On liability for execution or non-execution of the binding ...

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ŽABA, M.: On liability for execution or non-execution of the binding instruction in the group of companies under Polish law. Právny obzor, 105, 2022, special issue, pp. 60-72

https://doi.org/10.31577/pravnyobzor.specialissue.2022.05

On liability for execution or non-execution of the binding instruction in the group of companies under Polish law. This article deals with the new Polish regulation of the group of companies and the issue of internal liability between companies participating in such a group. The purpose of this paper is to analyse the regulation concerning not only the legal nature of binding instruction issued in the group of companies but also the liability in the case of damage caused by the execution or non-fulfilment of such an instruction. In the article pages that follow, references are made to the boundaries of the binding instruction, the premises for refusal to perform it and the issue of the parent company’s liability for damage caused by the execution of a binding instruction and the subsidiary company’s liability for failure to carry out the instruction.

Key words: group of companies, liability for non-execution of the binding instruction, liability for damage caused by the execution of the binding instruction, Polish law

Preliminary remarks

Amendment to the provisions of the Commercial Companies Code

made under the Act of February 9, 2022

has brought the regulation of groups of companies into force in Polish law for the first time. One of the most significant instruments enabling harmonisation of the functioning of companies within holding structures is now the mechanism of issuing binding instructions. The justification for the possibility of using this instrument in practice is to improve the management of capital structures. However, when introducing the binding instruction instrument, the legislature decided to make its application voluntary for specific parent companies

. It indicated that the parent company may - but does not have to - issue a binding instruction to a subsidiary company

participating in a group of companies as to managing the subsidiary company's affairs (Art. 21

§ 1 CCC). Thus, a binding instruction may be issued only within a group of companies by the parent company to the subsidiary.

In order for companies to be considered as participating in a group of companies, two conditions must generally be met. Firstly, the subjective conditions under Art. 4 § 1 pt. 5

CCC must be fulfilled

. Secondly, the objective condition must be met, according to which the meeting of shareholders or the general meeting of the subsidiary company must adopt a resolution on participating in a group of companies by the majority of threefourths of votes and with the indication of the parent company (Art. 21

§ 2 CCC). However, it is not necessary for companies to be recognized as participating in a group of companies based on disclosing their participation in the register of entrepreneurs of the Polish National Court Register. The disclosure is declaratory in relation to the group formation.

The issue of binding orders seems to be important because of the future standards of the functioning of holding companies in the Polish reality

. Particularly important aspects regarding a binding instruction issued within a group of companies by the parent company are not only its nature and subject limits as well as the possibility to refuse its execution by the subsidiary, but above all there is the issue of liability for damage caused by the execution of a binding instruction or liability for non-fulfilment of the same.

The importance of issues related to liability is strengthened by the fact that the aforementioned doubts do not only have a theoretical legal dimension, but relate primarily to practical problems.

For this reason, this article discusses the nature of a binding instruction and the parent company's liability towards a subsidiary participating in a group of companies for damage caused by the execution of the binding instruction or the liability of such a subsidiary towards the parent company for its non-fulfilment.

1. The legal nature of the binding instruction

With regard to the purpose of a binding order, its legal nature seems to be an important issue. The above will be important in relation to the possible legal consequences of its issuance. The binding instruction issued by the parent company is intended to produce effects directly in relation to the subsidiary company, and also indirectly within the group of companies. With regard to the fact that the issuance of a binding instruction by the parent company goes beyond the internal sphere of the parent company functioning, and that the binding instruction must indicate behaviour of the subsidiary company expected by the parent (Art. 21

§ 3 pt 1 CCC), there is no denying its legal character as an act in law. The binding instruction leads to the formation of legal relations between separate entities. The fact that it relates to the conduct of the subsidiary's affairs is a secondary issue here. A resolution on a binding instruction adopted by the competent authority of the parent company (management board or board of directors) is addressed to a separate entity - the subsidiary entity.

That the binding instruction is an act in law by nature is also evidenced by the fact that a binding instruction is issued directly by the parent company, and not its authority, as evidenced by the literal wording of the provision of Art. 21

§ 3 pt 1 CCC. The legislature additionally provides for the nullity of a binding instruction that has not been issued in written or electronic form (Art. 21

§ 2 CCC). Considering the provision of Article 73 § 2 of the Polish Civil Code, such measure may indicate the form stipulated for acts in laws

The legal nature of the binding instruction of being an act in law is also strengthened by the regulation of the parent company's liability for damage caused by the execution of the binding instruction by a subsidiary company (Art. 21

12)

CCC). Liability for damage is therefore implemented between two separate entities - the parent company and the subsidiary company. It should not also exclude the possibility to invoke liability of the subsidiary company towards the parent company for non-fulfilment of the binding order, which will be described further in this study. Parenthetically, it must be noted that a contractual obligation between the parent company issuing a binding instruction and the subsidiary undertaking to execute it generally arises at the moment of adopting a resolution on the execution of a binding instruction (Art. 21

§ 1 CCC).

The objective limitations of the binding instruction are set out in a provision of Art. 21

§ 1 CCC in Polish law. It stipulates that the parent company may issue to a subsidiary company within a group of companies a binding instruction related to managing the company's affairs (binding instruction), provided this is justified by the interest of the group of companies and unless special provisions stipulate otherwise. Therefore, this provision provides

expressis verbis

three limitations for a binding order: managing the company's affairs

, interest of the group of companies

, and the lack of a special provision, which excludes the possibility to issue the binding instruction in relation to certain categories of m

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