Representation of capital companies by the same person acting as an authority in the context of the general prohibition of legal acts "with themselves"

The provisions of the Commercial Companies Code do not contain specific provisions excluding the possibility or containing additional restrictions for legal acts by two capital companies represented by the same natural person as a body of a legal person. As a general rule, it follows from Article 3531 k.c. the principle of freedom of contract as well as in accordance with the Latin paremia quod lege non prohibitum, lititum est (which is not prohibited by law), such activities should be carried out freely.

In the light of the provisions in force, there is no basis for an automatic obligation to apply Article 108 k.c. in conjunction with Article 2 k.s.h., however, application Article 108 k.c.

by analogy, it should be preceded by an in-depth analysis of the specific facts and by an examination of the consequences for both companies (as well as for external entities, e.g. creditors) the legal activity may have.

The most important element of this analysis is, therefore, to determine whether an act can lead to a breach of interests one from companies acting and to what extent.

The SN considered that a person who as a member of the Management Board represents both legal persons who are party to the same legal act should ensure that it is at least fulfilled one from the indications indicated under Article 108 k.c. as a justification for ‘self’

The creation of corporate structures based on a number of internal links, both capital and personal, is becoming an increasingly common trend in the economy. The existence of such links can undoubtedly make it much easier to conclude intrat contracts from the perspective of more players. In particular, personal links can contribute to faster and more effective cooperation between business partners by eliminating sometimes costly and long-term negotiations between counterparties.

The creation of complex personal links between entities, at the decisive moment of the transaction may also reveal their controversial aspects. This is because often the same natural person acts as a member of the governing body (e.g. a member of the board of directors in sp. z o.o. or in S.A.).

Is it therefore in the context of regulations Article 210(30067)(379)(1) k.s.h. (in sp. z o.o., P.S.A. and S.A. respectively) and used accordingly Article 108 k.c.

(in conjunction with Article 2 (k.s.h.) it will be possible for the same person acting as an authority and representing entities with sometimes completely opposing interests to enter into all kinds of economic contracts?

In KSH's legislation, it is vain to seek answers to such a question, but due to the ever-increasing creation of expanded capital groups or holding structures as well as judicial jurisprudence indicating the possibility of such an act being declared ineffective suspended (108 k.c. in conjunction with Article 103 (c) or even nullity (Article 108 k.c. in conjunction with Article 58(1) (c) the subject remains valid.

As shown by Article 210(30067)(379)(1) k.s.h. in the agreement between the company and the member of the board and in the dispute with it, the company is represented by a supervisory board or a proxy appointed by a resolution of the shareholders' meeting (by resolution of shareholders in P.S.A. and general meeting in S.A. respectively).

The essence and purpose of these provisions is to eliminate a conflict of interests between the company and a member of the board of directors, with only a potential conflict of interests — it is not necessary that it actually exists in a particular factual state.

In principle, the doctrine determines that the scope of application of the abovementioned provisions is as broad as possible.

In so far as they are updated in the light of the particular facts, it will not be possible to conclude a civil law agreement between a member of the board of directors and a company represented by another member of the board (when the board is a multi-member body) or between a member of the board of directors and a meeting of shareholders or a general meeting (as a body solely authorised to establish a proxy for the company).

Nor will it be correct for a board member to conclude a contract with a company represented by its attorney. The above configurations must not lead to circumvention of the provisions of the Act concerning the entity entitled to represent the company according to Article 210(30067)(379)(1) k.s.h.

Unless there is a need to apply Article 210(30067)(379)(1) k.s.h. in the case of a contract where one party is a member of the board acting in the course of a transaction, i.e. as a natural person (e.g.

in the case of the company entering into a contract of employment, the company entering into a contract with a member of the board as a partner of a civil partnership), and second the transaction is the company itself and the same member of the board acts as its body – the situation in which the contract is concluded between two companies where the same natural person acts exclusively as a member of the body of the company is different.

The Contracting Parties are therefore two separate legal persons (two capital companies) and not a company and a member of its governing body.

In such a configuration – in principle – there should therefore not be a conflict of interests between the company and the member of the board, for the opposite scales are interests two separate organisational units.

However, this assumption is purely theoretical, since in practice it is possible to act in which significant interests may be infringed one from companies carrying out operations.

