Will the Holding Law increase the effectiveness of supervisory boards?
The act amending the Commercial Companies Code which will come into force on 13 October 2022 not only establishes rules for the operation of formalised corporate groups, but also modifies some rules for the functioning of corporate bodies of companies, including supervisory boards. The question is whether the change will have a positive impact on the work of supervisory bodies.
The main task of the supervisory board is to perform control functions in the company in all areas of its activity. In the case of a limited-liability company or simple stock company, the supervisory board is generally optional. The duty to appoint one in a limited-liability company arises when the share capital exceeds PLN 500,000 and there are more than 25 shareholders, while for a simple stock company such a body is never required. The rules for the supervisory board are different in a joint-stock company, where this body is mandatory and plays a particular role, because the right of individual control of the company’s affairs by its shareholders is severely curtailed (they have a limited right to information on the company’s affairs).
The right to request information, documents and reports
To provide the supervisory board with better control, as part of introduction of the amendment known as the “Holding Law,” lawmakers have clarified the powers of the supervisory board to obtain information on the company. Previously, the supervisory board could examine all company documents, demand explanations from management and employees, as well as review the company’s assets. From the effective date of the amending act, the list of persons required to provide information to the supervisory board will be expanded. The board will be able to demand information, documents, reports or explanations concerning the company from the management board, proxies, or persons working for the company under an employment contract or civil contract, while this power will also apply to information, reports or explanations they have concerning subsidiaries and affiliates.
To ensure the effectiveness of these powers, the parliament also set a deadline by which the request should be fulfilled. The information will have be provided promptly, but no later than two weeks from the request, unless a longer period is specified in the request by the supervisory board.
Failure to submit information, documents, reports or explanations on time, or submitting them contrary to the facts, or concealing relevant information, will be subject to a fine of PLN 20,000–50,000 or restriction of liberty. Perpetrators acting unintentionally will be subject to a fine of PLN 6,000–20,000.
Adviser to the supervisory board
Another new power of the supervisory board will be the ability to support its work with the help of an adviser. The role of the selected adviser will be to investigate specific matters concerning the company’s operations or its assets or to prepare certain analyses and opinions. The costs of the services provided by the adviser will be paid by the company, while the role of the management board will be to provide the adviser the requested information and access to the company’s documents. Given the potentially wide access to information on the company, the adviser to the supervisory board, including a natural person acting for or on behalf of the adviser, will be required to keep confidential all non-public information and documents received from the company. This confidentiality obligation will be unlimited in time.
An adviser to the supervisory board will be selected by adoption of a resolution of the supervisory board to this effect. It should be stressed, however, that appointment of an adviser to the supervisory board in a limited-liability company will be possible only if the company’s articles of association provide for this option. By contrast, in the case of a joint-stock company or simple stock company, the authority to appoint an adviser will arise directly from the law, and no separate provisions will be necessary in this regard in the articles of association. In an agreement between the company and the adviser, the company is represented by the supervisory board. Therefore, the law provides that a joint-stock company or simple stock company’s articles of association may exclude or limit the right of the supervisory board to enter into an agreement with an adviser to the supervisory board, in particular by authorising the general meeting to determine the maximum total fee payable to advisers to the supervisory board that the company may incur during the financial year.
The amendment will also introduce a sanction for causing the management board to fail to provide an adviser to the supervisory board with access to documents, failing to grant the requested information, or providing factually incorrect information, or withholding data that could materially affect the content of such information or documents. This offence will be punishable by a fine of PLN 20,000–50,000 or the penalty of restriction of liberty. Perpetrators acting unintentionally will be subject to a fine of PLN 6,000–20,000.
Supervisory board committee
The amendment also regulates the institution of a supervisory board committee in a joint-stock company or limited-liability company. Under the new powers, the supervisory board in such companies will be able to establish an ad hoc or standing committee consisting of members of the supervisory board. The committee’s role will be to perform certain supervisory activities over the company’s operations. However, establishment of a supervisory board committee will not relieve the members of the supervisory board from their responsibility to fully supervise the company’s operations. Also, the supervisory board of a joint-stock company will be able to delegate individual members to perform certain supervisory activities on their own. The supervisory board committee of a joint-stock company, or such delegated member of the supervisory board, should at least once in each quarter of the financial year provide the supervisory board with information on the activities undertaken and their results. The supervisory board committee in a limited-liability company will not have such a reporting obligation.
