On 13 October 2022, the amended provisions of the Commercial Companies Code will come into force. The amendment to the Commercial Companies Code, passed in February this year, introduces a whole range of new provisions and amends some of the existing regulations. The most significant change is the introduction of the law on groups of companies, regulated in the newly added Section IV of the Commercial Companies Code, which applies to a parent company and a subsidiary if they have adopted a resolution on participation in a group of companies, and to a company affiliated with the parent company if the articles of association or the articles of association of the affiliated company so provide.
However, in addition to the above, the amendment to the Commercial Companies Code also introduces changes regarding the operation of Supervisory Boards and Management Boards of capital companies.
Due diligence in the performance of duties
Until now, the requirement to exercise due diligence was regulated in Article 293(2) of the Commercial Companies Code; however, as a result of the amendment, this paragraph has been repealed, and the duty to exercise due diligence arising from the professional nature of the activities of the persons listed in that provision has been transferred to other regulations. The aforementioned obligation concerning members of the Management Board will therefore be governed by the new Article 2091 of the Commercial Companies Code:
- 1. In the performance of their duties, a member of the Management Board shall exercise the diligence required by the professional nature of their activities and shall remain loyal to the company.
- 2. A member of the Management Board may not disclose the company’s secrets even after the expiry of their term of office.
However, in accordance with legal doctrine, due diligence should continue to be understood as the diligence of a professional within the meaning of Article 355 § 2 of the Civil Code.
Business Judgement Rule
Paragraph 3 has been added to Article 293 of the Commercial Companies Code, introducing the so-called business judgement rule into our legal system.
A member of the management board, supervisory board, audit committee or a liquidator does not breach the duty of care arising from the professional nature of their activities if, whilst acting loyally towards the company, they act within the bounds of reasonable business risk, including on the basis of information, analyses and opinions which should be taken into account in the given circumstances when making a careful assessment.
This rule provides for a mitigation of the liability of the aforementioned persons for damage caused to the company in connection with the performance of their duties on behalf of the company, provided they acted loyally towards the company within the bounds of reasonable economic risk.
The purpose of introducing the regulation, according to the explanatory memorandum to the draft Act, was “to provide for the exclusion of liability for damage caused to the company as a result of decisions by its governing bodies which prove to be erroneous, provided that they were taken within the bounds of reasonable business risk and based on information appropriate to the circumstances”.
Provision of documents and information to the Supervisory Board upon request
The Supervisory Board has also been subject to a number of new regulations, including the ability to request that the Management Board provide it with information, documents, reports or explanations for the purpose of the Supervisory Board performing its duties.
Upon receipt of such a request, the Management Board will be obliged to provide the Supervisory Board with the information or documents without delay, no later than within two weeks of the date on which the request was submitted to the body or person concerned, unless a longer period is specified in the request.
Clarification of the provisions concerning the term of office of Management Board members
Calculating the terms of office of members of corporate bodies has always given rise to many doubts and disputes in legal doctrine. The legislator has therefore decided to resolve the issue and has added the following sentence to Article 202 § 2 of the Commercial Companies Code: “The term of office shall be calculated in full financial years, unless the articles of association provide otherwise”. Thus, if a member of a company’s Management Board has been appointed for a three-year term, we must take into account three full financial years of the term to determine when the mandate expires. The term of office of a member of the Management Board shall expire on the date of the shareholders’ meeting approving the financial statements for the last full financial year during which the member served as a member of the Management Board.
Minutes of Management Board resolutions
Finally, attention should also be drawn to the introduction of Article 2081 of the Commercial Companies Code, which establishes the principle of recording Management Board resolutions. The minutes should contain:
- the agenda
- the names and surnames of the Management Board members present
- the number of votes cast on individual resolutions
- any dissenting opinion submitted by a Management Board member, together with any supporting reasons, if submitted
The minutes shall be signed by at least the Management Board member chairing the meeting or conducting the vote, unless the articles of association or the Management Board’s rules of procedure provide otherwise.
Admittedly, in practice, resolutions of the Board of Directors were recorded in the minutes even in the absence of a statutory requirement; however, the above provision will likely contribute to standardising the practice applied to date and prevent deviations in this regard.
Frequently asked questions
What exactly is the duty of due diligence for a management board member after the amendment?
A management board member should exercise due diligence arising from the professional nature of their activities when performing their duties and maintain loyalty to the company. This duty also includes the prohibition on disclosing company secrets, which applies even after the expiration of the mandate.
What is the business judgment rule and when does it protect management board members from liability?
This rule mitigates liability for damage caused to the company if a management board member acted loyally and within the limits of justified business risk. Protection covers decisions based on adequate information, analyses and opinions that should be taken into account in a diligent assessment of the situation.
Within what timeframe must the management board provide documents and information upon request of the supervisory board?
The management board is obligated to provide the requested materials without delay, but no later than within two weeks from the day the request was submitted. This timeframe may be extended if the request itself specifies a longer period for fulfilling the obligation.
How is the term of office of a management board member of a limited liability company currently calculated?
The term of office is calculated in full financial years, unless the articles of association provide otherwise. The mandate expires on the day of the shareholders’ meeting that approves the financial statements for the last full financial year of holding the position.
What must the minutes of a management board meeting contain according to the new regulations?
The minutes should contain the agenda, names and surnames of present management board members, and the number of votes cast on individual resolutions. A dissenting opinion of a management board member should also be recorded along with its possible justification, if submitted.
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