Seizure of debtor’s shares in a company: Is it enough?
Often, debtors’ shares in companies are subject to seizure in security or enforcement proceedings. But the debtor does not lose its status as a shareholder in the company after the shares are seized, and the creditor still remains a third party with respect to the company. Thus the debtor may continue to exercise the corporate rights attached to the seized shares, making it difficult for the creditor to satisfy its rights. So it is worth remembering the possibility of challenging corporate resolutions, and appointing a receiver for shares seized in enforcement or security proceedings.
Pursuant to Art. 9102 §1 of the Polish Civil Procedure Code, by virtue of an attachment, a creditor may exercise all of the debtor’s property rights arising from the attached right necessary to satisfy the creditor by way of enforcement. The creditor can also take any action necessary to preserve the property rights. But in such a situation, the creditor cannot exercise the debtor’s corporate powers, e.g. attend shareholders’ meetings or vote on resolutions. However, creditors do have a number of “preservative” rights that should be kept in mind if they wish to obtain satisfaction of their claims.
Repealing or invalidating shareholders’ resolutions
Under the case law of the Supreme Court of Poland, the scope of preservative actions within the meaning of Civil Procedure Code Art. 9102 §1 includes the right of an enforcing creditor (or a creditor obtaining security) to bring an action to invalidate or repeal a resolution of the shareholders’ meeting threatening the possibility of satisfaction out of the seized shares (e.g. Supreme Court judgment of 19 December 2013, case no. II CSK 150/13). A legal right to bring such an action may be vested in the enforcing (or securing) creditor only in cases where the action is aimed at preserving the right being enforced or secured, and the disputed resolution is the source of a threat to the creditor’s ability to obtain satisfaction (or security).
Thus, a creditor may bring an action to invalidate a resolution of the shareholders meeting of a company jeopardising the creditor’s ability to obtain satisfaction from the attached right. The threat does not have to arise directly from the substance of the resolution, but may be merely indirect. It cannot be ruled out that also a resolution not directly pertaining to shareholding rights (but which is irrational or economically harmful to the company) will adversely affect the creditor’s ability to obtain satisfaction from the seized shares—in terms of the proceeds that could be obtained from sale of the seized shares, as well as exercise of the resulting property rights (as provided for in Civil Procedure Code Art. 9116 §1). Indeed, it can easily be imagined that a dishonest debtor will begin to pass resolutions under which a company will squander its assets, resulting in a loss of value of the shares in the company, thereby reducing or eliminating the creditor’s ability to obtain effective satisfaction out of the shares. Thus, such wasteful or downright dishonest actions by the debtor may be counteracted by the creditor through an action to invalidate or repeal the harmful corporate resolution.
The time limit for a creditor seeking enforcement or security to bring such an action under Civil Procedure Code Art. 9102 §1 and the relevant provisions of the Commercial Companies Code runs from the time when the creditor could learn of the content of the resolution. When the time limit for challenging a resolution begins to run is also connected with publication of resolutions in Monitor Sądowy i Gospodarczy (Supreme Court judgment of 19 December 2013, case no. II CSK 151/13).
Appointing a receiver for shares
Under Civil Procedure Code Art. 9102 §2, if necessary to exercise rights arising from the attached rights other than those referred to in §1, the court shall appoint a receiver at the debtor’s or creditor’s request or at the court’s own initiative. The provisions on administration in enforcement against immovable property apply to the receiver so appointed.
The Supreme Court has held that the court-appointed receiver for shares may further the creditor’s interests, as it were, above and beyond the right to preservative action discussed above. In other words, based on Art. 9102 §2, a receiver should be appointed when further exercise of corporate rights by the shareholder/debtor from the seized shares realistically threatens the creditor’s property interest which is being pursued in enforcement or security proceedings (Supreme Court judgments of 19 December 2013, case nos. II CSK 150/13 and II CSK 151/13).
In our own view, appointment of a receiver for shares will be justified, in particular, when the shareholder/debtor’s behaviour demonstrates a lack of due care for the proper functioning of the company (e.g. an inability to manage or control its business processes) or a failure to act honestly towards the creditor (e.g. an inclination to take fraudulent actions to the detriment of creditors).
The competent court of first instance for appointment of a receiver for shares in a company is the district court with supervision over the bailiff attaching the share rights as part of security or enforcement proceedings.
If pursuant to Art. 9102 §2 the court appoints a receiver for shares, the receiver exercises the shareholder’s subjective rights, including corporate powers. As mentioned, a creditor seeking execution or security may exercise any property rights arising from the seized shares necessary for the creditor’s satisfaction. However, powers of a corporate nature related to these rights may be exercised only by the receiver. There are no obstacles to cooperation between the receiver for shares and the creditor in the course of enforcement or security proceedings, including exchange of information on the basis of which the creditor may take appropriate actions under these preservative powers (Supreme Court resolution of 25 November 2011, case no. III CZP 64/11).
Therefore, appointment of a receiver for shares under Civil Procedure Code Art. 9102 §2 may be very useful for the creditor, in particular to assist in exercising rights under Art. 9102 §1 protecting satisfaction out of the shares. In certain situations, this may even be indispensable for proper conduct of the enforcement or security proceedings. Then, for their own good, creditors should make their own efforts to have the court appoint a receiver.
Jan Ciećwierz, adwokat, Adam Studziński, adwokat, Dispute Resolution & Arbitration practice, Wardyński & Partners
