Legal effects of defective representation of the Polish limited liability company. on the ground Article 210(1) k.s.h.

Regulations provided for under Article 210(1) Act dated 15 September 2000 Commercial Companies Code[1] concern the situation of a conflict of interests between a board member and a company[2].

Their aim is to protect the interests of the company, and indirectly its shareholders and creditors, in the event of a conflict of interest which may arise when a member of the board of directors enters into a contract de facto “with himself”, i.e. when there are the same persons on both sides of the contract[3].

Standard contained under Article 103 k.c. refers to the action of the proxy, while Article 210(1) k.s.h. shall constitute members of the Management Board whose activities are the activities of the Company.

However, the legislator, introducing Article 2 k.s.h., allowed the provisions of the Civil Code to be applied directly, depending on the situation, if the legal term used in k.s.h. is not fully regulated, as is the case with regard to the power of attorney. Still, the controversy raises whether the violation Article 210(1) k.s.h.

leads to absolute nullity of the contract, or such an agreement can be liquidated under Article 103 Act dated 23 April 1964 Civil Code 4. In doctrine and judicature, there is no agreement on the qualification of the legal effects of legal acts committed in violation of the rules on special representation in capital companies.

This article presents interpretative problems concerning the special representation in the company of o.o. on the ground Article 210(1) k.s.h. and the legal implications of this.

Special representation on the ground Article 210(1) k.s.h.

According to Article 210(1) k.s.h., in the agreement between the company and the member of the board and in the dispute with it, the company shall be represented by a supervisory board or a proxy appointed by a resolution of the meeting of shareholders.

This provision regulates specific activities of a strict internal nature.5 We are talking about any agreements that may be concluded by a board member with the company.

Both those that are closely linked to the function and those that are not related to the performance of the functions of a board member, but are included by a natural person outside the source of competence[6].

This provision also applies to declarations of will made by the parties in the framework of other bond relations than the contract concluded between the member of the board of directors and the company[7]. The simplest example of a contract between a board member and a company is a contract of employment or an order between them.

Contracts which do not have to have a function may be included, for example, a sale, lease, loan.

This position is confirmed by the NSA ruling dated 29 November 2016[8], according to which ‘in the event that the contract is concluded between the President of the Management Board of the company and the proxy and under that agreement, the President of the Management Board, as manager of the co-financed project, collects remuneration for this purpose, in light of the Article 210(1) k.s.h.

there must be no doubt that the company should be represented by the Supervisory Board or a proxy appointed by a resolution of the shareholders.’ Characteristic for Article 210 k.s.h. there is no link between the modification of the company's representation rules and the existence of a genuine conflict of interest.

The legislator does not make the requirement for the company to be represented by the Supervisory Board or a proxy appointed by the meeting of shareholders conditional on the fact that there is a conflict of interest in a given situation, as he did, for example, under Article 108 k.c.9 It needs to be stressed that it is not necessary for a conflict of interests between the company and a member of the board to actually exist, since a potential conflict of interests is sufficient.

SN took a similar position in the judgment dated 9 September 2010[10], in which he stated that ‘Article 210(1) k.s.h.

is to protect the company, its shareholders and creditors from adverse decisions of its board of directors, as well as liquidators, even in a situation of alleged conflict of interest in which the interests of the company and the member of the board of directors (the liquidator) conflict.

That provision therefore applies when they appear on the opposite sides of the litigation or on the opposite sides of the contract.

This was also confirmed by SA in Gdańsk in its judgment dated 12 October 2016[11], in which it indicated that ‘the provision Article 210(1) k.s.h. is to protect the company, its shareholders and creditors from adverse decisions of its board of directors, and the risk of such decisions is justified when both entities remain in litigation.

It is a potential conflict of interests between board members and the company itself.