Against the background of the problem set out above, the concept has been developed in doctrine and jurisprudence, according to which the analysis of activities should be carried out in the context of the provision Article 108 k.c. establishing, in principle, a prohibition on acting by a proxy representing both sides of the activity.

According to its content, the proxy cannot be the other party to the legal act which he performs on behalf of the power of attorney, unless otherwise arising from the content of the power of attorney or the possibility of violating the interests of the power of attorney is excluded because of the content of the legal act.

This provision shall apply mutatis mutandis where the agent represents both parties. On first no basis for use Article 108 k.c. where the same member of the Management Board acts on behalf of two capital companies, for a provision Article 108 k.c.

refers to an attorney who is clearly not a member of the board of directors of a legal person. Meanwhile, for years 90. The last century began to germinate theories indicating the need for meals Article 108 k.c. in the event of an agreement between two legal persons.

According to Article 2 k.s.h. in matters specified under Article 1(1) k.s.h. not regulated by the Act, the provisions of the Civil Code shall apply. Where the jurisdiction (nature) of the legal relationship of a commercial company so requires, the provisions of the Civil Code shall apply mutatis mutandis.

The possibility of applying the Civil Code by analogy should therefore be considered in the context of Article 108 k.c. in conjunction with Article 2 k.s.h.

It should be borne in mind that the representation of the company by the ex lege board results and is related to the nature of the capital company, and that the operations of the management board are the activities of the company itself.

In the case of a power of attorney, the source of the power of attorney to represent the entity is a legal act (a declaration of will) of the power of attorney.

The Plenipotentiary, unlike the body of a legal person, may be classified as a separate entity, which, in the case of legal persons, would be contrary to the generally accepted theory of the bodies.

In the resolution of the Supreme Court of 30 May 1990 reference no. III CZP 8/90 The SN considered the correctness and validity of the legal act taken by the attorney of a state company consisting in the conclusion of a company's commercial law contract by a person acting on his own behalf and as a proxy of a state company.

In this resolution, SN advocated the possibility of applying – by analogy – the rule resulting from Article 108 (c) and any investigation in the course of a legal act, whether the effect of the act may be a breach of the interests of the legal person.[1]

In turn, in the Supreme Court judgment of the day of 24 July 2009, reference no. II CSK 41/09 SN indicated, in a reasonably clear manner, that use cannot be excluded Article 108 k.c. in a situation where a legal act 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.

At the same time, the SN indicated that there is no basis for extending the application Article 108 k.c. any situation in which the same natural person appears in the composition of the bodies representing the companies.

The SN therefore referred directly to a situation where a legal person is present on both sides of the legal act – not a legal person and a member of its board (as a hub of the body). He pointed out in this judgment that in the Polish legal system there is no general prohibition on various types of links between capital companies.

Relationships between the parent company and the subsidiary are acceptable (Article 4(1)(4)(3-5) k.s.h.) or related companies (Article 4(1)(5) k.s.h.). Such companies may enter into legal relations by carrying out different legal activities (see e.g. Article 7(1) k.s.h.).

There is also no prohibition that the same natural persons sit on the boards of such companies.

It is therefore possible that legal acts may be carried out between such companies, while maintaining such control capabilities, which limit the possibility of conflicts of interest between companies or their creditors (such a control mechanism provides for e.g.

Article 211(280) k.s.h.).[2] There are therefore no legal provisions introducing as a rule the exclusion of the possibility of the same natural person as a member of a company body in many different entities, including related entities.

Finally, in the Supreme Court judgment of the day 24 April 2018 reference no. V CSK 425/17 The SN referred more broadly to the possible consequences of a legal act by the same natural person on behalf of at least two legal persons.

The SN pointed out that, in the event of representation of both companies which are parties to the agreement by the same person, there could easily be a conflict of interest and that the legal activities of such a member of the board may remain outside any control.

A person who, as a member of the Management Board, represents both legal persons who are party to the same legal act should ensure that it is at least fulfilled one from the indications indicated under Article 108 k.c., justifying ‘with himself’.

