Can new regulations limit the possibility of resigning from a company’s management board?
A bill currently being processed by the Sejm significantly limits the right of a management board member to resign from office at any time.
The resignation of a management board member is one of the reasons for termination of service on the management board of a company. This is an important reason, as there is no doubt that the function of a member of the management board of a legal person should be performed on a voluntary basis. This is one of the reasons why a few years ago the Parliament introduced a requirement to obtain and then submit to the registry court the consent of any person appointed to the management board (Art. 19a(5) of the National Court Register Act).
While the right to resign from office has not raised any doubts (although as we will see it may raise doubts in the future), for many years issues related to how the act of resignation should be carried out were subject to disputes in the legal literature. Doubts were raised first of all as to who should be the addressee of the management board member’s resignation notice (I wrote more on this subject in “How to resign from the management board and be sure it’s effective?”).
These dilemmas were resolved in 2016 on the basis of the existing provisions of the Commercial Companies Code. The Supreme Court held that the proper addressee of the notice of resignation from the management board of a company (with a reservation concerning a sole shareholder who is also the only management board member) is the company itself, represented in this respect in accordance with Art. 205 §2 or Art. 373 §2 of the Commercial Companies Code, i.e. by one management board member or one proxy.
Proposed amendments
The Parliament has recently taken up the process of resignation of the last, or only, member of a company’s management board. The government’s proposed Act Amending Certain Acts to Simplify Tax and Commercial Law for Businesses is currently undergoing the legislative process in the Sejm (at the time of writing this text, the committee had prepared a report). According to the proponent of the bill, the intention includes “an attempt to regulate the issue in terms of the addressee of a board member’s declaration of resignation … when the resignation is submitted by the member of a single-member board, … the last member of a multi-member board, [or] all board members … submitting their resignations simultaneously.”
According to the draft (version determined in the course of the committee’s work), a new §6 would be added to Art. 202 of the Commercial Companies Code, with respect to limited-liability companies (sp. z o.o.), with the following wording: “If as a result of the resignation of a management board member no mandate on the management board is filled, the management board member shall submit his resignation to the shareholders and at the same time convene the shareholders’ meeting referred to in Art. 2331, unless the articles of association provide otherwise. The invitation to the shareholders’ meeting shall also include the management board member’s resignation notice. The resignation shall take effect on the day following the day on which the shareholders’ meeting is convened.”
An analogous regulation is also being proposed for a joint-stock company (SA), so for the sake of simplification, further comments will be made on the amendments to Art. 202 of the code.
Apart from assessing whether a significant change in the Commercial Companies Code is necessary in light of the previously noted resolution of the Supreme Court, it is worth looking at the possible effects of introducing the wording currently being considered.
Resignation submitted to shareholders
According to the draft act, the resignation of the last board member (or, where appropriate, a group of board members if their resignation results in the board being inadequately staffed) would be submitted to the shareholders. This is a return to one of the concepts once considered in the literature but rejected by the previously noted resolution of the Supreme Court.
The draft act states that such a resignation should be submitted together with the convening of a shareholders’ meeting.
In principle, this is a good direction, as it seems correct to impose an obligation on a management board member whose resignation would leave the management board vacant, to ensure that the vacancy caused by his resignation is filled.
When should the resignation be effective?
However, there is a greater problem, which is the proviso that a resignation submitted this way is effective only on the day following the day on which the shareholders’ meeting is convened.
Notice of the shareholders’ meeting should be sent to shareholders at least two weeks prior to the date of the meeting (Art. 238 §1 of the Commercial Companies Code). This means that according to the draft act, in practice, it would be impossible in this case to submit an immediate resignation from the management board, as the board member would be forced to remain on the board for a minimum of the two weeks required to convene the meeting to replace him.
This is a very dangerous solution, given the possibility provided for in the Commercial Companies Code of the actual issuing of binding instructions by shareholders to management board members (see comments on this subject), as well as the personal liability of a management board member (both civil and criminal).
At the same time, it contradicts the idea of a voluntary management function, which has already been noted here.
This means not only extending the period of service on the management board—usually against the will of the resigning member—but also a rigid extension.
Thus, although in accordance with the notice convening the shareholders’ meeting, on the day the meeting is held the shareholders will adopt a resolution electing a new management board member, the appointment of the resigning member will expire only at the end of the following day.
It will be similar when, upon receipt of a notice of resignation of a management board member, the shareholders gather to hold a meeting earlier (without waiting for two weeks’ notice, which they have the right to do under Art. 240 of the code). Also in this case, the appointment of the resigning member will continue for some time after the meeting is held.
These problems could be solved (provided that all shareholders are present at the meeting) by the shareholders adopting a resolution dismissing the resigning member of the management board, effective upon adoption of the resolution. However, this will require the shareholders’ initiative and will remain beyond the actual control of the resigning member.
Which resigning member is the last?
Furthermore, the proposed wording according to which the new regulation applies “if the resignation” of a member of the management board leaves the management board inadequately filled, seems rather unfortunate. This may apply to the only management board member, the last member of a multi-member management board, or one of many management board members if the resignation results in the management board falling below the required (or minimum) number of members. (For example, if the articles of association provide that the management board will have from 3 to 5 members, the resignation of any number of members causing the number of management board members to fall below 3 would fall within the scope of this provision.)
Everything here seems clear (although not necessarily justified) in the situation of joint resignation of the relevant number of members of the management board. But what happens if more members of the management board resign without prior consultation? For example, as a result of certain resolutions adopted by shareholders or in other circumstances, several board members may resign independently of each other. As a result, let’s assume the board will remain vacant. However, the resigning members do not know that their colleagues are also resigning. What will be the consequence of such action, and which resigning member will be the one whose resignation falls under the proposed §6? In practice, can a situation arise in which only after the resignation of a given member of the management board, he or she learns that they were the “last,” so they will have to resign again in compliance with the requirements of the new Art. 202 §6 of the code?
“Unless the articles of association provide otherwise”
Finally, it is worth noting that the draft act refers to the previously noted obligation to convene a shareholders’ meeting “unless the articles of association provide otherwise.”
Indeed, in accordance with Art. 201 §4 of the Commercial Companies Code, a management board member of a limited-liability company is appointed and dismissed by the shareholders’ meeting, unless the articles of association provide otherwise. In practice, the articles sometimes vest this power in the supervisory board or one or more specific shareholders. However, it is not clear whether the draft act refers to this provision.
Since it is not clear, it seems that the equally well-drafted Art. 202 §6 of the Commercial Companies Code can be understood to mean that if the articles of association so provide, the application of this provision may be completely suspended! This in turn completely undermines the purpose of its introduction.
By the way, if the purpose of the new regulation is to cause the resigning management board to bring about the appointment of its successor, why should any loophole be created for companies where the right to elect management board members does not rest with shareholders’ meeting?
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Although the discussed draft is already at the stage of parliamentary work, it seems that there is still time to clarify these provisions. Otherwise, it is difficult to fully predict the scope of problems that the new regulation may cause in practice.
Maciej Szewczyk, attorney-at-law, M&A and Corporate practice, Wardyński & Partners
