A contract concluded by the company with the spouse of a board member without the consent of the general meeting is invalid

Does a conclusion of a surety agreement between the company and the spouse of a member of the company’s management board require the consent of the general meeting? According to the Supreme Court of Poland, yes, although this does not dispel all doubts as to the application of this provision.

On 12 January 2022, the Supreme Court adopted a resolution in case no. III CZP 67/22, according to which in a situation where a capital company concludes a surety agreement for the debt of the spouse of a member of the company’s management board who remains in a system of joint property with him, the consent of the general meeting or shareholders’ meeting is required for the validity of such an agreement.

Facts of the case

The case arose from the following situation. A joint-stock company guaranteed the debt of two spouses who remained in a regime of joint property with each other. The general meeting did not approve the conclusion of such an agreement, although it should have done so in view of the fact that one of these debtor spouses, for whose debt it was guaranteed, was a member of the Management Board of the company.

Subsequently, presumably as a result of a lawsuit against the spouses, a creditor of the spouses obtained an enforcement title against the company (acting as the guarantor). The company appealed this ruling, demanding that the entire enforcement title be rendered unenforceable, but the court of first instance considered this demand only to the extent of the surety for the debt of the spouse who was a member of the Management Board, upholding the enforcement title in the part concerning the obligation of the spouse who was not a member of the company’s governing bodies. Thus, it was held that a contract concluded with the spouse of a member of the Management Board, with whom he remains in a joint property system, is not an agreement “for the benefit of a member of the Management Board” within the meaning of Article 15 § 1 of the Commercial Companies Code. The case went to the appellate court, where the court decided to present the legal question to the Supreme Court:

“Does the conclusion by a joint-stock company of an agreement in which it guarantees the obligation of the spouse of a member of the Management Board of the Company, in the case of the existence of a joint property system between a member of the Management Board and his spouse, fall under the disposition of Article 15 § 1 of the CCC?”

Previous positions

The fact that, as far as a member of the Management Board is concerned, the surety agreement was, in accordance with Articles 15 § 1 and 17 § 1 of the CCC. invalid, there is no doubt. The problem, however, which has been disputed in the doctrine before, is the breadth of the expression used in Article 15 of the CCC. The phrase “for the benefit of”. According to some (see D. Kupryjańczyk [in:] Kodeks spółek handlowych. Komentarz, ed. by Z. Jara, Warsaw 2023, commentary to Article 15 and the literature cited therein), this provision should be interpreted as narrowly as possible due to its restrictive nature – in such a way that a benefit to a company officer is only a benefit to a third party within the meaning of rt. 393 of the Polish Civil Code, i.e. a situation where the essence of the contractual obligation is a provision directly to that person.

The second view, which is supported by part of the literature (see, for example, M. Litwińska-Werner, Kodeks Spółek Handlowych. Komentarz, Warsaw 2007, commentary to Article 15) and which has been consistently presented for years by the Supreme Court (cf. other decisions of the Supreme Court cited in the judgment: of February 7, 2019, II CSK 8/18, not published; of March 7, 2017, II CSK 349/16, OSNC 2018, No. 1, item 9; and of December 13, 2018, V CSK 598/17, not published), on the other hand, provides for a broader, functional understanding of this provision. Thus, acting “for the benefit of” is intended to include activities whose economic and, as the Supreme Court put it, “real” beneficiary is the company’s officer. Despite the dispute in the doctrine, the line of jurisprudence on this issue is therefore well-established, and the ruling made is by no means a break in it.

Evaluation of the ruling

The Supreme Court answered the question presented in the affirmative, admitting that the company was right – the consent of the general assembly is required to conclude such a surety agreement. The adopted broader understanding of Article 15 § 1 of the Commercial Companies Code undoubtedly contributes to ensuring a higher standard of protection for the company’s shareholders and shareholders against opportunistic actions by members of its governing bodies. Indeed, a narrower interpretation of Article 15 would create room for abuse, since nothing would prevent a company from entering into agreements that are unfavorable from its point of view, the beneficiary of which would be, for example, a single-member proprietorship of a member of the Management Board or, as in the situation at hand, a spouse with whom he or she remains in a joint property system. Shareholders or shareholders would remain deprived of the possibility to control the procedure of concluding such agreements and real defense against them.

Regardless of the undoubted rightness of the resolution, it leaves unanswered one fundamental question. What is the limit of the functional interpretation of Article 15 § 1 of the Commercial Companies Code? On the one hand, the resolution itself is quite casuistic and refers only to agreements between the company and the spouse of a member of the Management Board with whom he or she is in a regime of statutory community. On the other hand, granting the primacy of the functional interpretation of the provision in the reasons for the judgment and ordering an examination of whether a member of the Articles of Association is the “real” beneficiary of the agreement in question, the Supreme Court should have been a bit more specific about what the criteria are for determining whether or not a resolution should be adopted.

For this reason, it seems that the emergence of another dispute regarding the interpretation of the expression “for the benefit of” in the context of Article 15 § 1 of the Commercial Companies Code is only a matter of time, and the emergence of further doubts as to whether a consent resolution is required in a given case is inevitable. Such legal uncertainty may result in the adoption of consent resolutions by corporate bodies “just in case,” which, given the rigor of invalidation under Article 17 § 1 of the CCC, is a bizarre situation. It is still not known whether, in the case where an agreement on property surety is concluded between the company and, for example, the spouse of a member of the Management Board, with whom, for a change, he is not in a joint property system, a resolution is also required? The same question can be applied to the already cited example, when an agreement is concluded for the benefit of a one-person limited liability company in the hands of an officer of the company. On the one hand, such an agreement will not directly affect the sphere of property rights of the member of the Management Board, but it is not difficult to imagine a situation where such a member of the Management Board enters into an agreement that is unfavorable from the perspective of the interests of the company for the benefit of his spouse (who will often actually support the other spouse from his own personal assets) or his own one-person company (whose assets in turn translate directly into the assets of its sole shareholder).

Given the very far-reaching sanction of invalidation under Article 17 § 1 in connection with Article 15 § 1 of the Code of Commercial Companies, it seems that a new ruling by the Supreme Court aimed at defining the limits of functional interpretation of Article 15 of the Code of Commercial Companies would be desirable from the perspective of trading certainty and protection of the rights of the company’s shareholders. The solution to the problem of the indefinite phrase “for the benefit of” in the provision itself, could also be addressed by the legislature, amending the relevant provision so that the scope of its application is clear and raises fewer doubts – regardless of whether it takes the path of broader or narrower protection of the company’s shareholders.

Author: Jakub Wielewicki