Legal guide for company directors and CEOs in Poland

  1. ESG obligation for Directors and CEOs
    1. 1. Do existing directors’ duties contain obligations that apply to matters that could be categorised as an ESG consideration, e.g. the environment, employee welfare? 
    2. 2. Are there other obligations of directors that relate to ESG considerations, e.g. health and safety, gender pay inequality, etc.?
    3. 3. What recent changes have occurred or are expected with respect to directors’ responsibilities in relation to ESG considerations?
    4. 4. What obligations do directors have in relation to ESG disclosure and/or reporting?
  2. Directors duties and responsibilities
    1. 1. What form does the board of directors take?
    2. 2. What is the role of non-executive or supervisory directors?
    3. 3. Who can be appointed as a director?
    4. 4. How is a director appointed?
    5. 5. How is a director removed from office?
    6. 6. What authority does a director have to represent the company?
    7. 7. How does the board operate in practice?
    8. 8. What contractual relationship does the director have with the company?
    9. 9. What rules apply in respect of conflicts of interest?
    10. 10. What other general duties does a director have?
    11. 11. To whom does the director owe duties?
    12. 12. How do the director’s duties change if the company is in financial difficulties?
    13. 13. What potential liabilities can a director incur?
    14. 14. How can a director limit his/her liability?
  3. Coronavirus (COVID-19) considerations for directors
    1. 1. What are the key issues for directors during the COVID-19 crisis?
    2. 2. What government relief measures have been made available to directors?
    3. 3. What changes have been made to directors’ duties as a consequence of the COVID-19 crisis?

ESG obligation for Directors and CEOs

1. Do existing directors’ duties contain obligations that apply to matters that could be categorised as an ESG consideration, e.g. the environment, employee welfare? 

Directors (management board members of limited liability companies) have certain obligations that could be categorised as ESG considerations. Those obligations include:

  • Environment – there are no specific obligations for directors in Poland regarding care for nature. Depending on the scope of a given company’s activity, such obligations may be imposed on the company (therefore they will in most cases be exercised by its directors, or it will be the directors’ obligation to entrust someone with the obligation), but no general provisions on directors’ duties have been introduced
  • Social – the directors’ relationship with a company’s employees is subject to strict labour law regulations. The law forbids any discrimination on the grounds of gender etc. (for details please see question 2 of this section), mobbing and/or employee mistreatment. It also imposes certain rules with regard to working hours, holiday leave etc. With regard to third parties (i.e. suppliers, customers etc.), directors should act in the best interest of the company and with professional care. Directors in Poland do not have any specific obligations towards the communities where they operate
  • Governance – the general rules of a company’s corporate governance are outlined in the provisions of law (please see the main part of this guide where most of those provisions are described), supplemented by the articles of association and any management board by-laws (if introduced – management board by-laws are not obligatory). In general, these include the division of duties between the shareholders and directors (and the supervisory board if applicable), and the relationships between them (including the obligation to obtain shareholders’ consent for certain actions and the shareholders’ right of control over directors’ actions). There are no obligations regarding audit or internal control imposed on directors, although the company’s annual financial statements may be subject to audit if the company: (i) employs more than 500 workers in full-time equivalents; (ii) exceeds PLN 85,000 total balance sheet assets at the end of the financial year; or (iii) exceeds PLN 170,000,000 in net revenue from the sale of goods and products for the financial year.

2. Are there other obligations of directors that relate to ESG considerations, e.g. health and safety, gender pay inequality, etc.?

If a company employs employees, labour law imposes certain ESG considerations regarding safety of the workplace, pay equalities, discrimination etc.

Firstly, directors are obliged to ensure the occupational safety and health of employees. Any violation of these rules (regardless of whether an accident occurred as a consequence or not) is punishable by fines from PLN 1,000-30,000 or approximately EUR 220-6,600.

Additionally, the law prohibits any discrimination of employees (both current and potential) on any grounds including gender, race, religion etc. As a result, no difference in salaries can be made based solely on gender.

3. What recent changes have occurred or are expected with respect to directors’ responsibilities in relation to ESG considerations?

Currently, there are no expected changes with regard to directors’ ESG duties.

However it is possible that within a couple of years, due to the current political focus on environmental and social aspects, new ESG duties will be imposed on directors by statutory law.

4. What obligations do directors have in relation to ESG disclosure and/or reporting?

In general, there are no directors’ obligations related to ESG disclosure and/or reporting.

Certain listed joint-stock companies should comply with the so-called “Good practices of the listed companies” that require periodic reports to contain information on e.g. the number of male and female employees. However, this is not an obligation imposed by law, rather by official guidelines, therefore non-compliance does not result in sanctions etc.


