Legal effects of a ‘hull’ board in a limited liability company

This article addresses the issue of “hull management” in a limited liability company under Polish law. The aim of the study is to identify practical aspects of the issue of the occurrence of the incomplete board. In the course of these considerations, one of the most important matters is the attempt to determine to what extent the operations of the hull management will be legally effective.

As a legal person, the Company acts by its bodies in the manner provided for in the Commercial Companies Code as well as under its own agreement [1] . The action of the body will therefore be treated as an act of the company itself. [2] .

Commercial Companies Code provides for and defines the existence of four bodies in a limited liability company, with only the meeting of shareholders and the management of the company being mandatory bodies. Supervisory authorities, i.e.

The supervisory board and the audit committee should be established in companies in which share capital exceeds the amount 500,000 PLN, And there are more partners than twenty five. [3] In this work, the attention will be directed to the board of directors, that is, the body that carries out and represents the tasks of the company.

It is worth noting that the appointment of the Board is one from the requirements of the formation of the Polish limited liability company. [4] .

The method of regulating the competence of the Management Board in the Commercial Companies Code, while defining the scope of the powers of the other bodies, makes it possible to conclude that he is entitled to a presumption of competence, and that everything that is not expressly reserved for other bodies, falls within the competence of the Management Board [5] .

The question arises what it looks like in the case of the so-called hull board.

Conducting cases and representing the Polish limited liability company.

The doctrine underlines that the conduct of the company's affairs involves the implementation of internal relations, which are, in principle, limited to factual, organisational acts. Only exceptionally in internal relations are legal acts (e.g. some resolutions).

According to Article 204(1) k.s.h., the right of a member of the board to conduct the affairs of the company concerns all judicial and extrajudicial activities of the company.

The management of the company's affairs is a process of making resolutions, issuing decisions and opinions, organizing the company's activities in such a way as to carry out certain tasks [6] .

These may be, for example, the organisation of business activities, decision-making and other activities in relation to the internal management of the company's assets, the taking-up of investment activities, the setting-up of production, commercial, service activities, obtaining credit or loan, recruitment and dismissal of staff, administering the company's affairs, convocation of meetings, filing applications to the registry court [7] .

The Commercial Companies Code establishes the principle that each member of the Management Board has the right and obligation to conduct the company’s affairs [8] .

This shall be done in two ways: on the basis of the free recognition of a member/member of the board of directors or after having received a prior resolution of the board of directors of the company authorising the action concerned, adopted, unless otherwise provided, on a general basis [9] .

first of these procedures is possible in cases not exceeding the normal scope of the company’s activities, for which none of the board members objected to their conduct [10] .

second the procedure is assigned to cases exceeding the normal activities of the company and to those matters not exceeding the normal activities of the company, for which at least one of the other members of the Management Board opposed their conduct [11] .

At this point, it should be pointed out that the performance of a member of the board of directors, without the prior resolution of the board authorising the act, does not affect the effectiveness of the action and will therefore be important. The situation is similar in the event of annulment of a resolution of the Management Board.

However, this exposes a member or board member who or who has taken the action to specific responsibility under Article 293(1) k.s.h. [12] Could be the basis for cancellation from the function [13] .

The Code of Commercial Companies does not contain a division of activities into these ordinary management and activities beyond the normal management. However, the articles of association may contain appropriate provisions for interpreting the case.

The doctrine of commercial law indicates that the scope of normal activities of the company should be determined taking into account objective, external factors (e.g.

background conditions of the company's operation, such as economic indicators or market situation), as well as subjective matters relating to the company's operation, while cases exceeding the scope of normal activities should include all cases of unusual, exceptional and significant species weight [14] .

Representation of the company in turn consists in making and accepting statements of will on behalf of the company. From this point of view, the representation of the so-called active (submission of external claims) and passive (acceptance of claims and receipt of letters addressed to the company) may be mentioned. [15] .

The Commercial Companies Code provides for the exclusive competence of the board to represent the company (Article 204(1) and Article 205 k.s.h.), unless there are exceptions provided for by law, where members of the board of directors are excluded from representing the company due to existing conflicts of interest (see Article 210(1), Article 253(1) in fine k.s.h.) or consciously do not want to work for the company (see Article 295(1) k.s.h).

The right to represent the company by the board of directors cannot be reduced effectively against persons third [16] .

Composition of the Management Board

The Commercial Companies Code states that the management of the company with the o.o. consists of one or more members [17] . The question of the size of the board is generally governed by the company's contract.

There is a dispute in the doctrine of the law of commercial companies, as regards the composition of the board of directors where the articles of association are silent about the size of the board. In the opinion of M.