Exclusion of a member of the board from representing a limited liability company due to its ‘contrary’ with the company (Article 210 k.s.h.) may therefore be involved not only because there is a real conflict between them, but also because the company needs to take a decision or to express a position of legal importance in a situation where the interests of the company and the member of the board of directors are contradictory.’ It is also worth pointing out that Article 210(1) k.s.h.

shall also apply to participation in proceedings pending as a result of complaints brought by a fallen company with limited liability and by a member of the board of directors of that company, who claims that he is entitled to a claim to bankruptcy, to the decision of a judge-commissioner, issued as a result of the examination of the charges against the final plan for the distribution of insolvency funds concerning the omission of claims by a member of the board of directors[12].

Possible application of the provisions of the Civil Code on the power of attorney with Article 210(1) k.s.h. – the possibility of liquidation

A review of the achievements of doctrine and judicature makes it possible to conclude that during the period of application of k.s.h. in principle problematic and disputing were all elements Article 210(1) k.s.h[13].

In addition, the appropriateness of referring to the general concept of conflict of interest and of treating the situation as a condition of Article 210(114).

In that spirit, it was stressed that the obligation to establish a special proxy, with reference to the general concept of conflict of interest, is a counterleg action, causing serious uncertainty as to the principles of representation of the company[15] . This concept appears under Article 209 k.s.h.

and is not a rule hypothesis Article 210(1) k.s.h.

Nevertheless, the concept of conflict of interest generally becomes a routine condition of application in the case law Article 210(1) k.s.h.16 Derogation from the general principles of representation adopted in these provisions is usually referred to in literature as special representation.

It can be noted that, as a rule, legislation referred to as specific generates a number of important interpretative issues relating to the general rules contained in a given normative act or concerning the relationship between different normative acts[17].

This is primarily about the relationship between the regulations contained under Article 210(1) k.s.h. to the law on power of attorney (Article 98 and n. c.).

The reading of the work of the judicature shows that this problem returns from time to time, which means that it should be the subject of scientific discussions and the search for stable legal solutions. The legal environment is still divided, different interpretations of both the provisions of k.s.h.

and the norms contained in the general part k.c. are proposed[18]. Given the scope of the Civil Code (Article 1 k.c.), the principle of unity of civil law standardising uniform regulation of legal relations in the ordinary and professional trade and content Article 2 k.s.h.

(as a consequence of this principle), consideration should be given to the place in this context of the regulation of the representation in question under Article 210(1) k.s.h[19]. Content Article 2 k.s.h.

it follows that the provisions of the Civil Code may be applied[20] on matters relating to the creation, organisation, operation, dissolution, merger, division and conversion of commercial companies (Article 1(1) k.s.h.) exists only if they are not regulated in the Commercial Companies Code[21].

It should be noted that not every case of lack of regulation automatically means the admissibility of the application of k.c. rules. In literature the view is established[22] establishing that certain conditions should also be met in order to be able to apply the Civil Code in the absence of regulation.

First of all, it should be considered whether there is an intentional omission of a specific issue in the legislation[23] and whether another provision k.s.h. can be applied by analogy.

In addition, it is necessary to examine whether the nature of the legal relationship of a commercial company permits the application of the provisions of the law explicitly or requires the application of the provisions accordingly. The rule that matters not regulated in k.s.h. is largely accepted.

First, to apply the general provisions of the Code of Commercial Companies, and only in the absence of a solution to a specific issue thus arises the need to seek an analogy from other provisions of the Code of Commercial Companies[24] .

For the duration of the judicature Article 210(1) k.s.h. cleared up two different positions. By first to a proxy from Article 210(1) k.s.h. does not apply the law on the power of attorney, but according to second it shall be used.

first the view was approved, among others, in the judgment of the Supreme Court dated 15 June 2012[25], in which the SN indicated that ‘If, as indicated, the power of attorney in question under Article 210(1) k.s.h., is based on a source of authority other than the power of attorney provided for in the Civil Code, the nature and scope of the two proxies is different, and in addition, the Code of Commercial Companies contains a rule on the form of a resolution appointing a proxy, the plea of infringement had to be considered justified Article 2 k.s.h.

by its application and Article 99(1) c. by incorrect recognition that the form of power of attorney granted by the meeting of shareholders on the basis of Article 210(1) k.s.h. is subject to the rules laid down under Article 99(1) k.c.’.

