The responsibility of board members of cooperatives is often treated as a purely academic issue, matching a comment on a bill or an economic law exam. In practice, however, this is an extremely vital subject, as it touches material responsibility for decisions taken every day at the premises of cooperatives, which include the signing of contracts with counterparties supervision of the financials of cooperatives, accepting or failing to respond to risky actions, and sometimes diminishing the problem that will prove costly or problematic for cooperatives in the future.
The law in this area does not give room for improvisation or intuition-based action – clearly defining when a member of the board of directors of a cooperative can be held accountable and what kind of responsibility it will be. At the same time, it is not a regulation that is detached from the reality of the functioning of cooperatives – on the contrary, it was conceived as a mechanism that ordered the responsibility of those who actually decide its affairs, giving cooperatives a real mechanism to protect their interests.
The purpose of this Article is to show how these principles work in practice, that is, where the limits of the responsibility of a member of the board of directors of cooperatives are going, when the risk of carrying it becomes real, and who and what actions must take to materialise this responsibility. The text is addressed both to those professionally involved in cooperative law and to those who confront regulations primarily in the performance of their functions.
The basic rule governing the responsibility of members of the board of directors of cooperatives is Article 58 Act of 16 September 1982 Cooperative law i.e. dated 2 April 2024 (Journal of Laws of 2024, item 593).
It is he who sets out a framework for the civil liability of persons who, by virtue of their functions, have a real impact on the property situation of the cooperative.
That provision provides that a member of the board, supervisory board or liquidator shall be liable to the cooperative for damage caused by an act or omission contrary to the provisions of law or the statutes, unless he is not guilty.
Already at the stage of becoming acquainted with the law itself, it is clear that the legislator has adopted a liability structure based on the assumption of full acceptance of the activities of members of the board of directors of cooperatives in accordance with the law and the statutes – the activity of members of the board of directors of cooperatives within their limits is mainly determined by the possibility of attributing compensation to them.
Departing from this framework – whether in the form of active action or omission – opens the way to assess the behaviour of a board member through the prism Article 58 Cooperative rights.
In other words, as long as decisions are taken within the limits of the existing rules and the cooperatives' statutes, the legislature in principle tolerates even their ineffectiveness or economic risk.
Liability for damages shall only be updated if those limits are exceeded and the cooperative will suffer damage to the normal causal link with the behaviour of the member of the board.
This design clearly shows that Article 58 cooperative law does not serve to settle any unsuccessful decision, but to serve as a safeguard against the assets of cooperatives, sanctioning infringements of the law and the statutes combined with an act or omission.
In parallel, however, the legislator predicted second, an equally important possibility to exclude the liability of a board member to cooperatives. Namely, even in a situation where a decision taken by a member of the Management Board is contrary to the provisions of law or the statutes, this need not automatically lead to his liability.
Article 58 Cooperative rights expressly allow a member of the board to be released from responsibility when a member of the board demonstrates that he is not guilty.
This means that the mere fact of a breach of a legal or statutory standard is not sufficient – it is crucial to assess whether a given act or omission can be attributed to the person concerned as guilty.
third, essential part of the compensation structure on the ground Article 58 Cooperative rights shall be the result of damage on the part of a cooperative which is normally attributable to an act or omission of a board member contrary to the law or the provisions of the statutes.
Even a flagrant breach of the applicable rules does not update the liability of compensation if it does not result in real damage to the assets of the cooperative. This provision does not sanction the unlawful conduct itself, but its property consequences.
Damage referred to in Article 58 Cooperative rights must be of a property nature and take the form of a real loss or lost benefit. Liability will therefore not arise if the cooperative fails to demonstrate that its property situation has deteriorated in a measurable and concrete manner. The risk exposure alone, the potential loss or the subjective belief that a decision is ‘unprofitable’ are not sufficient to assign responsibility to a board member.
The existence of damage is also inextricably linked to the requirement to demonstrate the causal link between the behaviour of the board member and the resulting damage. This is a normal, adequate causal link in which injury is a typical and predictable consequence of a particular action or omission.
If the damage was caused by external circumstances which are independent of the management’s decision — such as sudden changes in market conditions, random occurrences or actions of persons third — There will be no basis for attributing it to a member of the body, even if there has previously been a formal infringement.
In practice, this means that the liability for damages cannot be based on the fact that the law or the statutes have been infringed or on the general statement that the cooperative has been ‘injured’.
