Holding – what is it? New regulations

On 13 October 2022, one of the largest changes to date in the Commercial Companies Code (hereinafter: CCC) will come into effect. The amendment introduces the concept of a so-called holding (group of companies) into Polish legislation, which regulates private-law relations between the parent company and its subsidiaries, taking into account the interests of creditors, members of governing bodies, and minority shareholders of the subsidiary. The Act will also grant new powers to supervisory boards, aimed at more effective corporate governance.

Holding – what is it?

The amendment defines the concept of a holding (or group of companies) as –

“A parent company and a subsidiary participating in a group of companies shall act in the interest of the group of companies alongside the interest of the company, provided this does not harm the creditors or minority shareholders of the subsidiary.”

A holding thus means a full form of association/co-organisation of related companies. The Act assumes that a distinction should be made between a “group of companies” (which is essentially the addressee of the legal regulation known as holding law) and the relationship of domination and dependency between companies referred to in Article 4 § 1 point 4 of the CCC. A group of companies is a “qualified” relationship of domination and dependency between certain companies forming the group, as these companies pursue a common business strategy justifying the parent company’s exercise of unified management over one or more subsidiaries.
Also read: Tax form PIT-11 from a bailiff – how to settle?

Binding instructions for subsidiaries

The most significant of the introduced changes will be the enabling of the parent company to issue binding instructions to the subsidiary regarding the management of company affairs, if justified by the interest of the group of companies and provided that special provisions do not state otherwise. A binding instruction must be issued in writing or electronically under pain of nullity. The mere issuance of an instruction does not yet authorise the subsidiary to implement it. The execution of the binding instruction by a subsidiary participating in the group of companies requires a prior resolution of the subsidiary’s management board.
According to the Act, a binding instruction must specify at least:

1. the behaviour expected by the parent company from the subsidiary in connection with the execution of the binding instruction;
2. the interest of the group of companies justifying the execution of the binding instruction by the subsidiary;
3. the expected benefits or harms to the subsidiary that will result from executing the binding instruction, if any;
4. the anticipated manner and deadline for compensation to the subsidiary for any damage incurred as a result of executing the binding instruction.

The Act provides for liability of the parent company for the consequences of issuing a binding instruction subsequently carried out by a subsidiary within the group of companies. The parent company will be liable towards:

1. the subsidiary,
2. creditors of the subsidiary,
3. minority shareholders of the subsidiary.

To enable the parent company to effectively manage the group of companies – alongside binding instructions – the Act introduces:

1. the right of the parent company to access information about subsidiaries. This explicit regulation is necessary in cases where the subsidiary is a joint-stock company. Otherwise, such a broad scope of information access by the parent company, as a shareholder in the subsidiary, would be excluded under Article 428 of the CCC,
2. the right of the parent company’s supervisory board to exercise ongoing supervision over subsidiaries within the group, but only in respect of protecting the interest of the group of companies,
3. the right to compulsory purchase of shares or stocks held by minority shareholders in the subsidiary, so-called squeeze-out.

Commercial Companies Law – changes:

Other proposed changes to the Commercial Companies Code mainly include:

• an obligation for management boards to provide certain information about the company to the supervisory board on their own initiative;
• clarification of the supervisory board’s right to demand preparation or provision of information, documents, reports, or explanations;
• the right to appoint an advisor to the supervisory board without management board involvement;
• approval of significant-value transactions with the parent company, subsidiary, or affiliated company;
• regulation of terms of office and mandate of management bodies;
• introduction of a duty of loyalty and confidentiality even after the supervisory board member’s term has ended;
• introduction of the Business Judgement Rule into the CCC provisions;
• extension of Article 203 § 3 and Article 370 § 3 of the CCC to include other cases of mandate termination;
• regulatory provisions – extending the obligation to record minutes for resolutions adopted via remote communication means and specifying voting majorities for supervisory board resolutions in limited liability companies.

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