Another example is the judgment of SN dated 18 December 2019[26], in which the SN stated that ‘the primary effect of not complying with the rules laid down under Article 210(1) k.s.h. is the absolute nullity of the action carried out on the basis of Article 58 k.c.’.

At the same time, the SN pointed out that the consequence of such an interpretation is that the legal act on the basis of Article 103(1) k.c. Another sentence matching this position is the judgment of the Supreme Court dated 3 October 2019[27], in which the SN stated that ‘the infringement Article 210(1) k.s.h.

causes absolute nullity of legal action - Article 58(1) k.c. in conjunction with Article 2 k.s.h.’ Another ruling approving this position is the SA judgment of dated 24 January 2018[28], in which SA ruled that ‘the provision Article 210 k.s.h.

is mandatory and therefore the conclusion of an agreement on behalf of the company by an entity other than that provided for by that provision, i.e.

the supervisory board or proxy appointed by a resolution of the shareholders, and the member of the board of directors shall be deemed to be strictly invalid, the nullity of which cannot be validated.’ According to another position which slowly becomes dominant, a contract concluded in violation Article 210 k.s.h.

is not always absolutely invalid. Supreme Court by Resolution dated 30 January 2019 29 He resolved, among others, the legal question, whether the under Article 210(1) k.s.h.

the requirement that in a contract between a company and a member of the Management Board and in a dispute with it is represented by a supervisory board or a representative appointed by a resolution of the Shareholders' Assembly, it should be understood that the power of attorney to represent the Company should be of a special nature, namely whether it is to be granted to conclude a specific agreement with a specific member of the Management Board or to pursue a particular dispute, or whether the company may grant a generic power of attorney.

There was also a problem with the subject matter and the generic mandate concerned and the duration of the mandate. Addressing the issues in question requires great care, since giving generic power of attorney for a long time (also for an indefinite period) poses a risk of creating quasi-organism, extra-statutory construction[30].

In the context of this legal issue, once again the need to consider whether the power of attorney established on the basis of Article 210(1) k.s.h.

conceptually and structurally coincides with the mandate regulated in k.c.31 whether it is different – this provision constructs the autonomous, independent nature of the power of attorney[32].

In the order of the SN dated 11 March 2010[33] SN rightly pointed out that "despite the structural differences between the action of the body of a legal person (Article 38 (k.c.) and the action of such person's representative (Article 95(96) (k.c.) an important common feature of the two institutions is that both the legal effects of the person acting as the body and the effects of the agent's action are attributed to the legal person represented; in other words, both the person acting as the body of the legal person and the agent acting on behalf of the legal person.

In conclusion, it must be assumed that regulations Article 103(1)(2) k.c.

shall apply by analogy also where the contracting entity on behalf of a legal person as its body is not, or exceeds, its mandate.’ Another ruling approving this position is the SA judgment dated 19 March 2015[34], in which SA ruled that ‘to the power of attorney granted on the basis of Article 210(1) k.s.h.

the provisions of the Civil Code on Plenipotentiary may be applied." Similarly, he ruled the SN in his judgment dated 13 November 2013[35], in which he stated that ‘Legal activity carried out on behalf of the company without being empowered or exceeding the mandate is an incomplete act (negotium claudicans) which may be subsequently validated’.

Similarly, it ruled SA in its judgment dated 28 February 2019[36], in which he held that ‘The agent in question under Article 210 k.s.h. cannot be identified with a regulated agent under Article 98-109 k.c., for example for the reason that the proxy in question under Article 210(1) k.s.h.

is established by a resolution of a meeting of shareholders - and thus by means of a resolution of the body which is not in principle entitled to represent the company (the company - according to Article 201(1) k.s.h. - represents the board).