It is necessary to demonstrate that it is precisely the specific, non-standard behaviour of a member of the board that has led to certain damage.
Only the cumulative fulfillment of all these elements — illegality, guilt, injury and causality — makes it possible to speak of full liability for damages within the meaning of Article 58 Cooperative rights.
In order to better illustrate the mechanisms described, it is worth referring to specific situations from the practice of functioning cooperatives.
first the type of situation can be illustrated by the following facts: the board of directors of the cooperatives, acting within the limits of the mandate resulting from the statutes, shall adopt a resolution on the conclusion of the contract with the contractor of the repair works after the required procedure for selecting the tender.
The Agreement shall be concluded in accordance with the provisions in force and its content shall be without prejudice to the provisions of the Statute. During the execution of the works, the contractor falls into financial problems and does not finish the investment, which makes it necessary for the cooperative to bear additional costs.
In the present situation, the decision of the Management Board falls within the framework of a lawful and statutory action, and the resulting damage does not constitute a basis for attributing compensation to the members of the Management Board.
second the facts relate to a situation where there has been a formal breach of the rules or statutes, but there is no fault on the part of a member of the board.
For example, the board adopts a resolution on the conclusion of a credit agreement, based on the written opinion of the legal advisor, which shows that the application of the required procedure for the selection of tenders - which was regulated in the statutes of the cooperative - is not required in the case.
It is only at a later stage that it appears that this interpretation was incorrect and that the conclusion of the contract was in breach of the provisions of the Statutes.
In this state, the actual operation of the board of directors remains objectively contrary to the Statute, but taking into account the decision-making and use of the professional opinion falls within the presumption of non-compliance, which excludes compensation liability on the basis of Article 58 Cooperative rights.
In contrast, the following factual situation can be identified as an example of the absence of compliance with the non-injurious condition, The board of directors of the cooperative decides to conclude a contract to modernise the electrical installation in one of the buildings.
The agreement is signed without prior obtaining the statutory approval of the supervisory board, which constitutes a formal violation of the rules in force in the cooperative. The work is carried out in time by an experienced contractor, selected in the tender selection mode, at prices corresponding to market realities.
Modernisation results in improved building safety and does not generate any additional costs on the cooperative side. Once the investment in cooperatives has been completed, an internal dispute arises in which a plea of infringement of the statutes by the Management Board is raised.
Despite the finding of procedural failure, the analysis of the financial situation of the cooperative does not show any material damage — on the contrary, the scope of the work carried out corresponds to the remuneration paid and its execution prevented the need for costly repairs in the future.
The cooperative did not suffer any real loss or loss of potential benefits.
In such a factual configuration, although the operation of the board was contrary to the provisions of the Statutes, there is no one from the necessary grounds of liability for damages — the damage remaining in the normal causal relationship with that infringement.
The mere fact of formal irregularity, separated from the real consequences of property, is not sufficient to assign responsibility to board members on the basis of Article 58 Cooperative rights.
It's a shame, though. one of the key elements of compensation liability, is not yet sufficient to automatically assign it to a board member. It is necessary to demonstrate that it remains in a normal causal relationship in violation of the law or the statute.
Even if the damage actually occurs, this does not mean that a member of the board will be liable on the basis of Article 58 Cooperative rights. The damage does not function abstractly in this provision – in isolation from the act or omission of board members.
The legislator requires that the damage should remain in a normal causal relationship with a specific act or omission contrary to the law or the statute.
In practice, this is the most problematic element: the cooperative has suffered a loss, the board has committed a failure, but it cannot be concluded that the resulting damage is a direct and typical consequence of the infringement, which means that compensation liability is not applicable here.
The following facts can be used to illustrate particularly clearly the absence of a causal link between the infringement and the resulting damage. The board of directors of the cooperative shall conclude an annex to the lease agreement of the utility premises without the statutory approval of the supervisory board required.
The contract is concluded on terms corresponding to the market rates, with the current, reliable and proven tenant. A few months later, the tenant ceases to regulate the rent and then declares bankruptcy. The cooperative shall suffer damage in the form of unpaid rent receivables and claims costs.
In the course of the analysis of the situation presented, there is an allegation that the injury remains due to a breach of the statutes consisting in concluding an annex to the contract without the required approval of the supervisory board.
