Shareholders' liability for appointing the management board

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The so-called dead entities. In most cases, these are companies that do not have a board of directors, i.e. a body that directs the operation of a given enterprise. Such companies also constitute a significant obstacle for business entities that conducted or tried to do business with them. As you know, a company without a management board is not able to function properly. He cannot conclude contracts and appear before courts, any enforcement activities or attempts to bring the members of the management board to justice are also problematic. Fortunately, this situation has been changing in recent years as a result of introducing the institution of shareholders' responsibility for appointing the management board.

What is the shareholders' responsibility for appointing the management board?

The legislator dealt with the attempt to eliminate the discussed issue from business transactions in the Act of January 26, 2018 amending the Act on the National Court Register and certain other acts (Journal of Laws 2018, item 398), which entered into force on March 15. In 2018, the Act introduced the liability of shareholders for appointing the management board by tightening the provisions on coercive proceedings.

Compulsory proceedings are proceedings initiated ex officio by a court in cases where the data in the register is out of date or when the company does not submit financial statements on time. The amendment extended the aforementioned proceedings also to situations where the shareholders do not appoint the management board, even though the previous management board ceased to perform its function.

It must be realized that the situation in which, despite the existence of a company in the register, it lacks real activity, is very often created on purpose. This is a highly undesirable state, due to the fact that the lack of appointment of the current management board or its deliberate dismissal is often used to make it difficult to pursue claims against the company through court or enforcement proceedings. This means that honest entrepreneurs suffer the most from the activities of the companies in question (e.g. when it is impossible to enforce their receivables from a dead company).

What are the reasons for not appointing the company's management board?

The reasons for a personal shortage in the company's management board may be different. Among other things, it can be:

  • no real activity of the company, i.e. the existence of the so-called a dead company that does not actually operate;

  • conflict between shareholders, failure to reach agreement on the appointment of the management board;

  • the shareholders' lack of trust in candidates for management board members;

  • no management board members willing to act.

Which entities are required to appoint a management board?

Which entities have been legally obliged to appoint the management board? In the doctrine and judicature, this issue still causes considerable problems. No provision (of both the Civil Code and the Code of Commercial Companies) specifies directly who is obliged to appoint the company's management board. Pursuant to the provisions of the Commercial Companies Code, the competence to appoint and dismiss the management board is vested in the partners or shareholders of the company, acting only as part of the shareholders' meeting or general meeting. Accordingly, individual partners do not have the right to appoint board members, which becomes problematic when there is no contact between the partners. What is most important, however, is the fact, which courts often pay attention to in their rulings, that shareholders are not obliged to appoint members of the management board in the event of any personal shortages in its composition.

Tools in the fight against unreliable activities of partners

The amended Act of August 20, 1997 on the National Court Register (Journal of Laws of 2018, item 986; hereinafter referred to as the Act on the National Court Register), received a number of tools to fight unreliable, dishonest or inattentive entrepreneurs. We present the most important of them:

Address for service

As a result of the changes, Art. 19a of the Act on the National Court Register. The new content of the Act on the National Court Register obliges the partners to submit statements on the address for service of persons who are subject to entry in the register of entrepreneurs, if they will perform the company's representative function as a partner, member of the body, liquidator or proxy. Moreover, they were obliged to inform the court about each change of the address for service. This obligation applies to both partnerships and capital companies.

To the discussed Art. 19a of the Act on the National Court Register, the amendment also added sec.5d, which obliges applicants, when submitting a capital company to the National Court Register, to attach to the files a list including names, surnames and addresses for service, or the business and seat of members of bodies or persons authorized to appoint the management board (in the case of a legal person, also the names and surnames and service addresses of members of the body authorized to represent them). The provision also obliges to report each change of the personal composition or data of these persons. It is about information both about persons who are partners and persons with individual authorization to appoint members of the management board. On the other hand, if a body (e.g. supervisory board) is authorized to appoint the management board of a given company, the applicant should also provide the names, surnames and addresses for service of the members of this body.

Important!
If the data in question changes, a new list should be submitted to the court, not a supplement to it.

What is compulsory proceedings?

It should be borne in mind that the above-discussed obligation for shareholders to submit lists of personal data of persons responsible for the company's operations to the registry court is only a measure aimed at enabling the commercial court to initiate compulsory proceedings. This procedure does not refer only to partners of companies, but to all entities responsible for the selection or appointment of a body authorized to represent partnerships and capital companies.

Compulsory proceedings are possible thanks to the introduction of Art. 24 sec. 1a of the Act on the National Court Register. Pursuant to the above provision, in justified cases, if it is found that a legal person does not have a body authorized to represent or there are deficiencies in the composition of this body that prevent its operation, the registry court, setting an appropriate deadline, has the right to summon those obliged to appoint or elect this body, or to demonstrate that the body has been established or elected, or that deficiencies in its composition have been remedied.

Thanks to the amended regulations, in the absence of a management board in the company, the court, having knowledge of the addresses of persons authorized to appoint a body, is entitled to summon appropriate persons to appoint or select a body, or to supplement its composition.

On the other hand, in the event that the summoned persons do not respond to the court summons and do not appoint the appropriate authorities, the registry court may use coercive measures in the form of imposing a fine on a given entity. The provision of art. 24 sec. 1b of the Act on the National Court Register states that

summons in compulsory proceedings shall be made by the court under the pain of applying a fine provided for in the provisions of the Code of Civil Procedure on the enforcement of non-pecuniary benefits. In the event of failure to perform the obligations on time, the registration court shall impose a fine on the obligated.

Thanks to this institution, the registry court, pursuant to Art. 1052 of the Code of Civil Procedure, will be able to impose a fine on the company's partners in the amount of up to PLN 15,000. zlotys, the fine may be imposed multiple times. The total amount of fines in a given case may not exceed PLN 1 million.

Important!
If the obligated person fulfills the obligation issued by the court in the compulsory proceedings, the fine is discontinued, unless it has already been paid.

However, if the registry court decides that the compulsory procedure is unfounded or will not bring the expected results, it will be able to use its existing rights. They include, among others appointing a trustee or using the possibility of dissolving the company without liquidation.

Shareholders' responsibility for appointing the management board - summary

It should be stated that the amendment to the Act on the National Court Register aims to improve the security of both legal and economic transactions. Thanks to the tools indicated in the act, the court was given the opportunity to mobilize shareholders to appoint a management board and to punish them if they evaded this obligation.

However, despite the noticeable step of the legislator towards the fight against unreliable companies, honest entrepreneurs may also suffer from the introduction of the discussed regulation. In the event of resignation or dismissal of the existing management board and a dispute over the appointment of a new body, or a simple lack of management board members willing to perform their tasks, the risk of severe financial penalties will rest with the company's shareholders, who often do not have the practical possibility to organize a shareholders' meeting, or a general meeting and adopting a relevant resolution.