However, this observation does not exclude the possibility of applying the legislation on power of attorney by analogy, unless those provisions conflict with the design of the proxy created in the content Article 210(1) k.s.h.

(and therefore a representative established by another authority, than authorised to represent, or established to take a specific action).

Such arrangements shall include Article 103(1) k.c., according to which if the contracting person as a proxy is not authorised or exceeds its scope, the validity of the contract depends on its confirmation by the person on whose behalf the contract was concluded.’ The view presented above should be considered correct, for, according to the author, the legislator intentionally and thoughtfully placed in such a rather different content Article 2 k.s.h.

allowing, depending on the situation, the provisions of the Civil Code to be applied explicitly if the legal term used in k.s.h. is not fully regulated, as is the case with regard to the power of attorney.

In particular, there is no need to seek questionable arguments to demonstrate the difference between the mandate and Article 210(1) k.s.h. and the mandate to which a special chapter is devoted, contained in part of the General Civil Code[37].

It is therefore not convincing to claim the autonomy of the legal structure of the legal relationship of the power of attorney in question under Article 210(1) k.s.h. to the power of attorney according to the Civil Code.

Amendment Article 39 Civil code

The revision appears to be crucial for this issue Article 39 c.

which due to changes made Act dated 9 November 2018 amending certain laws to introduce simplifications for entrepreneurs in tax and economic law[38], allows for the confirmation of legal acts carried out by a body of a legal person which does not hold or exceed the statutory competence of that body.

Above all, the importance of the practical solution adopted under Article 39 k.c.

It is appropriate to agree with the statement made in the explanatory memorandum of the draft amendment that "in the current socio-economic realities, which are characterised by a large number of legal persons in huge amounts of legal relations, it is desirable that the actions affected by the defect, in the form of actions of those not empowered to represent them, be maintained in force"[39].

It is not surprising to use the flexible sanction of ineffective suspension and to try to refer it to the widest possible range of cases. Let us immediately add that – as it seems – due to sound Article 331(1) k.c. adjustment with Article 39 k.c.

will also apply to defective legal persons, and therefore to commercial partnerships, for example[40].

By analogy Article 103 k.c., and thus taking the rigor of ineffectiveness suspended and the possibility for the company or any other body to confirm its actions, it is important to consider who would be the one to sanction a defective legal act.

According to the accepted theory of the authorities, the activities of the Management Board are considered to be activities of the company itself, and so it cannot confirm its faulty activity.

On the other hand, the inadmissibility of confirmation by another body of a legal person is due to the fact that that body does not have the character of a person third.

The effects of the ‘false’ action of the body shall determine Article 39(1) k.c., according to which if the contracting entity as a body of a legal person is not authorised or exceeds its scope, the validity of the contract depends on its confirmation by the legal person on whose behalf the contract was concluded.

First of all, the proxy appointed by the meeting of partners on the basis of Article 210(1) k.s.h. is not an organ. It should be further noted that this provision empowers the supervisory board to carry out the activities provided for there.

If the activities undertaken by the Supervisory Board exceed the scope envisaged, there would be a breach in particular Article 204(1) k.s.h.41

Summary

It should be indicated that according to the author, the infringement Article 210(1) k.s.h. does not result in the cancellation of the contract. Such agreement may be terminated in accordance with Article 103(1) k.c. The legislator deliberately and thoughtfully put in such a rather than other content Article 2 k.s.h.

allowing, depending on the situation, the provisions of the Civil Code to be applied explicitly if the legal term used in k.s.h. is not fully regulated, as is the case with regard to the power of attorney.

Revision of the Civil Code with 2018, Although it should be assessed positively, it has still not fully resolved the question of the liquidation of a legal act in breach Article 210(1) k.s.h., because the company's attorney is not its organ.

Problem of the legal effects of the infringement Article 210(1) k.s.h, given the views of the doctrine and the disunited position of the judicature, requires the legislator to intervene by amending the provisions of k.s.h.

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