In the next post in our Compliance series, we will discuss the powers of the supervisory board in companies. Our experience shows that individuals appointed to this body often downplay the responsibilities associated with serving as a member of a company's supervisory board or are unaware of the obligations incumbent upon them. We also point out that one of the largest amendments to the Commercial Companies Code in years will enter into force in October of this year. In addition to changes related to holding company law, the amendment also includes provisions concerning the functioning of company bodies, including granting new powers to the supervisory board and modifying the rules of liability for its members. The amendments to the Commercial Companies Code, which will enter into force in the second half of 2022, will be presented and discussed in detail in subsequent posts in our series.
Today's article will, of course, begin with a brief description of the supervisory board.
The supervisory board, as its name suggests, is a body whose primary responsibility is to oversee the ongoing operations of a given enterprise. Although its primary responsibility is to monitor the company's activities, it should be noted that this body is equipped with tools to intervene if irregularities are detected in the company's operations. Among other things, it can request information and explanations, provide guidelines, and interfere (albeit not directly) in the company's operations.
In the case of limited liability companies, a supervisory board (or audit committee) must be established if the share capital exceeds PLN 500,000.00 and there are more than twenty-five shareholders. In all other cases, the establishment of a supervisory board in a limited liability company is voluntary. Due to the scale of the business and the complex structure, a supervisory board (regardless of the number of shareholders or share capital) is mandatory in joint-stock companies . Therefore, in the following sections, we will focus exclusively on the supervisory board in joint-stock companies.
General requirements for members of the supervisory board of a joint-stock company
The supervisory board consists of at least three members, and in public companies at least five, appointed and dismissed by the general meeting. The articles of association may provide for a different procedure for appointing or dismissing supervisory board members. Only a natural person with full legal capacity may be a member of the supervisory board. However, these are not the only criteria – the Polish legislator has decided to strictly separate supervisory powers from other functions of an organizational and management nature by introducing a ban on combining positions with serving as a supervisory board member . Pursuant to Article 387 of the Commercial Companies Code, the following persons cannot simultaneously be members of the supervisory board:
- member of the board,
- proxy,
- liquidator,
- branch or plant manager
- the chief accountant employed in the company,
- a legal advisor or attorney employed by the company.
The prohibition of combining positions referred to above also applies to other persons who are directly subordinate to a member of the management board or a liquidator (387 § 2 of the Commercial Companies Code), as well as to members of the management board and liquidators of a dependent company or cooperative (387 § 3 of the Commercial Companies Code).
Supervisory board members are appointed for a term of office of no more than five years, but the same person may be reappointed to the supervisory body for subsequent terms of office, each no longer than five years, provided the appointment occurs no earlier than one year before the end of the current term. The term of office, which represents the period of time a given position is held, should be distinguished from the term of office, i.e., the authority to hold that position . If the articles of association provide that management board members are appointed for a joint term of office, the mandate of a management board member appointed before the end of the management board's term of office expires simultaneously with the expiration of the mandates of the remaining management board members , unless the company's articles of association provide otherwise. The mandate of a member of the supervisory board of a joint-stock company expires no later than the date of the general meeting approving the financial statements for the last full financial year in office, as well as upon death, resignation, or dismissal from the management board.
Scope of duties and powers of the supervisory board
The supervisory board should be convened by its chairperson as needed, but no less than three times per financial year. Election of the chairperson of the supervisory board is mandatory – the person holding this position, among other things, schedules meeting dates, organizes the work of the supervisory body, and chairs it.
The supervisory board's specific responsibilities include assessing the financial statements and the management board's report on activities for consistency with accounting records and documents, as well as with the factual circumstances. It also reviews the management board's proposals regarding the distribution of profit or coverage of losses. It also submits an annual written report on the results of this assessment to the general meeting . To fulfill its responsibilities, the supervisory board may review all company documents, request reports and explanations from the management board and employees, and review the company's assets. The supervisory board's responsibilities also include appointing, dismissing , and suspending (for important reasons) individual or all members of the management board, and delegating members of the supervisory board, for a period of no longer than three months, to temporarily perform the duties of management board members who have been dismissed, resigned, or are otherwise unable to perform their duties.
The supervisory board approves the company's business plans, analyzes decisions made by the management board, and reviews the company's assets. Another important power of the supervisory board may be to introduce into the statute the requirement for the management board to obtain consent from this body before carrying out certain actions (in the event of refusal, the management board may request the general meeting to adopt a resolution granting consent to the action).
Liability of supervisory board members
As mentioned at the outset, supervisory board members have numerous obligations that must be performed in accordance with the law and with due diligence. Supervisory board members may be held accountable for unlawful actions, actions undertaken with inadequate due diligence, or blatant omissions. Examples of actions detrimental to the company committed by members of this body include mismanagement, the offense of disclosing false information (Article 587 of the Commercial Companies Code), and violations of financial reporting penalties such as fines, restriction of liberty, or even imprisonment for damage caused to the company .
In summary, the supervisory board is an important body with broad powers. Due to its extensive powers, serving as a supervisory board member is subject to liability for damages caused to the company. This is intended to discipline board members and limit negligence in performing this function.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of April 26, 2022
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