Liability of a member of the management board of a limited liability company (spółka z ograniczoną odpowiedzialnością – sp. z o.o.) and a joint-stock company (spółka akcyjna – S.A.) for business decisions

Company law

March 9 2020/ k-admin

The subject of the liability of the bodies’ members for business decisions is extremely important and raises many doubts. On the one hand, since the management board, when conducting the company’s affairs, makes decisions, it should be responsible for them. On the other hand, it is obvious that every business activity entails a risk and its taking may have a positive impact on the company’s profit. For these reasons, the scope of liability of board members must at the same time ensure that officers are given freedom to perform their duties and that the company is protected against abusive behavior on the part of managers. A model solution is the American business judgment rule, which also appears in a slightly different form in German law. The Polish legislator has not decided to introduce this institution either in a limited liability company or a joint stock company.

The liability of board members for business decisions is regulated by art. 293 § 1 of the Code of Commercial Companies (Kodeks spółek handlowych, hereinafter referred to as “c.c.c”), in a limited liability company, and art. 483 § 1 c.c.c. in a joint-stock company. According to these regulations, a member of the management board shall be liable towards the company for any damage inflicted through an act or omission contrary to the provisions of law or the articles of association (the statute) unless no fault is attributable to such person.

The prerequisites for liability are therefore::

  • unlawful act or omission of a management board member,
  • damage,
  • an adequate causal link between the member’s act or omission and the damage,
  • the fault of the board member.

The key issue is to understand the concept of unlawfulness – when should a decision be considered unlawful? Two opposing views are expressed in this respect. The first one states that an action of a member of a body is unlawful only if it is contrary to a specific statutory provision, e.g. if a member of a body violates the prohibition on engaging in competitive activities (art. 211 § 1 c.c.c. and art. 380 § 1 c.c.c.). According to the second view, a member of the body is also liable for actions that are negligent or contrary to the interest of the company (even if they are not contrary to any explicit statutory provision). Acceptance of the first standpoint leads in practice to a lack of responsibility for careless or disloyal behavior of directors, while the second view may result in excessive caution of directors who, fearing being held liable, will only make ‘safe’ decisions. The first position prevailed in earlier rulings of the Supreme Court (Sąd Najwyższy) and common courts (e.g. Supreme Court judgment of 9 February 2006, V CSK 128/05, judgment of the Court of Appeal in Warsaw (Sąd Apelacyjny w Warszawie) of 18 August 2011, I ACa 54/11). According to a newer ruling practice, initiated by the judgment of the Supreme Court of 24 July 2014, II CSK 627/13: ‘when making decisions concerning the company’s affairs, a member of the management board should be guided solely by the company’s interest. Culpable actions exceeding the limits of economic risk are contrary to the company’s interest and as violating the general rule laid down in art. 201 of the Code of Commercial Companies lead to the liability of a member of the management board under art. 293 § 1’. As a consequence, currently court judgements issued under article 293 § 1 and article 483 § 1 of c.c.c. are far from being predictable, as both views are expressed by the courts.

To sum up – a board member may be held liable for business decisions if, while making them, he was not solely guided by the interests of the company, acted carelessly and exceeded the limits of economic risk. However, some of the rulings assume that a board member may be liable under art. 293 § 1 c.c.c. or art. 483 § 1 c.c.c. only if he has violated a specific legal norm and the lack of loyalty alone is not sufficient for compensation to be payable.

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Adopting resolutions by the management board or the supervisory board of a limited liability company (spółka z ograniczoną odpowiedzialnością – sp. z o.o.) and a joint stock company (spółka akcyjna – S.A.) over a distance – planned changes under the so-called anti-crisis shield

By k-admin, 12 months ago

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