Directors duties and responsibilities

1. What form does the board of directors take?

Polish law divides the decision-making and supervisory powers in a limited liability company between two separate bodies: the management board and the supervisory board.

The management board is a mandatory body that runs the day-to-day business of a limited liability company and represents the company before third parties.

A supervisory board is not usually mandatory. A supervisory board is only compulsory if the share capital of the company exceeds approximately EUR 110,387 (PLN 500,000) and the company has more than 25 shareholders.

2. What is the role of non-executive or supervisory directors?

The management board of a Polish limited liability company comprises executive directors and the supervisory board comprises non-executive – thus supervisory – directors. Generally, the supervisory board may not impose any binding instructions regarding the management of the company, however, its powers may be extended to approving major decisions regarding the company. The supervisory board mainly performs monitoring and control functions over the company’s business activity.

3. Who can be appointed as a director?

There are certain restrictions on who can become a management board member.

In particular, only a natural person may be appointed to the management board. Polish law does not allow companies or legal persons to be appointed to boards.

Furthermore, a management board member must have full capacity to undertake legal actions and must not have been sentenced (within the last 5 years) for crimes against inter alia property and credibility of documents, or for acts conducted to the detriment of the company’s interest.

It is also important to note that:

  • a management board member may not at the same time be a supervisory board member in the same company, and
  • within a group of companies, a management board member of a subsidiary company cannot be a supervisory board member of the parent or holding company.

Further restrictions may apply to companies acting in regulated sectors, for example banking, insurance or betting services.

4. How is a director appointed?

Generally, the articles of association provide the method of appointment of a management board. Usually, management board members are appointed by shareholders. However, the articles of association may set out a different method of appointment, for example, by a resolution of the supervisory board or by means of designation by a shareholder or a third party.

The articles of association may provide that an appointment to the management board is for either a fixed term or an unlimited period of time. If the articles of association say nothing on that matter, or if the appointment is for an unlimited period, then the mandate of a member of the management board expires on the date of the general meeting which approves the financial report for the first full financial year of his/her service as a member of the management board.

Generally, the appointment is effective immediately, but the resolution can specify that the appointment will be effective on a certain date or when an event occurs. Nevertheless, the appointment requires registration with the National Court Register for public information purposes. The registration process usually takes between 3 and 5 weeks.

5. How is a director removed from office?

A management board member may be removed from the management board by means of dismissal, resignation or due to other factors.

A management board member may resign from his/her position at any time by providing written notice to the company.

A management board member may be dismissed at any time without a reason, unless the articles of association provide otherwise. Usually the dismissal method is provided in the articles of association. If the articles of association do not stipulate any dismissal methods, then a shareholders’ resolution is required to dismiss a management board member.

Other removal factors include death or conviction of certain criminal offences.

6. What authority does a director have to represent the company?

A management board member has the authority to both manage and represent the company.

The articles of association set out the rules on how a management board member runs the company. If the articles of association say nothing on this subject, then:

  • each management board member may manage the company individually to the extent his/her decisions do not exceed the scope of the ordinary acts of the company, and
  • a management board resolution is required for acts exceeding this scope.

The articles of association may set out the rules on how a management board member represents the company with regard to third parties. If the articles of association say nothing in this respect, then the company is represented by two management board members or by one member acting jointly with a commercial proxy.

A management board member’s right to represent the company cannot be effectively limited with regard to third parties other than by imposing a joint representation requirement by the articles of association.

7. How does the board operate in practice?

Generally, the Polish Commercial Companies Code permits a wide flexibility regarding management board operations. The functioning of the management board is largely dependent on the provisions of the articles of association and on the number of management board members.

If the management board is composed solely of one member, there is no need to conduct a management board members’ meeting. The management board member can conduct a large variety of actions independently, however certain decisions should be authorised either by supervisory board resolution or shareholders’ resolution (usually the articles of association provide a list of actions which need authorisation).

If the management board is composed of more than one member, certain decisions (generally those exceeding the ordinary scope of business) should be adopted in the form of a resolution. Each management board member should be notified of a management board meeting and be able to participate in it. Sometimes the duties of the management board are divided between its members.

Since the COVID-19 crisis, meetings can be held via means of electronic communications and resolutions may be adopted online unless the company’s articles of association explicitly prohibit this method.

8. What contractual relationship does the director have with the company?

Appointment to the management board establishes a legal relationship between the company and the newly-appointed management board member. The scope of this relationship is regulated by Polish law, the company’s articles of association and the content of the resolution approving the appointment.

