Delegation of supervisory board members of a limited-liability company
A member of the supervisory board of a limited-liability company may be delegated to act as a member of the company’s management board. How should this be handled effectively, and what should be expected?
Under Art. 220 of Poland’s Commercial Companies Code, the articles of association of a limited-liability company (sp. z o.o.) may expand the competencies of the supervisory board, but this provision only mentions certain examples of how this can be done. Unlike Art. 383 §1, which applies to joint-stock companies (SA), Art. 220 does not expressly provide for the possibility of delegating a member of the supervisory board to serve temporarily as a member of the management board, but it also does not expressly prohibit this practice. In line with the aims of the code, it is reasonable to accept the view of a number of commentators in the legal literature that it is permissible for the articles of association to expand the competencies of the supervisory board to include delegation of a member of the supervisory board to serve as an acting member of the management board.
By authorising the supervisory board in the articles of association to delegate its members to the management board, the shareholders ensure the smooth functioning of the management board in the event of sudden changes in its membership, particularly in the event of unanticipated resignations or dismissals. Delegation of members of the supervisory board to serve as acting members of the management board will be regarded as effective so long as the relevant provisions are included in the articles of association. But in light of the rule that the same person cannot hold multiple positions in the corporate authorities at the same time, when members of the supervisory board are delegated to act on the management board, their right to act within the supervisory board should be suspended for as long as the delegation lasts.
The question arises, how long a member of the supervisory board of a limited-liability company can be delegated to serve on the company’s management board? In the case of a joint-stock company, Art. 383 of the code specifies that this period should not exceed three months. Various views are asserted in the legal literature on whether this period can be extended. Some hold that the same supervisory board member cannot be appointed for a further period. Others hold that the prohibition on a prolongation of the same period also applies to other members of the supervisory board. Still others hold that it is permissible to delegate supervisory board members for successive three-month periods. But returning to limited-liability companies, it should be pointed out again that the code does not include an explicit provision authorising the supervisory board to delegate its members to serve on the management board, but such delegation may be authorised by the articles of association. For the same reason, it should be recognised that the time limitations provided for delegation of supervisory board members in a joint-stock company do not apply to limited-liability companies.
However, for organisational reasons, it is not recommended for this situation to be maintained for very long, and thus such time limitations should be provided for in the articles of association. Otherwise, there is a risk that delegation for an indeterminate period could be regarded as circumvention of the regulations in the code and the provisions of the articles of association governing appointment of the management board. Delegation for long periods, or repeated re-delegation, could be found to be de facto appointment of a supervisory board member to the company’s management board, rather than mere delegation as an acting member, thus violating the ban on combining the function of a management board member with the function of a supervisory board member (Art. 214 §1 of the code), effectively vesting too much control over the company’s affairs in a member of the supervisory board.
The question also arises whether the fact that a supervisory board member is delegated to act on the management board must be entered in the commercial register. Under Art. 39(1) of the National Court Register Act, there is a rubric in the commercial register designating the body authorised to represent the company and the members of that body. The act does not provide for disclosure of delegation to the management board, and a delegated member of the supervisory board does not become a member of the management board but is only authorised to perform the activities of a management board member.
Consequently, it is not mandatory to apply to the registry court for entry of the delegation in the commercial register, and the court may indeed reject such an application. It should be sufficient to submit to the registry file a copy of the resolution delegating the supervisory board member to act on the management board. While entry of information about delegation of a supervisory board member to the company’s management board is not required by the National Court Register Act, in practice such entries in section 2, item 1, of the commercial register are sometimes encountered. In such instances, the same person is also entered in section 2, item 2, as a member of the supervisory board. In any event, disclosure of this information in the commercial register can help further the company’s interests and contribute to legal certainty in the company’s commercial dealings.
Łukasz Śliwiński, legal adviser, M&A and Corporate practice, Wardyński & Partners