Sanctions for failure to prepare and file financial reports with the registry court
Proper preparation of a financial report and filing the report with the registry court is the duty of the members of the management board of a company or the partners conducting the affairs of a partnership. Failure to comply with this duty is subject to corporate, civil and even criminal sanctions.
Under the Accounting Act of 29 September 1994, commercial companies and partnerships, like other units operating in Poland or with their management in Poland, are required to present their material and financial situation, including in the form of financial reports.
The duty to assure that an annual financial report is prepared, presented to the relevant corporate authority for approval, and then filed with the registry court, rests on the management of the unit.
The Accounting Act also establishes a duty to assure that the financial report is prepared accurately, i.e. in a fair and objective manner and in compliance with legal regulations. This duty rests on both the management of the unit and on the members of the supervisory board or other supervisory authority. If there is a violation of this duty resulting in a loss to the company, the management and the members of the supervisory authority are jointly and severally liable to the company to make up the loss.
Under the Accounting Act, the director of the unit is understood to include, in the case of a capital company, the member or members of the management board or other managing body. With respect to a partnership, the directors of the unit are the partners conducting the affairs of the partnership (or, in a professional partnership, the members of the management board, if appointed). The financial report is signed by the director of the unit, including all of the members if it is a body with multiple members.
Given the importance for transparency of filing financial reports, violation of the reporting requirement may result in criminal liability for the offences defined by the Accounting Act:
- Failure to prepare a financial report when required to do so, preparing a financial report not in compliance with the law, or including inaccurate data in a financial report (Accounting Act Art. 77(2))
- Failure to file a financial report or business report with the proper court register (Accounting Act Art. 79(4)).
Persons who may be guilty of the first offence include members of the management board of a company, as directors of the unit, as well as members of the supervisory board, as they are subject to a duty of assuring the accuracy of the financial report and its compliance with applicable regulations. This offence is punishable by a fine, probation or imprisonment up to 2 years.
Persons who may be guilty of the offence of failure to file a financial report with the proper register are, generally, only the directors of a unit, because they bear the statutory duty of filing the financial report. This offence is punishable by a fine or probation.
Conviction of one of these offences will result in the person’s entry in the National Criminal Register. It may also lead to a ruling by the court prohibiting holding positions in corporate authorities, if the court finds that in commission of the offence the perpetrator abused his or her office, or continuing to hold such a position poses a threat to significant legally protected interests.
The criminal sanctions apply to specific acts or omissions. This means that if financial reports are not filed with the court register for several years, each failure to file will be treated as a separate offence.
The level of punishment that may be imposed for an offence has an effect on the limitations period, i.e. the period during which the authorities may commence and conduct a proceeding against the perpetrator. The offences discussed above, involving failure to prepare and file financial reports, are both misdemeanours punishable by more than 3 years’ imprisonment. Consequently, under the Penal Code, the limitations period is 5 years from the commission of the offence, i.e. the deadline when a proper financial report was supposed to be prepared and filed with the court register. However, the limitations period is extended by another 5 years if during the main 5-year limitations period charges are filed against the specific person.
If a person is convicted of one of these offences, another important period is the period for wiping out the record of the conviction, when the information about the offence may be removed from the criminal register and the offence regarded as not having occurred. If the perpetrator is sentenced to imprisonment, regardless of the length of the prison term, the period for wiping out the record of the conviction is 10 years. But if the sentence is for imprisonment for a period of less than 3 years, the conviction may be wiped out upon application by the perpetrator after 5 years, assuming that he or she has not run afoul of the law during that time. In the case of a sentence of a fine or probation, the offence is wiped from the record 5 years after the sentence is carried out, forgiven or becomes time-barred, which occurs 10 years after the conviction becomes legally final. But upon request of the perpetrator, the court may order deletion of the conviction after 3 years.
It should be stressed that these offences must be committed culpably, i.e. with intentional fault. This means that in addition to proving the failure to prepare or file a proper financial report, it must also be proved that the perpetrator acted with the intention of committing the offence, i.e. wanted to commit the offence, or, when presented with the opportunity to commit the offence, agreed to it.
Under the National Court Register Act, the registry court may, in a compulsory proceeding (Art. 24) order a company to file a document, under penalty of a fine for failure to do so, if there is an obligation provided by law to file the document, which is the case with filing of financial reports. However, given the number of entities that have failed to file financial reports in recent years, this mechanism appears to be ineffective.
The practice in the criminal courts with respect to failure to file financial reports has also resulted for the most part in dropping the charges based on a finding of minimal social harm.
Nonetheless, particularly given the wave of recent events surrounding the Amber Gold scandal in Poland, there may be a change in the current attitude, resulting in a growing number of criminal notices for failure to file financial reports and, on the part of the courts, a departure from the prevailing mild approach to cases of this type.
Aleksandra Stępniewska, Dispute Resolution & Arbitration Practice, Wardyński & Partners