He also pointed out the SN: taking into account the concept of analogous use in such facts developed in the case law of the Supreme Court Article 108 k.c.

to consider, therefore, whether there were provisions in the Statute of the defendant to allow such legal acts as could be qualified as being ‘with themselves’ and whether, in view of the content of the legal act under consideration, the possibility of violating the interests of the defendant was excluded.[3]

Thus, in the last and at the same time the most recent of the above rulings, the NS confirmed that, in the event of the representation of both companies which are parties to the contract, the same natural person may have a conflict of interest, so that the legal activities of such a board member, at least theoretically, may remain outside any control.

The SN considered that a person who as a member of the Management Board represents both legal persons who are party to the same legal act should ensure that it is at least fulfilled one from the indications indicated under Article 108 k.c. as a justification for ‘self’.

Therefore, each time, in the light of the judgment of the SN of 24 April 2018, in the case of a planned transaction (legal activity) to which the parties are to be two legal persons represented by the same natural person (member of the board) as the chair of its body, in the context of the regulation Article 108 k.c. should be established:

• whether the agreements of the capital companies which are parties to the activity contain a provision that a member of the management board of the company may represent the company in legal activities with other companies in which it will also act as a member of the management body;
• whether, because of the content of the legal act, there is a likelihood of a conflict of interest and, consequently, of a breach of the interests of the legislature or of a breach of those interests, is excluded.

In my opinion, in the light of the judgment cited above, the determination of the admissibility of the action on the basis of the condition first, i.e.

both companies have in their agreements/ statutes provisions allowing a member of the board to be represented against other companies (in which the same person is part of the body entitled to represent) insufficient, since it is always necessary to analyse the provisions of the planned action with a view to the possibility of a gross breach of interests one from entities to it.

Unless the wording of the contracts/statutes of the companies carrying out the activities permits the free representation of a number of entities as a member of the body by the same person, this does not automatically mean that the potential possibility of a conflict of interest does not exist and that the exercise of legal action will not cause a significant breach of interests one patients second.

As an unlimited and uncontrolled possibility for a natural person to act as an organ on behalf of different counterparties most often already In the first the feeling raises doubts about the real purpose of such action.

It is therefore necessary to analyse in detail the content of the legal act in order to determine whether the contractual balance of the parties will be distorted by it and, consequently, to grant one from companies of an unjustified position towards the other party.

It is therefore necessary to consider whether the provisions of the contract grant one to a party a benefit far outweighing the benefit of the party second, whether the value of the benefits of the parties resulting from the contract corresponds to market prices and whether the potential (typical) trading participant would also agree to act on such content.

The potential effects of legal acts should be interpreted as widely as possible according to Article 56 k.c.

(used as appropriate) in conjunction with Article 2 (k.s.h.) According to that provision, the legal act not only produces the effects expressed in it, but also those resulting from the Act, from the principles of social coexistence and established customs.

The possibility of a breach of the interests of the party to the activities should be verified both in law and in fact, and in particular in economic terms.

In my opinion, the possibility of a breach of the interests of the power provider (one from companies in the course of their legal activity), it may also be possible to bring them into bankruptcy by unduly depriving them of their assets and consequently violating the interests of a wider circle of entities (e.g. creditors).

Therefore, it is appropriate for me to analyse the activities carried out also in the context of the possibility of acting against creditors. second parties to legal activity (e.g. Article 527 k.c. – Paulian complaint) or its counterparties (Article 59 k.c. – no compensation for a person’s claim third).

In practice, its participants shall take action to carry out the planned legal action while minimising the likelihood of the parties being exposed to such severe consequences as the ineffectiveness of the suspended legal action or, in worst case cases, its nullity.

The methods often encountered in practice include, for example, cross-representation (possible in companies with multi-stakeholder boards, and the right to represent each member of the board itself)[4] conclusion of a contract with one party authorised to represent a member of the Management Board from second and the prosecutor, or the award by both companies (or only one of them) various persons of generic power of attorney for a single act (so that at least one party was represented by the appointed proxy).

In particular, the last of these solutions is doubtful, however, that there is a risk that it is unacceptable to be circumvented. Article 108 k.c. – consequently, it does not matter.

In order to eliminate the potential threat to the interest of the company, I recommend that consideration be given to the possibility of introducing into the contract or articles of association provisions in the light of which certain legal activities of the company with another capital company, if both of them were to be represented by the same natural person as the incumbent of the body, would require the approval of the meeting of shareholders or the general meeting expressed in the form of a resolution.