The appointment does not in itself constitute a contractual relationship with the company, or entitle a manager to remuneration for services provided.

That is why appointment to the management board is often supplemented by an additional contract, for example a management contract, a service contract or an employment contract. The choice of contract depends on various factors such as tax efficiency, stability, supervision, etc. These agreements establish a contractual relationship with the company and regulate, among other things, remuneration issues and duties.

9. What rules apply in respect of conflicts of interest?

A management board member cannot, without the consent of the company:

  • engage in a competing business
  • participate as a partner in a competing partnership, or as a member of a governing body of a competing capital company
  • participate in another competing legal person as a member of its governing body, or
  • hold more than 10% of shares or have the right to appoint at least one member to the management board in a competing company.

10. What other general duties does a director have?

Generally, a management board member is required to manage the affairs of the company and to represent the company in all court proceedings and out-of-court dealings of the company.

In particular, a management board member:

  • is obliged to perform his/her actions with a level of due care that corresponds to the professional character of his/her function
  • cannot, without the consent of the company, be involved in any entity which competes with the company
  • is obliged to avoid conflicts of interest, and
  • should act in the best interest of the company.

11. To whom does the director owe duties?

The management board member’s duties are owed to the company itself, rather than to its shareholders. In practice this also means acting in the best interests of the shareholders as a whole.

12. How do the director’s duties change if the company is in financial difficulties?

Management board members can be held (jointly and severally with the company itself) liable if the execution proceedings against the company are ineffective and the company’s creditors are not satisfied. However, management board members are released from the liability if they have, in appropriate time, filed a petition for bankruptcy or shown that at that time, a ruling on the opening of restructuring proceedings or on the approval of an arrangement in the proceedings in the matter of approving the arrangement was issued. Additionally, even if a management board member did not file a relevant motion in the appropriate time, he/she can be released from the liability if it was not his/her fault that such a motion was not filed, or that the creditor did not sustain any damage despite the fact that the petition was not filed and no ruling on the opening of restructuring proceedings was issued or no arrangement was approved in the proceedings in the matter of approving the arrangement.

Moreover, if a company is in financial difficulties, the management board must act cautiously to avoid potential criminal liability, for instance for (i) frustrating or limiting the satisfaction of the company’s creditors by legally establishing a new business entity and transferring the assets into it, or (ii) repaying or satisfying only some of the creditors, thereby acting to the detriment of others.

Therefore, management board members should always seek professional advice and be well-orientated in the company’s financial standing.

If, due to financial difficulties, the company is to be liquidated, management board members turn into the company’s liquidators. Their primary task is to wind up all the company’s business, satisfy all the creditors and divide the remaining estate.

13. What potential liabilities can a director incur?

A management board member may be liable for the performance of his/her duties under civil, criminal and organisational liability.

Civil liability is liability for damage. A management board member is liable towards a company, and may be liable towards shareholders and third parties (in particular the company’s creditors), as the case may be, under:

  • general rules on liability, and
  • rules on liability set out in the Commercial Companies Code.

Under the general rules on liability, a person who culpably causes damage is obliged to compensate for such loss. This provision sets out a general base for 'tortious' liability of a management board member. To be successful, the claimant must prove that it suffered damage due to the culpable acts of the management board member, which may be difficult in practice. Therefore, claims based on this general provision are very rare.

Under the Commercial Companies Code, a management board member is liable towards the company for the damage the company suffered due to the member’s acts. To hold a management board member liable, all of the following conditions must be met:

  • the company must suffer damage
  • the damage must result from an act or omission of the management board member that breached either the law or the articles of association
  • the management board member’s act must be culpable and he/she must have failed to maintain the standard of due professional diligence.

If more than one management board member caused damage, all members involved may be jointly and severally liable.

Management board members may be held jointly and severally liable with the company for its obligations if enforcement against the company proves to be ineffective, provided that they did not, in appropriate time, file a petition for bankruptcy or show that at that time, a ruling on the opening of restructuring proceedings or on the approval of an arrangement in the proceedings in the matter of approving the arrangement was issued. However, they can be exempted from this liability if they prove that a petition was filed in due time, or that they were not at fault, or that the creditor did not sustain any damage despite the fact that the petition was not filed or no ruling on the opening of restructuring proceedings was issued or no arrangement was approved in the proceedings in the matter of approving the arrangement.

