Further to the previous article, which was published on our website on 14 April 2022, this time we would like to discuss in more detail the issues relating to groups of companies and binding instructions.

The amendment of the Code of Commercial Companies (hereinafter: “CCC”) introduces the definition of a group of companies in Article 4 § 1 item 5¹. A group of companies is defined as a parent company and a subsidiary or subsidiaries, being companies, guided, in accordance with a resolution on participation in a group of companies, by a common strategy to pursue the common interest (interest of a group of companies), justifying the exercise of a uniform management by the parent company over the subsidiary or subsidiaries.

Therefore, the definition of a parent company will also be amended to be understood as a commercial company that exerts a decisive influence on the operations of a subsidiary or a subsidiary cooperative, in particular by concluding an agreement between the parent company and the subsidiary providing for the management of the subsidiary or the transfer of profits by it.

The new regulations clarify the grounds for companies comprising a group of companies to follow a common economic strategy. As indicated in the amendment substantiation, this is intended to enable parent companies to exercise uniform management over their subsidiaries. As a result, the key term in the regulation will be „the group interest”, which, in addition to the company interest, should also be taken into account in the activities of the parent company and the subsidiary, unless they are intended at harming the creditors or minority shareholders of the subsidiary.

The provisions of Section IV are to introduce detailed regulations for participation in a group of companies. First of all, both the participation in a group of companies and the designation of the parent company will require a resolution adopted by the general meeting of shareholders or the general meeting of the subsidiary. These facts will have to be disclosed by the parent company and the subsidiary in the Register of Entrepreneurs at the National Court Register. In case of parent companies having their registered offices outside Poland, disclosure of the above information in the subsidiary’s register will suffice.

Another key change in connection with the introduction of a group of companies is the institution of binding instructions. Parent companies will be entitled to issue binding instructions to subsidiaries participating in the group of companies. The binding instructions may concern the handling of the company’s affairs, provided that they are justified by the interest of the group of companies and are not in conflict with specific provisions. Referring to the issued instruction, the subsidiary’s management board will have to adopt a resolution on the execution of the instruction and inform the parent company thereof, or adopt a resolution on refusal to execute the instruction and inform the parent company thereof.

The amendment allows subsidiaries to adopt a resolution on refusal to execute instructions, if:

• the execution would lead to the company’s insolvency or threat of insolvency,
• there is a justified fear that the instruction is in conflict with the company’s interest and will cause damage to it that will not be repaired by the parent company or another subsidiary being a member of the group of companies within two years of the event. Moreover, the company deed or articles of association may provide for other grounds for refusal.

The draft also indicates the requirements to be met by a binding instruction, i.e.:

• it must have the written or electronic form;
• it must indicate:
  • the subsidiary’s conduct expected by the parent company in connection with the execution of the binding instruction,
  • the interest of the group of companies that justifies the execution of the parent company’s instruction by the subsidiary,
  • the anticipated benefits or damages for the subsidiary, if any, which will result from executing the parent company’s instruction,
  • the anticipated manner and time for compensating the subsidiary’s damage incurred as a result of executing the parent company’s instruction.

In addition, the amendment introduces also other regulations relating to groups of companies, such as:

• the parent company’s right of access to the subsidiary’s documents,
• the right of the subsidiary’s shareholders or minority shareholders to file a motion with a court to appoint an expert to examine the accounts and operations of the group of companies,
• the parent company’s liability towards the subsidiary for any damage connected with the execution of a binding instruction and not remedied within the time limit set out in the binding instruction, unless it is not culpable,
• the parent company’s liability towards the subsidiary’s shareholders for reduction in the value of their shareholding resulting from the execution of the binding instruction by the subsidiary.