Dr Jarosław Grykiel: The form for powers of attorney in cross-border transactions | In Principle

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Dr Jarosław Grykiel: The form for powers of attorney in cross-border transactions

An interview with Dr Jarosław Grykiel of the Corporate Law practice at Wardyński & Partners concerning the form of powers of attorney for use in international transactions.

Observing the Polish M&A market, one might get the impression that the main participants are foreign investors or their affiliates.
Dr Jarosław Grykiel: That is true. These days transactions involving solely Polish capital are rather rare. It could be said that the vast majority of transactions on the Polish market involve a foreign element, or a factor requiring compliance with foreign law for specific aspects of the transaction. Typically this has to do with the entities involved, where a foreign business entity participating in the transaction has decided to invest in a company with operations in Poland.
But foreign companies investing in Poland rarely act on their own behalf when carrying out specific transactional procedures, such as signing agreements, protocols or security instruments.
For the most part, yes. For this purpose, a power of attorney is commonly used. The principal typically issues the power of attorney abroad, which the attorney-in-fact then relies on when carrying out transactional procedures in Poland. This raises a number of conflict-of-law issues that must be resolved under private international law. One issue is the form required for the power of attorney.
Let’s look more closely at the form in which a power of attorney should be issued to represent a foreign investor in a transaction.
The general rule under Polish law is the derivative form of a power of attorney, under Civil Code Art. 99 §1. This means that a power of attorney should be issued in a form at least as stringent as the form required for the validity of the activity which it authorises. For example, because acquisition of shares in a limited-liability company requires notarised signatures, a power of attorney authorising purchase or sale of shares also requires the form of notarised signatures. Similarly, the articles of association of a limited-liability company must be made in the form of a notarial deed, and thus a power of attorney to establish the articles of association must also be issued in the form of a notarial deed.
The Polish Private International Law provides specific regulations for the form of legal acts. In general, the form of a legal act depends on the law applicable to the act itself. However, it is sufficient to comply with the form provided by the law of the state in which the act is made, but this does not apply to dispositions concerning real estate or legal acts involving creation, merger, split, conversion or cessation of a legal person or organisational unit without legal personality.
Under choice-of-law rules, the law governing a power of attorney is the law selected by the principal.
What if the principal does not make a choice of law?
If no choice of law is made, then the auxiliary rules set forth in the Private International Law apply. Under these rules, if the attorney does not have a principal place of activity (which is the case in most transactions in which a power of attorney is issued for the purposes of a specific transaction), the power of attorney is subject to the state in which the attorney has in fact acted in representing the principal, or where the principal intends the attorney to act. The position may thus be defended that in most Polish transactions in which a foreign company is represented by an attorney-in-fact, the law governing the power of attorney will be Polish law (i.e. the place where the attorney in fact acts).
Returning to the issue of the required form, how can it be determined what law governs the form of the power of attorney?
If the law governing the power of attorney is Polish law, then the rule we just discussed concerning the derivative form of the power of attorney will apply. Nonetheless, it is sufficient to comply with the form provided by the law of the state in which the power of attorney was issued….
…unless the specific act was excluded from that rule.
Correct. Such exceptions apply, for example, to establishing a limited-liability company or limited partnership, but not to amendments to the articles of association of such companies.
If the power of attorney is governed by foreign law, the form of the power of attorney should also be determined in accordance with the same law. In practice, this will typically be the place where the power of attorney was issued.
What should we look out for when the power of attorney is governed by foreign law?
If non-Polish law governs the issue of the form of the power of attorney, the proper form will need to be determined. This has to do particularly with instances where the governing law does not provide a general rule requiring derivative form. The derivative form mechanism is flexible enough that it may easily apply as well in instances where there is a foreign element, as it does not require reference to a specific act.
Where there is no rule of derivative form, the issue is whether the law of the country in question generally does not address the form required for actions closely connected with the law of another country. While certain concepts may be said to have international significance (e.g. the concept of real estate), in which case it is easy to determine the applicable law, in other instances this can be very difficult—particularly references to a specific type of company or share rights within such company.
It is clear that every type of company is a creature of the law of a specific country, and as a rule there are no types of companies that are identical across different legal systems.
What can be done in that case?
At best we can refer to the counterpart of a given company within another legal system—for example, a GmbH under German law corresponds to a Polish sp. z o.o.—but such comparisons always involve a certain degree of approximation and may not work in some situations.
Do difficulties in determining the proper form for powers of attorney come up frequently in practice?
Definitely. Participants in a transaction, and even the notaries and registry courts, rarely go to the trouble of checking the form that is required in order to carry out a given act, such as establishing a company or selling shares in the company, under the law governing the power of attorney, particularly when it is foreign law. Sometimes a power of attorney issued abroad with notarised signatures, and bearing an apostille clause, is regarded by Polish notaries or registry courts as correct in situations where the form of a notary deed is required.
Moreover, in some legal systems the difference between written form with notarised signatures and the form of a notarial deed is very difficult to grasp. Sometimes this is determined only by an additional clause in the document, or by additional entry of the document in a registration system with a relevant notation in the body of the document.
It should also be borne in mind that an apostille clause does not constitute a certification that the document in question was made in compliance with the form required for the act in question at the place where the document was issued.
What should we therefore bear in mind in the case of powers of attorney issued abroad?
Particular caution is in order when powers of attorney are issued or verified authorising the holder to conduct transactions in Poland. This applies particularly to the required form of the power of attorney.
While bearing in mind the general rule of derivative form, in doubtful cases it is preferable to request that a power of attorney be issued in a more stringent form than to rely on a simpler form. Otherwise, if the form in which the power of attorney is issued proves to be defective, it may result in invalidation of a specific element of the transaction. In extreme cases, the entire transaction may be invalidated.