Dumkiewicz, it is not clear in the contract whether the board is one- whether it is a multi-player, means that every time the authority or persons entitled to appoint a board will decide on this [18] . On the other hand, M.

Rodzynkiewicz has a different opinion on this issue, which states that in this case it should be assumed that the board is single-member [19] . It is worth mentioning, however, that in practice you can very rarely meet with the company's agreement o.o. which ignores the regulation determining the size of the board.

The Commercial Companies Code does not impose a limit in this respect, so it should be assumed that the formation of the composition of the board of directors in a manner tailored to the company's real needs is the responsibility of the shareholders, at the stage of the agreement of the company's agreement.

The solution, which in practice is most often used in the company's agreements with the o.o., is either the so-called "fork" definition of the size of the board, by using the phrase "management consists of e.g. one to three persons or by setting a specific number of board members, e.g. "the board consists of two persons’.

It is worth noting that the definition in the company contract that e.g.

the board consists of one to three members of the Management Board or that consists of two the members, automatically restricts the entity or the appointing authority of the members of the Management Board, since in such a case, without changing the articles of association, they do not have the possibility to increase the size of the Management Board e.g.

four people.

Hull board

Private law does not regulate the hull body. As Andrzej Kidyba correctly notes, this is a doctrinal concept that has no legal definition. The author points out that the body in this shape is most often understood as having a defective composition in terms of its minimum size as indicated by the law or contract [20] .

In writing, attempts can be found to define the concept of ‘hull’ bodies of the company by defining them in the context of a situation where the composition of the body concerned is less than the minimum composition of the body as defined in the Act (e.g. KSH or special law) or in the articles of association [21] .

It can be assumed that the hull management does not complement the composition of the board to the required number contract (e.g. two members) [22] . As indicated above, the articles of association should specify the numerical composition of the management board.

As a general rule, this term is followed by an indication of the number of members ‘on stiff’ or ‘fork’. Determining the composition of the board in a fork - from – to – way gives some flexibility for the company to operate despite a decrease in the number of board members [23] .

If the members of the board are less than what is stated in the company's contract, we will deal with the so-called hull board.

The question arises, what is then the question of the conduct of company affairs and representation? The doctrine and jurisprudence emphasise that the hull board cannot effectively conduct the company's affairs, despite its possible and generally correct representation.

However, there is no compatibility between the representatives of the doctrine and the case law as regards the recognition of the existence of a board of directors in the event of its incompleteness. It is worth pointing out the view presented, among others, by J.

Bieniak, who states that the incomplete composition of the board is in fact the same as the lack of board [24] .

Szajkowski, states that if the contract indicates a specific (e.g.

three-member) composition of the board, if the board leaves, at least one persons (due to appeal, resignation, termination of the death mandate) the board not only ceases to function but in general ceases to exist, including in the field of external relations (representation) [25] . The case is identical to that of J.P.

Navorski [26] and A. Kidyba [27] . If the ‘hull’ board is not a body of a legal person, i.e. the board of a capital company, then, of course, the members of such a ‘non-organ’ body cannot represent the company.

The opposite view goes against Article 38 k.c., from which it is clear that a legal person acts through his or her organs and not by persons who are part of an authority who have already lost that quality [28] .

As a result of the existence of a ‘hull’ board of directors in the company, it is impossible to act as a company, since the activities of such a body are considered in doctrine only to be the action of specific natural persons, deprived of content Article 38 the attributes of the legal person.

On the contrary, the District Court of Warsaw, XXIII Economic Division of Appeal in the Order of 14 June 2014 on XXIII Ga 473/13, has indicated that even if the composition of the company's body is incomplete, but there are persons within it who are able to form the personal composition required in the model of representation of the company concerned (e.g. the body is indeed in accordance with the three-member company agreement and the representation is two-member, but in the body remains two its members), despite its hull nature, is an existing body capable of effectively carrying out an act of representation [29] .

As indicated above, the majority of the representatives of the doctrine consider that the board with the incomplete composition is actually identical to the lack of board and the resolutions of the board with the incomplete composition are de facto invalid [30] .

The consequences of the operation of the hull or so-called false authority shall be regulated Article 39 k.c. in conjunction with Article 58 k.c. Consequently, it must be concluded that such action is invalid [31] .

For these reasons, the position should be divided that a declaration of intent made by a member of the board of directors in a composition less than that provided for in the articles of association cannot be subsequently confirmed by a member of the board of directors, whose composition has been supplemented by [32] .

The view of the inadmissibility of a part-time board of directors to any extent favours corporate governance (the management is or does not have it), respects the rule of law and the principle of good practice in the company (respect of the company's contract and the resulting guidelines on the number of board members) and excludes difficulties in clearly establishing and justifying the competences of the hull board, in the event that it is hypothetically capable of acting on behalf of the company to some extent [33] .

