Holding law – a step in the right direction?
On 13 October 2022, new legislation amending the Commercial Companies Code came into force. Has the legislator responded to the needs and expectations of entrepreneurs?
The idea behind the changes to the Commercial Companies Code was to regulate the relations between companies that are part of holdings, by giving them a normative framework in the rank of a bill. Of importance, the new provisions establish a legal definition of a group of companies, which makes the application of the provisions on the unitary management of the dominant company conditional on the resolution of the entities involved to participate in such a group. Companies involved in a group will be governed by the interest of the entire group in addition to the interest of the company, which will affect the scope of duties and responsibilities of members of executive bodies.
As pointed out by the author of the new regulation, Prof Andrzej Szumański, Head of the Department of Private Business Law at the Jagiellonian University, the new provisions will significantly contribute to reduction of the legal risks associated with the functioning of multi-entity business organisms.
Will the amendment genuinely contribute to reducing legal risks in the operation of holding groups?
Pivotal from a systemic perspective, the changes that came into force in the first half of October 2022 are first and foremost to give entrepreneurs the tool to formalise the procedures to issue of instructions by the parent company and their implementation by the subsidiary.
The central terminus under Article 212 § 1 CCC. becomes the interest of a group of companies, on the existence of which the parent company’s ability to issue a binding instruction to a subsidiary will depend. In order to be effective, such a disposition must be given in writing or electronically under sanction of voidness and must contain: the requested course of conduct, the group interest justifying its execution, a description of the expected loss or benefit to the subsidiary and the anticipated manner and timing of compensation to the subsidiary for the damage, if any.
The execution of the disposition itself will be preceded by a resolution of the subsidiary’s management board, which is to at least contain the elements required for a binding disposal of the parent company. The amendment sets a limit for the eligibility of the consent to the execution of a disposal by a subsidiary excluding it in case of insolvency or threat of insolvency of that company.
The new provision of Article 215 of the Commercial Companies Code excludes civil liability for damage resulting from the execution of a binding order of the parent company of persons performing executive functions in the subsidiary, and in its place the legislator introduces liability of the parent company for in front of subsidiary’s creditors in the event of ineffective enforcement and culpability or occurrence of damage as a result of the issuance of a binding disposition.
The above indicated changes introduced by the legislature, are only some of the important elements introduced by the amendment. A final assessment of the holding company law will have to wait for some time. The new law must start to ‘live’ and prove itself in corporate and judicial practice before verdicts can be made. However, given the voluntary nature of the application of group company law, which depends on the resolutions of the stakeholders, the proposal of the legislator should be regarded as interesting.
In finding added value for specific companies and holding companies in the new regulations, our experts are happy to assist market participants.