Dr Przemysław Szymczyk, Krzysztof Wiktor

It’s not just Giesche

The legal status of holders of pre-war bearer stock certificates remains unresolved.

This lack of clarity continues even though the validity of existing entries in court registers has been extended through the end of 2015 (pursuant to the Act of 22 November 2013 Amending the Provisions Introducing the National Court Register Act).

This was also mentioned in the ruling by the Katowice Regional Court on 27 January 2014 holding the reactivation of Giesche SA to be unlawful. The ruling gives pause for reflection on whether the current regulations in Poland governing trading in pre-war securities are sufficient, and whether such documents still embody shareholders’ rights or are merely of historical interest.

Valuable source of knowledge

Numerous articles have been published on the history of Giesche SA. The case has generated strong feelings and controversy largely due to the scale of the claims asserted against the Polish State Treasury by the shareholders of the reactivated company—over PLN 300 million.

Giesche SA is not the only company in Poland that was reactivated by the holders of pre-war bearer stock certificates. Many such holders decided to resurrect entities that existed before the Second World War so that they could then assert claims for damages against the state. The ruling in the Giesche SA case may therefore serve as a valuable source of knowledge on how to effectively become recognised as the shareholders of a pre-war joint-stock company. To answer this question, we should turn to the court’s reasoning in reaching its determination. The court held that the persons who had come into possession of the bearer shares did not effectively acquire the rights embodied in the certificates and therefore could not take steps to reactivate the pre-war company. The intention of the successive sellers of the certificates was to transfer ownership of documents solely of an historical nature. The buyers were aware that they were buying the certificates from persons who were not shareholders.

Acquisition of bearer share certificates as an antique collector does not mean also obtaining the status of a shareholder, the court reasoned—relying on the concepts of “collectors’ shares” and “collectors’ acquisition” which do not exist in the law.

The legal basis for the claim in the Giesche SA case was Civil Code Art. 921¹², under which transfer of rights to a bearer instrument requires delivery of the instrument to the acquirer. A person who acquires such a stock certificate from someone who is not a shareholder may acquire the rights embodied in the certificate only if the acquirer acts in good faith (Civil Code Art. 169). But the burden is on the party disputing that the buyer acted in good faith to prove that the buyer acted in bad faith.

Intention counts

Consequently, it is still possible to obtain the status of a shareholder of a pre-war joint-stock company, and to reactivate such entities. Given the specific nature of trading in securities issued by pre-war companies, it is crucial that the shares were acquired in good faith—that is, not solely for collector’s purposes.

But the decision in the Giesche SA case does not mean that it is possible to determine in all cases the status of persons holding pre-war bearer stock certificates. Unlike the well-known history of Giesche SA, it may be hard if not impossible to trace the post-war fate of many other old companies and the stock they issued.

This ruling once again exposes the lack of regulations adequately addressing the issue of trading in pre-war securities. The existing regulations do not adequately protect the interests of the State Treasury or the persons who have come into possession of bearer instruments issued before the Second World War.

Guarantees of due process

It should also be pointed out that there is a threat to the very legal existence of entities that have not been re registered in the National Court Register. The extension of the legal force of existing entries in old court registers (e.g. Commercial Register B) through 2015, as mentioned above, is a purely technical measure and only postpones the necessity to resolve this issue once and for all. The concept of loss of force of an entry as used in the act granting this extension has not been uniformly interpreted.

At one extreme, it could mean that entities which do not re register in the National Court Register by 31 December 2015 will cease to exist. Such a rule would raise constitutional doubts. Lawmakers still face a difficult challenge. It is up to the Parliament to guarantee that the process of reactivation of pre-war companies is conducted in compliance with the standards of democracy and the rule of law—including due protection of genuine rights arising under bearer securities.

Unlike the original shareholders of Giesche SA, shareholders of many pre-war companies never received any compensation for assets seized by the state, even when the nationalisation of property belonging to those companies was conducted in violation of the law in force at that time.

Krzysztof Wiktor and Przemysław Szymczyk, Reprivatisation Practice, Wardyński & Partners

The Polish version of this article was published in Rzeczpospolita on 9 April 2014.