It is also noted among the representatives of the commercial law doctrine that the recognition of a hull body as non-existent would have too serious consequences, especially for economic operators whose interests must be protected, and the current practice of economic life shows that the shortcomings of the bodies of legal persons cause significant complications, primarily for individuals third, which cannot claim against legal persons where the composition of the body is not relevant to them [34] .

In the literature, it is argued that in matters not exceeding the normal scope of the company's activities, effective action is allowed for the company by part-members of the management board if the company adopts the code principle of collective representation (Article 205(1) k.s.h.), or will be bound by a declaration of will made by two members of the board of directors participating in the ‘hull’ company board [35] .

Despite the incomplete composition of the board, the company does not lose its legal capacity.

If the other members of the Management Board are entered in the KRS and their number allows for the preservation of the rules of representation and the adoption of resolutions on matters not exceeding the scope of the ordinary Management Board, and if the remaining number of members of the Management Board is sufficient for the adoption of the required law or agreement of a company of a majority of votes, they may, however, carry out legal acts effective for the company (Article 14-17 National Court Register Act).

The assessment of activities carried out with the hull body of a legal person should be carried out not only by the prism of the Civil Code but also by reference to the National Court Register Act.

Therefore, provisions are in force which express the principle of material transparency in a negative aspect (Article 14 u.KRS), as well as the principle of reliability (Article 17 u.KRS). Presumptions resulting from the provisions of the KRS Act protect persons third who are in good faith [36] .

Any limitation of the effectiveness of the activities should be linked to the poor faith of the person carrying out the legal activity with the members of the ‘hull’ board [37] .

In view of the above, that the hull board cannot effectively adopt resolutions, because contrary to Article 208(5) k.s.h. it is not feasible to notify all members of the Management Board of its meeting, it must be stated that in the best interests of the company it is necessary to supplement the composition of the Management Board as soon as possible so that it complies with the requirements laid down in the Articles of Association.

At this point, it is worth noting that, if there is no rapid addition to the hull board, it will not be able to adopt resolutions, even if it is possible to represent a legal person, it may be justified to establish for the company a curator on the basis of Article 42 k.c. [38] .

It should be mentioned by the side that some authors of commercial law papers have been interpreted Article 42 k.c.

they point out that the distinction made in that provision, stating that a legal person cannot be represented or can not pursue his or her affairs due to a ‘lack of authority’ or a ‘lack of body’ authorised to represent him or her, is intended to avoid doubt as to whether the curator can be established only if there is no board of directors at all or if the so-called hull management remains .

Since the deficiencies in the composition of the body are not equivalent to its absence, a legal person with a decompiled body may act [39] .

In my opinion, it is appropriate to follow the prevailing position of the doctrine and the affluence of the case law that the hull board cannot effectively conduct matters of the company which would require a resolution. This part of the board should be regarded as defective.

The hull board may conduct the company’s affairs unless they require a resolution, and therefore in cases not exceeding the ordinary board. The problem of hull management is due to poor corporate practice. In view of the above, it is concluded that it is safer to determine the composition of the board in a fork (e.g.

1 to 3 persons), thus avoiding the risk of hull management problems.

Summary

The article addresses the issue of the ‘hull’ board in a limited liability company. This concept was not standardized in the Commercial Companies Code and was developed by the doctrine of commercial law. This article will present problems relating to the representation of the company and the conduct of the company's affairs in the event of the occurrence of a hull board.

• section 1. A member of the board, supervisory board, review committee and liquidator shall be liable to the company for damage caused by an act or omission contrary to the law or provisions of the articles of association, unless he is not guilty.
• section 2. (repealed)
• section 3. A member of the board, supervisory board, review committee and liquidator shall be without prejudice to the obligation to pay due diligence as a result of the professional nature of his activities if, acting loyally to the company, he acts within the limits of reasonable economic risks, including on the basis of information, analyses and opinions, which should be taken into account in the circumstances in which he/she is to perform a careful assessment.

Author:

Barbara Figas, attorney, #Corporate/M& team member A Russell Bedford Poland. Graduate of the Faculty of Law and Administration at Maria Curie-Skłodowska University in Lublin. Gaining professional experience began In 2013, working in law firms in Warsaw.

In its practice, it deals with broadly understood civil law, including contract law, and economic and corporate law. She conducted court proceedings, in particular in relation to proceedings relating to the investigation of claims, as well as proceedings before the National Court Register and in enforcement proceedings.

She participated in projects related to the creation, current operation, transformation and liquidation of commercial law companies.