It was transmitted to the Senate on February 10, 2022. The Speaker of the Senate on February 10, 2022 referred the bill to:
- Legislative Committee,
- Committee on National Economy and Innovation.
A meeting of the Legislative Committee on the matter was held on March 2, 2022. The committee moved to reject the bill (Print No. 634 A). The committee’s rapporteur at the Senate meeting was Senator Krzysztof Kwiatkowski. The meeting of the Committee on National Economy and Innovation on this issue was held on March 8, 2022. The committee moved to reject the bill (Print No. 634 B). Senator Wojciech Piecha will be the committee’s rapporteur at the Senate meeting. On March 9, 2022, during the 38th Senate session, the bill returned to the Senate committees. On March 11, 2022, the Senate rejected the bill in its entirety.
Comments raised at Senate committees
The bill was met with criticism from senators. Here special attention should be paid to the position of the legislative committee’s rapporteur, Krzysztof Kwiatkowski, who, relying on the opinion of experts: including Prof. Michał Romanowski, Prof. Andrzej Kappes, and the Confederation of Leviathan, raised the following issues:
- unclear rules for adopting a resolution to refuse to carry out a binding order, which can cause decision-making chaos in commercial companies;
- the law imprecisely regulates the access of members of the supervisory board of a joint-stock company to documents and information,
the law introduces burdensome bureaucracy in places: some of the rules regarding the work of the supervisory board must be included in the company’s articles of association/ charter, which are formalistic.
- the law allows for the sudden and unannounced adoption of a supervisory board resolution in the absence of a member or some of its members,
- the law is deficient in the provision of information to parent companies by subsidiaries,
- the law erroneously grants powers to the supervisory board to make the advisor’s report available to shareholders – this increases the risk of intra-company conflict and mixes the powers of the company’s bodies,
- the law introduces extreme and ineffective sanctions on the subject of access to records and information, the ambiguous rules defining the relationship of dominance and dependence under the Commercial Companies Code will cause more serious problems after the introduction of the holding law provided by the law.
The conduct of business activity is undergoing constant transformation. Therefore, the legislator should observe the changing reality and meet the expectations of business participants by taking measures to increase the efficiency of processes related to business management.
As aptly noted in the justification for the bill under review, more than 20 years have passed since the adoption and promulgation in the Journal of Laws of the Republic of Poland of the Code of Commercial Companies. The Polish economy, by its size and complexity, is different from that existing at the beginning of the 21st century. Therefore, changes in the area of commercial law are most needed and even necessary. Nevertheless, the regulated matter should be the subject of a well-prepared and well-considered regulation.
The Law discussed in this article is a huge reform of the Commercial Companies Code, the largest in 20 years, in the work on which prominent experts in commercial law, various institutions participated. The analyzed bill is a breakthrough, as the matter covered by it was attempted to regulate already in 2010, but without success. At the same time, it raises a lot of controversy, as the heated discussion during the Senate session showed us.
After the Senate rejects the Act, it will be forwarded again to the Sejm, which can reject the Senate’s resolution rejecting the Act in its entirety by an absolute majority.
When the Sejm fails to reject the Senate’s resolution rejecting the Law, the legislative proceedings are terminated and the Law is rejected. If the Senate’s objection is overcome, the Law will be forwarded to the President of the Republic of Poland, who will have 30 days to decide whether to sign it, refer it to the Sejm for reconsideration, or refer it to the Constitutional Court (procedure for preventive control of constitutionality).