There is often a situation where contracts between companies are concluded within the same group. In most cases, the same person is present in both companies on the board of directors. In such a scenario, the question arises as to whether such a contract can be concluded when both sides represent the same person.
They are. two different entities, so it shouldn't be a problem, right?
Well, no, it's not as simple as it seems. first A glance. There is no need to look for a recipe that clearly indicates what to do in such a situation. The main restriction that exists is expressed in Article 210 ksh [agreement between the company and a member of the board], but it will not be applicable in this situation.
Okay, since there's nothing in the Commercial Companies Code about that, how about another bill?
As a general rule, all matters governing corporate matters should be included in the Commercial Companies Code. That would be the most reasonable thing for lawyers and their clients. Unfortunately, as in life, it cannot be too simple, and so it is in this case.
There are voices in doctrine and jurisprudence that say Article 108 The Civil Code applies not only to attorneys but also to persons acting as an organ of a legal person. (This is how the Supreme Court spoke in its judgment of 30 May 1990 reference no. III CZP 8/90)
From newer judgments that have not passed 30 years, it is worth pointing out the Supreme Court ruling of 24 July 2009, reference no. II CSK 41/09, which clearly indicates that:
„Use cannot be excluded Article 108 k.c. in a situation where legal action occurs between two one-member companies from O.o. whose sole partner is the same natural person, represented by the same partner, being the only member of the board of both companies. In such a situation, the interests of companies and possible creditors can easily be conflicted and legal acts may remain outside any control.”
Consequently, whenever contracts are concluded between personal affiliates, where the persons representing them are one and the same person is worth considering whether there is a conflict of interest.
How, then, can such a conflict of interest be investigated?
It is best to read the contract once again, considering whether, for example, the key provisions of the contract, i.e. price, possibility of termination of the contract, etc., are neutral for each party and consequently do not undermine the interests of either party.
It is also worth considering whether such a contract is carried out on market terms or whether to adopt appropriate resolutions by the meetings of both companies or to appoint a proxy or a proxy to conclude such a contract.
What if there were...?
Well, bad news – jurisprudence generally indicates the most far-reaching sanction, i.e. the nullity of such a contract. In this case, it is worth considering whether internal procedures should not be introduced in the capital group or ordering the lawyer to analyse the contract in order to mitigate the risk of conflict of interest.
Author: Bartosz Nawrot, legal consultant, associated with Russell Bedford Poland law firm from 2018.