When does the appointment of a member of a supervisory board of a joint-stock company end?
The issue of determining when the appointment of a member of the supervisory board of a joint-stock company ends in connection with the expiration of the term of office has been the subject of doubts and disputes for some time. It was particularly problematic to determine when the appointment ends when the term of office does not coincide with the financial year. The Supreme Court of Poland recently addressed this issue.
Supreme Court of Poland resolution of 24 November 2016 (Case III CZP 72/16)
The issue of the term of office and appointment of a member of the supervisory board of a joint-stock company is regulated in Art. 369 and 386 of the Commercial Companies Code.
A clear distinction should be made between the notions of “term of office” (kadencja) and “appointment” (mandat). Both notions relate to the issue of membership on the supervisory board of a joint-stock company, but they have different meanings. Under Art. 369 §1 in connection with Art. 386 §2 of the code, “term of office” means the period of exercising his or her function by a member of the supervisory board. “Appointment,” however, as indicated by the Supreme Court in its judgment of 10 November 2006 (Case I CSK 246/06), means “empowerment to exercise the function of an authority of a legal person.”
Corporate authorities serve for a term of office
It is clear that the code adopted a model where the members of the authorities of a joint-stock company serve for a term of office. The length of the term of office of a member of the supervisory board cannot exceed five years. It should be added, however, that under Art. 369 §1, the same person can be reappointed to the supervisory body for successive terms of up to five years each, so long as each successive election occurs no earlier than one year before the end of the current term.
Moreover, as the Supreme Court held in resolution III CZP 72/16, the term of office of a member of the supervisory board of a joint-stock company should be stated in financial years or calendar years. If the period the member is to serve is not specified, it is assumed that the term of office is five years (the maximum length of the term of office).
Expiration of appointment
Under Art. 369 §4 in connection with Art. 386 §2 of the Commercial Companies Code, the appointment of a member of the supervisory board of a joint-stock company expires “at the latest on the date of holding the general meeting approving the financial report for the last full year of performing the function.”
Early termination of a supervisory board member’s appointment may occur in the event of the member’s death, resignation, or removal from the supervisory board, as provided in Art. 369 §5 in connection with Art. 386 §2. It should be stressed that this is not an exhaustive enumeration, as further grounds for early termination of appointment may be found in other regulations (including some outside the Commercial Companies Code), such as loss of legal capacity by a board member (Art. 18 §1) or a legally final conviction for certain criminal offences (Art. 18 §2).
If specific grounds such as those mentioned above do not occur, the appointment of a member of the supervisory board of a joint-stock company terminates at the end of the term of office, i.e. on the date of holding the general meeting approving the financial report for the last full financial year of performing the function.
Expiration of appointment in connection with end of term of office
The issue of expiration of the appointment of supervisory board members in connection with the end of the term of office raises certain doubts. For example, for this to happen, is it sufficient to hold a general meeting to approve the financial report for the last full financial year of performing the function, or is it necessary for the general meeting to adopt a positive resolution approving the financial report?
This issue was the subject of interest of the Supreme Court in its judgment of 13 May 2010 (Case IV CSK 531/09). While the court ultimately did not declare its support for any of the suggested solutions, it did observe that the predominant view in the case law and legal literature is that Art. 369 §4 requires adoption of a positive resolution approving the financial report.
Another problem in interpretation of Art. 369 §4 may be defining the exact time when the appointment of a member of the supervisory board expires. This section provides that this should happen “on the date of holding the general meeting.” Some commentators argue for a purposive interpretation under which the appointment expires as soon as the resolution approving the financial report is adopted.
Last full financial year of performing the function
The most controversial aspect of expiration of the appointment of supervisory board members in connection with the end of the term of office is determining what should be understood in practice to mean “the last full financial year of performing the function”—particularly when the member’s term of office does not coincide with the financial year.
Here the difference between the notions of “term of office” and “appointment” should be noted, stressing that the time when the appointment terminates is not the same as the end of the term of office. If specific conditions are met, the appointment may terminate before the end of the term of office. But if these conditions do not occur, then there is a situation where the term of office of the given board member ends but the member’s appointment remains in force. This is because the end of the term of office of a supervisory board member does not result in automatic termination of his or her appointment.
But not everyone agrees with this theory. Over the years, several conceptions have appeared in the legal literature on how to define the moment when a supervisory board member’s appointment terminates in connection with the end of his or her term of office. Some assume that the appointment is shortened, others claim that when the appointment terminates is identical to the end of the term of office, and yet others assume that the appointment is extended.
In resolution III CZP 72/16, the Supreme Court addressed these views and adopted the conception prolonging the expiration of the appointment of a supervisory board member in connection with the end of the term of office. The court held that the last full financial year of serving the function is the last financial year which began during the board member’s term of office.
Consider an example. If a member of the supervisory board was appointed on 14 May 2014 for a two-year term of office, the term of office ended on 14 May 2016. If the appointment was not terminated early for the reasons indicated in Art. 369 §5 of the Commercial Companies Code or other regulations, and the company’s financial year coincides with the calendar year, the appointment of this board member will expire on the date of holding the general meeting confirming the financial report for the last full year of performing the function—that is, for 2016, because that was the last financial year which began during the board member’s term of office. Therefore, the appointment will expire by 30 June 2017 at the latest (assuming that the general meeting is held by the statutory deadline, i.e. within six months after the end of the financial year). It should be stressed here that the appointment in this example could not expire upon the date of holding the general meeting confirming the financial report for 2015, i.e. in the first half of 2016, even if the general meeting were held after 14 May 2016.
As the Supreme Court reasoned, this approach is dictated by a purposive and functional interpretation of Art. 369 §4 in connection with Art. 386 §2 of the Commercial Companies Code. This solution should maintain continuity in performance of the supervisory board’s tasks and enable the general meeting to evaluate the correctness of the performance of their duties by the members of the supervisory board throughout their entire term of office.
Summary
This resolution by the Supreme Court of Poland clarifies doubts surrounding the time when the appointment of a member of the supervisory board of a joint-stock company expires in connection with the end of the term of office. Because of the ambiguity in the wording of the regulations governing this area and the multiplicity of views on the matter, a resolution of this issue was very much needed.
Finally it should be added that although the Supreme Court resolution directly affects the term of office and appointment of members of the supervisory board of a joint-stock company, the manner of determining the last full financial year of performance of this function may also be applied to members of the management board of a joint-stock company or the authorities of a limited-liability company.
Julia Dolna, M&A and Corporate practice, Wardyński & Partners