A management board member may be criminally liable for various intentional acts or omissions. An offence is committed with intent if the perpetrator has the will to commit it, that is, is willing to commit the offence or, foreseeing the possibility of perpetrating it, chooses to do so. However, Polish law also penalises certain situations where an offence is committed unintentionally.

Organisational liability of a management board member means that a management board member can be dismissed from his/her position at any time.

14. How can a director limit his/her liability?

A number of legal tools are available for management board members which mitigate the risk that any civil or criminal claims will be successful. However, in the case of court proceedings, this is always subject to the court to decide if the circumstances presented by a management board member are sufficient to release him/her from liability.

The tools available include:

  • proving lack of fault and application of professional care
  • implementing an internal division of responsibilities
  • obtaining the approvals of the supervisory board or shareholders’ meeting, or
  • taking out civil liability insurance cover.

Coronavirus (COVID-19) considerations for directors

1. What are the key issues for directors during the COVID-19 crisis?

Logistics

Management board members should address the logistical challenges caused by the COVID-19 crisis which include international lockdown and social distancing. The day-to-day operations of various companies will be disrupted, and many fields of activity will suffer due to the current situation. Depending on the area of its business, a company’s activity may have to adjust to the current reality, changed by the imposition of different restrictions.

Additionally, during the crisis, it may be difficult for directors to hold meetings in the normal way. The newly-introduced legislation allows for online management board meetings and for the online adoption of resolutions. The regulations also prolong the deadline to prepare and approve financial statements.

Solvency

Undoubtedly the most important concern is to maintain the company’s solvency. As it is not yet known how long the imposed restrictions will last and how big their impact will be on the economy, it is essential for management board members to have ready different plans suitable for various scenarios. That will require both detailed assessment of the company’s financial situation and the ability to foresee possible future developments of the situation, based on specialised and relevant data.

In the case of a realistic threat of insolvency, management board members should carefully assess the situation, seek professional advice, inform the shareholders and supervisory board members, and conduct their obligations resulting from the relevant provisions of Polish law.

Risk

It is almost certain that no matter the scope of its activity, every company will be affected by the COVID-19 crisis. Management board members will be faced with various issues and will have to make difficult decisions. It is always important to remember that the management board member should act in the best interest of the company itself, and not in the best interest of a particular shareholder or parent company. The most important risks that should be somehow resolved by management board members include the safety of employees, safe working conditions and new logistics.

2. What government relief measures have been made available to directors?

The Polish Government has recently adopted a set of bills called the “Anti-crisis shield” aiming at protecting various businesses from the negative effects of the COVID-19 crisis. The main protective measures concern:taxes – payment in instalments of tax receivables, deferral of tax arrears, limitation on the collection of advances for income tax, cancellation of tax arrears, deferral of payment of tax liabilities

  • social security payments – exemption from the obligation to pay contributions for companies hiring less than 50 employees, deferral or payment in instalments of contributions for social security
  • other measures depending on the scope of a company’s activity.

Directors’ duties regarding an obligation to file a motion to declare bankruptcy have been changed due to the Coronavirus situation. Article 21 of the Insolvency law requires that management board members file an application for declaration of bankruptcy of the company within 30 days of the day on which the reason for bankruptcy occurred. The newly-introduced legislation states that if:

  • the company’s bankruptcy is caused by the COVID-19 crisis, and
  • the reason for bankruptcy occurred during the state of epidemiological threat or the state of epidemic declared due to the COVID-19 crisis,

the time limit to submit a motion to declare bankruptcy does not start, and if it has already started, it becomes suspended. Once the end of the state of epidemiological threat or the state of epidemic is declared, the 30-day time limit will start to run. It is also presumed that if the state of insolvency began during the COVID-19 crisis, it was caused by it.

At the time of completing this guide, the government has adopted two so-called “Anti-crisis shields”. A third “Anti-crisis shield” is currently being discussed in Parliament, thus it is expected that more protective measures will be introduced.

More information can be found on the government website.

3. What changes have been made to directors’ duties as a consequence of the COVID-19 crisis?

Management board meetings may now be held online, specifically via means of teleconferences or videoconferences, even if such possibility is not envisaged in the articles of association of the company. The management board may adopt resolutions during online meetings unless the articles of association of a limited liability company prohibit such a method.

Additionally, the newly-introduced legislation allows for a delay in the preparation of a company’s financial statements and their approval by the annual shareholders’ meeting: if the company’s financial year finished after 29 September 2019 but before 30 April 2020 (and the standard deadline resulting from the provisions of the Polish Accounting Act did not lapse before 31 March 2020), the deadline to conduct the ordinary shareholders’ meeting is delayed by 3 months.

Rafał Burda