An amendment to Poland’s Commercial Companies Code (KSH), in force since October 2022, changed the powers and duties of supervisory boards and management boards in company groups. If your capital company operates in a holding structure or plans to create one, check what you must implement: reports on contractual relationships, new supervision rules, information duties toward supervisory board advisers and deadlines for providing documents.
What is holding company law?
Holding company law, also called company group law or corporate group law, is a new section of the KSH. It governs relationships between a parent company and its subsidiaries within a company group, including:
- rules for issuing binding instructions by a parent company
- rules on liability for losses resulting from carrying out binding instructions
- new forms of protection for minority shareholders
Read more about holding company law itself here.
What is a company group: definition and limits
Under Article 4 §5¹ of the KSH, a company group consists of a parent company and one or more subsidiaries that are capital companies and:
- follow a common business strategy based on a resolution to participate in the company group
- pursue the group’s common interest
- operate under the unified management of the parent company
Who is covered, and who is not?
- Covered: capital companies only, including a spółka z o.o., a S.A. and a P.S.A.
- Not covered: partnerships. The rules use concepts such as “shareholders’ meeting” and “supervisory board,” so they cannot be applied to partnerships.
The definition of a company group uses several broad concepts, such as “common strategy” and “common interest.” This creates a risk of interpretive disputes. If you form a company group, use precise wording in the resolution and internal documentation.
Report on relationships: duty of a subsidiary’s management board
The management board of a subsidiary participating in a company group must prepare an annual report on the subsidiary’s contractual relationships with the parent company for the previous financial year.
What the report should contain
- Information about contractual relationships with the parent company.
- In particular, any binding instructions issued to the subsidiary.
What you should know
- The rules do not specify the form or deadline for publishing the report. Set these internally and document them.
- This duty cannot be excluded or modified by the company’s articles.
Ongoing supervision by the parent company over subsidiaries
Holding company law gives the parent company broad supervisory powers over subsidiaries in the group.
Who supervises?
- The parent company’s supervisory board exercises ongoing supervision over subsidiaries concerning the pursuit of the company group’s interest.
- The parent company’s management board takes over this role if the parent company has no supervisory board.
Scope of supervisory powers
- The right to review the subsidiary’s books and documents at any time.
- The right to request information from the subsidiary’s management board.
- If the subsidiary refuses, the right to apply to the registry court for an order requiring the subsidiary’s management board to provide documents or information.
Possibility of modifying supervision rules
The parent company’s articles may change supervision rules, including by:
- changing the entity authorized to exercise supervision
- defining the scope and rules of supervision
New supervisory board duties: increasing effectiveness
The KSH amendment clarified the list of supervisory board duties. The supervisory board must:
- Assess management reports on the company’s activities and the financial statements for the previous financial year.
- Assess management proposals on profit distribution or loss coverage.
- Prepare and submit to the shareholders’ meeting or general meeting of shareholders an annual report on the results of its assessment and a report on the board’s activities for the previous financial year.
Supervisory board inspection powers
The supervisory board may:
- examine all company documents
- inspect the company’s assets
- request from management board members, commercial proxies and employees, whether employed under an employment contract, a contract for specific work or a mandate contract, documents, reports and explanations concerning the company, particularly its activity or financial position
Deadline for providing information
Documents, reports and explanations must be provided to the supervisory board without delay and no later than 2 weeks after the request is made.
Supervisory board committees
Supervisory boards in spółki z o.o. and joint-stock companies may now establish ad hoc or standing committees made up of board members to carry out specified supervisory activities.
Supervisory board advisers: a new tool and penalties
A supervisory board may appoint ad hoc or standing advisers to verify specified matters concerning the company, such as its financial position.
Adviser’s powers
- Obtain information needed to verify the matters assigned to the adviser.
- The company’s management board must give the adviser access to documents and information.
Limitations
The company’s articles may:
- exclude or limit the supervisory board’s right to enter into agreements with an adviser
- authorize the general meeting to set the maximum annual cost of remuneration for supervisory board advisers
Penalty for failing to cooperate with an adviser
Failure to give an adviser access to information may result in:
- a fine of PLN 20,000 to PLN 50,000, or
- restriction of liberty
This creates a real risk for management board members. If the supervisory board appoints an adviser, make sure your team knows it must cooperate and provide documents on time.
Who is likely to use the holding company regime in practice?
Many experts indicate that the formal company group regime will mainly be used by State Treasury companies. The need to enter the holding regime is lower in the private sector.
When to consider forming a formal company group
- Companies in the group have different interests, for example because they operate in different industries or markets.
- Companies in the group conduct similar or competing activities and need coordination.
- Companies provide services to each other, such as administrative or accounting services, that might cost less outside the group, and you want to formalize those relationships.
What to do before deciding
- Check whether your company structure meets the definition of a company group in Article 4 §5¹ of the KSH.
- Assess the risks. Entering the holding regime means new reporting, supervisory and information duties.
- Consult the model with a legal adviser, especially regarding binding instructions and liability for losses.
- Prepare the documentation: a resolution to participate in the company group, supervision rules and reporting procedures.
Frequently asked questions
What exactly is a company group under the KSH, and which companies can enter the holding regime?
Under Article 4 §5¹ of the KSH, a company group consists of a parent company and one or more subsidiaries that are capital companies, follow a common business strategy, pursue the group’s common interest and operate under the parent company’s unified management. The holding regime covers capital companies only, including sp. z o.o., S.A. and P.S.A. Partnerships are excluded because concepts such as “shareholders’ meeting” and “supervisory board” do not apply to partnerships.
What new duties does a subsidiary’s management board have after the company joins a formal company group?
The management board of a subsidiary participating in a company group must prepare an annual report on the subsidiary’s contractual relationships with the parent company for the previous financial year, particularly any binding instructions issued to the subsidiary. The rules do not specify the form or publication deadline, so set and document these internally. The duty cannot be excluded or modified by the company’s articles.
What supervisory powers does a parent company have over a subsidiary following the KSH amendment?
Ongoing supervision over subsidiaries is exercised by the parent company’s supervisory board or, if it has none, the parent company’s management board, concerning the pursuit of the company group’s interest. These bodies may review the subsidiary’s books and documents at any time, request information from its management board and, if the subsidiary refuses, apply to the registry court for an order requiring the subsidiary to provide documents or information. The parent company’s articles may modify these rules, including changing the entity authorized to supervise and defining the scope of supervision.
How much time does management have to provide documents, explanations and reports to the supervisory board?
Documents, reports and explanations must be provided to the supervisory board without delay and no later than 2 weeks after the request is made. This is a firm deadline. Put a process in place to handle such requests so it is not missed accidentally.
What may happen to management if it does not give a supervisory board adviser access to information and documents?
Failure to give a supervisory board adviser access to information and documents may result in a fine of PLN 20,000 to PLN 50,000 or restriction of liberty. This is a personal risk for each management board member. If the supervisory board appoints an adviser, make sure your team knows this duty and has a process for providing documents on time.
