This content is from: Local Insights

Corporate benefit under Polish law

As the Polish economy matures, Polish entities are more and more often becoming part of the world's business ecosystem. But this does not only mean receiving benefits: for example, Polish entities are increasingly providing support to their parent and sister companies worldwide by becoming borrowers and, even more frequently, guarantors in global financings. They secure obligations worth billions of euros, while themselves they are usually worth only a fraction of the stake.

Though granting of guarantees or otherwise securing the obligations of other parties, including group companies, is certainly not prohibited under Polish law, the practices, inevitably, had to bring about questions of corporate benefit of the guarantor/security provider and related fiduciary duties of the managers. The term corporate benefit is not explicitly defined by the law, but legal writers and practitioners believe it can easily be construed on the grounds of various provisions of the Polish Commercial Companies Code.

From this perspective, members of the management board of a Polish entity are under a general duty to act in its best interest (and only its best interest, as Polish law does not recognise the concept of a group interest). They may be held liable (including also criminal liability as well as a ban from conducting business activities) for acting to the detriment of the company's interests due to entering into transactions without proper consideration, or into those which may have an adverse affect on the existence and/or financial position of the company. The requirement for "proper consideration" does not necessarily stand for consideration in cash; it is assumed that the term may be understood in a wider context and mean anything which represents real value to the company, for example access to intragroup financing provided on more beneficial terms than available on the market, access to technology/know-how possessed by the group, or access to clients or suppliers of the group.

To mitigate the risk of the management board members of the Polish entity being held liable for acting to the detriment of the company, the transaction documents (such as pertinent corporate authorisations) should provide evidence that, among other things, the company will receive the aforementioned proper consideration for entering into the transaction and that the managers have diligently analysed the risk of insolvency of the company due to its entering into the transaction and of the parent/sister companies whose obligations are being guaranteed or secured thereby.

It is also noteworthy that under Polish law the corporate benefit and observance of the fiduciary duties by the management board members will be assessed in the light of the entire transaction, notwithstanding any so-called corporate benefit wording whatsoever being included in the relevant transaction documents and/or corporate authorisations.

Borys D Sawicki

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