Joanna Szafrańska

Principles of social coexistence = good practices

According to the Supreme Court, a shareholders’ resolution inconsistent with principles of social coexistence violates good practices under Art. 249 §1 of the Commercial Companies Code.

In a resolution dated 30 December 2012 (Case No. III CzP 84/12), the Supreme Court of Poland held that a resolution of the shareholders’ meeting that is inconsistent with principles of social coexistence is deemed to violate good practices under Art. 249 §1 of the Commercial Companies Code.

The court was considering the issue of the legal consequences of a shareholders’ resolution that violates principles of social coexistence: Is the resolution absolutely void under Civil Code Art. 58 §2, or should the legal effects of the resolution be governed by Commercial Companies Code Art. 249 §1, which provides that a resolution may be set aside if it violates good practices and conflicts with the interests of the company or is intended to injure a shareholder?

In the justification for the ruling, the court stated that the decision on this issue required consideration of the overall relationship between Civil Code Art. 58 §§ 1 and 2 and the provisions of the Commercial Companies Code concerning sanctions with respect to shareholders’ resolutions violating good practices (Art. 249) or a statute (Art. 252).

The court reasoned that in order to assure certainty in commercial dealings, the drafters of the Commercial Companies Code intended for the code to govern independently and comprehensively the issues of defective shareholders’ resolutions and challenges to such resolutions. This led the court to conclude that the provisions of the Commercial Companies Code concerning challenges to shareholders’ resolutions for violation of good practices or a statute (Art. 249 §1 and 252 §1) are specific regulations in relation to the general regulations of the Civil Code (Art. 58 §§ 1 and 2), which provide for the absolute invalidity of legal acts contrary to a statute or principles of social coexistence. Under the position taken by the court, Civil Code Art. 58 § 1 in connection with Commercial Companies Code Art. 2, providing for absolute invalidity, applies to shareholders’ resolutions only in instances not expressly governed by the relevant sections of the Commercial Companies Code, particularly Art. 252 §1—that is to say, resolutions adopted with the intention of circumventing the law or in violation of public law, particularly criminal law.

The Supreme Court cited the position taken in the past (e.g. in the judgment of 20 October 2011, Case No. III CSK 5/11), in which it found that the Commercial Companies Code comprehensively governs the issue of challenges to a resolution of the shareholders’ meeting with respect to its compliance with a statute, the articles of association, or good practices, and held that the sanction of invalidity follows from the Commercial Companies Code, not the Civil Code.

The court further concluded that Commercial Companies Code Art. 252 §1, concerning resolutions inconsistent with a statute, is a specific regulation in relation to Civil Code Art. 58 §1, while Commercial Companies Code Art. 249 §1 is a specific regulation in relation to Civil Code Art. 58 §2, specifying a type of substantive legal sanction (relative invalidity) resulting from an action to set aside a shareholders’ resolution as contrary to good practices. The court took the view that this interpretation is not overcome by the inconsistency in the language used in the two provisions, where Civil Code Art. 58 §2 refers to “principles of social coexistence” and Commercial Companies Code Art. 249 §1 refers to “good practices.”

According to the Supreme Court, the phrase “good practices” plays the same role in the Commercial Companies Code as the phrase “principles of social coexistence” in the Civil Code, and there is no difference between these two concepts. Adoption of the phrase “good practices” in the Commercial Companies Code is just an example of the trend in Polish legislation to depart from the phrase “principles of social coexistence,” rejecting the ideological overtones of the phrase from the communist era.

Since Poland’s transformation from communism to a free-market democracy, the concept of “principles of social coexistence” may now be free of ideological overtones, but lawmakers have nonetheless gradually eliminated references to this phrase in laws. This is the case with the Commercial Companies Code, which does not refer to principles of social coexistence, but to good practices instead.

The court stressed that an interpretation under which Civil Code Art. 58 §2 in connection with Commercial Companies Code Art. 2 would apply to shareholders’ resolutions inconsistent with principles of social coexistence, and Commercial Companies Code Art. 249 §1 would apply to resolutions inconsistent with good practices, would assume irrationality on the part of the Parliament, because a shareholders’ resolution violating principles of social coexistence would be subject to the sanction of absolute invalidity under Civil Code Art. 58 §2 in connection with Commercial Companies Code Art. 2, while a shareholders’ resolution violating good practices would be subject only to the sanction set forth in Commercial Companies Code Art. 249 § 1—that is, it could be challenged in an action to set aside the resolution. This would cause a conflict between the rules set forth in Civil Code Art. 58 §2 and Commercial Companies Code Art. 249 §1. It would effectively render Art. 249 §1 moot, because the sanction of absolute invalidity (under which the resolution is void) would take precedence over the sanction of relative invalidity (which only provides grounds for seeking to set aside the resolution). Such an interpretation would lack systemic coherence and would violate principles of proper legislation.

Joanna Szafrańska, Mergers & Acquisitions Practice, Wardyński & Partners