New rules for liability for injury to a company
02.06.2011 new provisions | corporate
Regulations liberalising the rules for criminal liability of management board members of capital companies go into effect on 1 July 2011.
On 20 April 2011 the President of Poland signed into law the Act on Restriction of Administrative Barriers for Citizens and Businesses dated 25 March 2011. The act introduces a number of major changes designed to limit the regulatory sphere of the state and related bureaucracy.
One of the changes affects Art. 585 of the Commercial Companies Code, which provides for criminal liability of a member of the management board of a commercial company.
Currently, the code criminalises an act to the detriment of a commercial company committed by a person participating in formation of the company or serving as a member of the company’s authorities (management board, supervisory board or audit committee) or as a liquidator. Such person (or an accessory to the crime) is subject to a fine and imprisonment of up to 5 years, and the offence is prosecuted publicly.
Under Art. 26(3) of the recently signed act, Commercial Companies Code Art. 585 will read as follows:
§1. Any person taking part in establishment of a commercial company, serving as a member of its management board, supervisory board or audit committee, or actually conducting its affairs, or a liquidator, who through abuse of the authority granted to him or failure to perform a duty incumbent on him subjects the company to a direct threat of suffering material financial injury shall be subject to a fine or imprisonment of up to 3 years.
§2. Prosecution shall occur upon private charges.
The main goals and consequences of the changes to Commercial Companies Code Art. 585 are outlined below.
First, under the current law, the offence under Art. 585 may be committed only by a person participating in formation of a commercial company or a member of its authorities (management board, supervisory board or audit committee) or a liquidator of the company. Thus the offence now does not apply to acts by partners of a registered partnership, limited partnership or joint-stock limited partnership with authority to represent the partnership and conduct its affairs, or to a commercial proxy or attorney-in-fact appointed by the shareholders to represent the company in agreements or disputes with members of the management board, or to an administrator.
Under the new wording of Art. 585, liability will also extend to persons actually conducting the affairs of the company (including, for example, partners who are authorised to conduct the affairs of a partnership under the Commercial Companies Code).
Second, the new law tightens the definition of an act or omission that may result in criminal liability. The current law criminalises an “act to the detriment of the company,” which is a somewhat vague and negative concept. Under the new law, the offence will be defined as subjecting the company to a direct threat of suffering material financial injury as a result of abuse of authority or failure to perform a duty.
Third, the sanction for commission of the offence has been reduced from a maximum penalty of 5 years imprisonment plus a fine, to a fine or imprisonment of up to 3 years.
Finally, the act changes the procedure under which the offence under Art. 585 is prosecuted. This change should have the most important practical effect. Under current law, the offence is prosecuted publicly, upon the prosecutor’s own initiative. This has unfortunately resulted in numerous instances in which the prosecutor, on behalf of the state, has filed charged against the members of the management board for injury to the company over the express objection of the shareholders, or against former members of the management board over the express objection of the shareholders or the current authorities of the company.
Under current law, an act might be found to be detrimental to the company, and thus possibly expose management to criminal liability, even if the act was fully justified economically when it was taken and fell within the range of normal economic risk.
Under the new wording of Art. 585, the offence will be prosecuted only privately. Under the Criminal Procedure Code, private allegations may be filed by an injured party, which in practice will typically mean the company itself, a shareholder or a creditor.
Maciej Szewczyk, Corporate Law practice, Wardyński & Partners