At the same time, the actual findings show that even if the statutory procedure were fully retained, the content of the annex to the contract would remain the same. The approval of the supervisory board would be purely formal and would not affect either the choice of the counterparty or the subsequent insolvency of the tenant.
Consequently, the damage suffered by the cooperative was not due to a breach of the statutes but to a later economic situation independent of the management of the counterparty.
Thus, there is no normal causal link between the unlawful members of the board and the resulting injury — the procedural failure did not increase the risk of injury or affect its formation.
In such a situation, compensation liability on the basis of Article 58 Cooperative rights are not updated despite the fulfilment of the conditions of illegality and harm, since there is no adequate causal link between illegality and damage.
The pre-mentioned conditions show when the compensation liability of a member of the board of directors of a cooperative may even arise.
However, compliance with these conditions does not mean that a member of the Management Board is liable to an unlimited extent – Article 58 Cooperative rights clearly indicate that the upper limit of responsibility is the amount of damage suffered by the cooperative.
In practice, this means that the Management Board is not responsible for any failure or for decisions which have proved to be economically unsuccessful.
It is worth noting that the concept of injury in this context is broad. On the one hand, cover the actual damage (damnum ergens), i.e. the actual decrease in the value of the assets of the cooperative, e.g. losses resulting from unpaid invoices or costs of repairing the damaged property.
On the other hand, liability also includes the lost benefits (lucrum cessans) — hypothetical revenues that the cooperative could obtain if the action of a member of the board were in accordance with the law and the statute.
An example is the failure to conclude a favourable lease or investment agreement, the financial effect of which the cooperative has lost due to a breach of statutory procedures.
This way of defining limits of responsibility is of great practical importance. After first, forces a realistic assessment of the damage and a precise link between it and the behaviour of a board member. After second, shows that the rules protect both the cooperative and the management – compensation liability is not a tool for the board to bear responsibility for any business failure, but a mechanism to compensate for the actual loss of assets.
Having already been aware of the reasons for the responsibility of members of the board of directors of cooperatives, attention should be paid to the enforcement of such claims.
In practice, it is often the case that, between a cooperative and a member of the board who is potentially responsible for the damage, there is no agreement on the existence of the claim itself or its amount. In such cases, it is necessary to refer the case to court proceedings, preferably preceded by a prior call for payment.
In the course of the process, the burden of proof — demonstrating compliance with the conditions of responsibility of a board member — rests with the cooperative — must demonstrate that the actions or omissions of a board member were contrary to the law or the statutes, that they led to damage, that they were guilty, and that there is a normal causal link between them.
Failure to prove any of these elements, both as to the merits of the claim and its amount, leads to the dismission of the action.
Another important aspect, which cannot be overlooked in the analysis of the responsibilities of board members, is the time limit for bringing an action. Come on. Article 58 Cooperative rights specify the grounds for liability for damages, does not regulate the limitation of claims – in this respect the provisions of the Civil Code apply.
According to Article 442¹(1) k.c., damages claims for unauthorised action are subject to limitation on expiry three years after the victim was found out or, with due care, he could have known about the damage and about the persons obliged to repair it.
In other words, it is not the fact of the damage that matters, but the moment when the cooperative could effectively identify it and link it to the action or omission of a board member.
When discussing the limitation period for a claim, indicate Article 117(1) k.c., who introduces protection for obliged persons, stating that, after the expiry of the limitation period, the debtor may effectively deviate from the satisfaction of the claim, unless he has previously waived the right to rely on the limitation period.
Consequently, when deciding to bring a lawsuit on behalf of a cooperative, it is not enough to state that there are grounds for liability – it is crucial to ensure that these conditions are properly documented and that a claim for compensation is made before the time limit is reached.
From the point of view of cooperative management practice, this term is of great importance. Even the most obvious and documented incorrect, unreliable action of a board member may not lead to a judgment judging the claim if the cooperative delays the investigation of the claim.
Therefore, any decision to bring a lawsuit should be preceded by a fair verification of all facts, an assessment of the grounds for liability of the member of the board of directors of the cooperatives and an accurate determination of whether the time limit for bringing an action has been respected.
This approach minimises the risk of dismissing the action for formal reasons and allows the cooperative to concentrate on the real recovery of the resulting damage.
Due to the complex nature of the issue, it is recommended to consult a professional before filing a lawsuit, who will comprehensively examine the claim both materially and formally, increasing the chances of its effective investigation.