Supervisory board meetings in a limited-liability company or joint-stock company
The regulations coming into force will also change the working rules for supervisory board meetings in a limited-liability company or joint-stock company. The parliament has clarified the regulations on the work of supervisory boards in particular to emphasise the role of the chair of the supervisory board. The duty to convene a meeting of the supervisory board will rest with the chair of the board. In addition to indicating the date, time, place and proposed agenda for the meeting, the invitation to the supervisory board meeting should indicate the use of means of direct remote communication, but the company’s articles of association may specify another way of convening a supervisory board meeting. The management board or members of the supervisory board will have the right to call a meeting of the supervisory board, and the chair of the supervisory board will be obliged to convene a meeting with an agenda in accordance with the request of the management board or a member of the supervisory board.
The meeting of the supervisory board should be called for no later than two weeks from receipt of the request. If the chair neglects to perform this duty, the power to call a meeting will pass to the requesting member of the management board or supervisory board. Also, the supervisory board will be able to hold meetings without being formally convened, if all members agree and do not object to inclusion of particular matters on the agenda.
Meetings of the supervisory board will have to be convened as needed, but at least once a quarter.
Minutes of supervisory board meeting
Lawmakers also decided to clarify what should be contained in the minutes of supervisory board meetings. Under prior law, the minutes of a meeting of the supervisory board of a limited-liability company did not have any prescribed elements, but under the amendment they will have to include the same elements as the minutes of a management board meeting, i.e.:
- The agenda, the names of the board members present, and the number of votes cast for each resolution
- Dissenting opinions by a member of the board, together with a justification, if any.
At the least, the board member conducting the meeting or administering the vote will be required to sign the minutes, unless the company’s articles of association or the supervisory board bylaws provide otherwise.
On this occasion, the parliament decided to change the scope of the minutes of resolutions of the supervisory board of a simple stock company. Previously, the minutes had to list the members of the body participating in the vote and include the wording of the resolutions passed and the result of the vote. Under the amendment, the minutes of a meeting of the supervisory board of a simple stock company will have to include the names of the members participating in the vote, the wording of the adopted resolutions and the result of the vote, as well as any dissenting opinion by a member of the board and justification. Unlike in the case of a limited-liability company, it is not required to indicate the agenda.
In the case of the supervisory board of a joint-stock company, the provisions on the minutes of the management board will apply as relevant. Thus the minutes of a meeting of the supervisory board of a joint-stock company should contain virtually the same elements as the minutes of a meeting of the supervisory board of a limited-liability company.
Report on the activities of the supervisory board
Along with expansion of the powers of supervisory boards, the parliament imposed new responsibilities on this body. Under the amendment, supervisory boards will be required to prepare and submit an annual report on their activities for the previous financial year. In the explanatory memorandum to the act, the drafters pointed out that the report on the activities of the supervisory board will perform an analogous function to the company’s business report, “a source of information on the work of the supervisory board and a basis for evaluating this work.” In the case of a limited-liability company or a simple stock company, the extent of the information provided will depend on the practice adopted by the given company, and in particular will probably depend on the scale of the activity and the shareholders’ requirements. With regard to a joint-stock company, the act specifies the minimum content of the supervisory board report, which should include:
- Results of evaluation of the management board report on the company’s activities and the financial statements for the past financial year
- Assessment of the company’s situation
- Evaluation of the management board’s implementation of its obligation to provide information to the supervisory board
- Evaluation of the manner in which the management board prepares and submits documents, reports or explanations to the supervisory board
- Information on the total remuneration of the advisers to the supervisory board for all commissioned studies.
Supervisory board with new powers: Our assessment
This amendment will significantly change the function of supervisory boards in companies, equipping them with new tools for exercising a real control function through a wider range of possibilities to request information or documents and the ability to appoint advisers to the board. At the same time, imposing reporting obligations on supervisory boards will allow the company’s owners to gain insight into the work of the supervisory board. This regulation should be evaluated positively, but only the practice will show to what extent it affects the activity of supervisory boards.
Wiktor Zborowski, Adam Strzelecki, M&A and Corporate practice, Wardyński & Partners
