As of October 13th, 2022, a major reform of corporate oversight regulations will take effect. It has significant implications for those who serve as members of supervisory boards (rady nadzorcze), on how they perform their duties and on their individual liability towards their companies. Equally importantly, the upcoming changes should be carefully analyzed by shareholders (particularly of limited liability (z o.o.), and joint-stock companies (s.a.)) to assess how these changes will affect their companies’ operations and whether there is a need to adjust their companies’ documents, such as articles, statutes, and/or regulations.
Duties and liability of supervisory board members
The new regulations seem to finally settle the long-lasting controversy concerning the duties of supervisory board members and the grounds for their personal liability. In particular, the amended law stipulates that the independent duty of a supervisory board member is to perform their duties with due diligence, resulting from the professional nature of the function, and with loyalty. Deficiencies in this regard may constitute an independent basis for liability, if they contribute to damage to the company, even if no additional provision of law or any of the company’s articles have been breached.
At the same time, an explicit reference to protection of the business judgment rule has been introduced into the law. The newly implemented regulations provide, namely, that the company’s directors will be exempt from liability for losses resulting from their actions, provided that their actions were within the framework of legitimate business risk and were taken with loyalty to the company. The assessment of whether the risk was legitimate will be made taking into account all of the information, analysis and opinions that could reasonably have been expected to be gathered in the given situation.
The two above-mentioned changes have important implications for the way supervisory boards and their individual members perform their functions. They underscore the importance of proper organization of the decision-making process, collection of sufficient material to make an informed decision, and proper documentation of the whole process.
Provision of documents and information to supervisory boards
The amended regulations extend the scope of the persons obliged to provide information and documents at the request of the supervisory board. In addition to members of the company’s management board and the company’s employees, this group will now also include the company’s commercial proxies (prokurenci) and other persons permanently performing activities for the company on a basis other than an employment contract. These requests will have to be fulfilled within two weeks.
Furthermore, the management boards of joint-stock companies will be obliged to continually provide their supervisory boards with a relatively wide range of information, without the need for a specific request by the supervisory board. This range of information primarily covers information about resolutions passed by the management boards and all circumstances relevant to the companies’ operations and assets. It will, however, be possible to exclude this obligation in a company’s articles (statut spółki). One may be concerned that in situations where no such exemption is provided for, this regulation may lead to the practice of flooding supervisory boards with all sorts of more or less important information, just to make sure that this obligation is not violated. Needless to say, this has the potential to make supervision much more difficult.
Supervisory board advisors
Overseeing a company’s operations often requires expertise that cannot always be expected even of professional members of a supervisory board. With this in mind, supervisory boards have been given authorization to use the services of specialists with the necessary knowledge to advise the supervisory boards on certain matters. In particular, supervisory boards will be able to commission on behalf of their companies such advisors with the task of investigating specific issues, as well as requesting analyses or opinions concerning specific problems. Importantly, this will not require the approval or even the knowledge of the management board.
The availability of this option in a given company will, however, depend on a shareholders’ decision. Namely, the supervisory boards of limited liability companies will be able to use the right to appoint an advisor, provided that a special provision is introduced in their companies’ articles (an opt in approach). On the other hand, in joint-stock companies, supervisory boards will be able to make use of advisors, unless this right is specifically excluded or limited in the company’s articles (an opt out approach).
Activities of the supervisory board and the role of the chairperson
The role of the chairperson will now be regulated in more detail. The newly introduced regulations specifically obligate and authorize the chairperson of the supervisory board to direct and organize the board’s activities, including convening meetings when needed. Meetings are to be convened by means of notices, which must contain the minimum amount of information specified by the amended regulations. Most importantly, they should specify the time, place, and agenda of the meeting.
Also new are the provisions according to which supervisory boards may adopt resolutions at convened meetings on matters not foreseen in their announced agendas. The members present at the meeting will be entitled to object to the adoption of resolutions on such matters. Importantly, however, the presence of all members of the supervisory board will not be required. As a result, members who, for whatever reason, do not attend a meeting may be surprised by resolutions validly adopted in their absence. The possibility of adopting resolutions on matters not included in an announced agenda may be excluded in a company’s articles.
In addition, the minimum content of the minutes of a supervisory board meeting has also been specified. The minutes will have to include the resolutions adopted at the meeting, a list of the members present, the results of votes, and dissenting minority opinions expressed at the meeting.
The new regulations specify the minimum frequency of supervisory board meetings, requiring that the supervisory board meet at least once a quarter.
Annual report of the supervisory board
An obligation has been imposed on supervisory boards to submit annual reports on their activities to their shareholders. For joint-stock companies, the new law specifies the minimum content of this report. In particular, the report should include a general assessment of the company’s situation and an assessment of the management board’s compliance with the requirements enabling oversight of its activities. In limited liability companies, the content of the report is to be decided by the shareholders, or, if the shareholders fail to decide in this regard, by the supervisory board itself.
Supervisory board approval for transactions with related companies
The conclusion of transactions by a joint-stock company with a related company will require the approval of the supervisory board if the value of this transaction exceeds 10% of the value of that joint-stock company’s assets. When calculating the value of the transaction, the value of all other transactions with that same related company from a given fiscal year must be taken into account. In order to enable the supervisory board to make an informed decision in this regard, the management board will be required to provide the supervisory board with a whole range of information that may be relevant to this decision, as specified in the introduced regulations.
The requirement to obtain supervisory board approval for related party transactions may be excluded by a company’s articles. Moreover, this requirement will not apply to companies listed on regulated markets. Likewise, such an obligation will not apply to companies that are part of so-called „capital groups,” which will now be able to form on the basis of the provisions on holdings of companies that will enter into force at the same time.
The presence of a key auditor at supervisory board meetings
As of the entry into force of the amendments, supervisory boards will be required to notify the key auditors that conducted the legally required audits of their companies’ financial statements, of any meetings devoted to discussing those statement. At the same time, companies will be required to ensure the presence of this auditor or another representative of the auditing firm at the supervisory board meeting. This is to ensure that supervisory board members have the opportunity to ask questions and obtain the explanations needed to consider the financial statements. In practice, this will translate into the need for a specific provision in audit contracts that would oblige audit firms to guarantee the presence of their representatives at supervisory board meetings.
The points discussed above are the most important changes brought about by the amendment to the regulations on supervisory boards. They undoubtedly create the need to re-examine the content of companies’ documents and consider possible adjustments. Likewise, members of supervisory boards should be ready and prepared to change the way they perform their duties to guarantee their good legal standing in light of the amended regulations.