In 2018, Poland is experiencing a new wave of investments. It is growing and expanding in almost every area. Real estate and IT sector are the leaders but other sectors are also doing very well. The reason for such a dynamic growth is the positive economic prognosis and the good macroeconomic outlook. In other words, the internal rate of return in many lines of industry in Poland is much higher than in other European states. This is a strong magnet attracting investment to Poland.
What is the most common choice for an investment vehicle in Poland? Definitely it is a limited liability company which is similar to a German GmbH or an Italian societa a responsabilita limitata. It is an ideal vehicle for a medium scale operations. It is flexible and easy to operate at the same time. But there are some issues which need to be taken into account at the outset. Otherwise, they could develop into a problem. Getting things right from the start will increase the chances for a successful investment.
If you choose a limited liability company as your vehicle, you should be aware that there are rules in place in Poland that directors are liable for the company’s debts in case the company does not pay. This is quite unusual solution which does not exist in other jurisdictions. So, if you are going to be on the board - behold!
Under Polish law, the individual owners of the company are liable up to their capital contributions (i.e. the money which they paid in). They are never liable for the company’s debts. However, there are rules in the Polish Commercial Code that directors are liable for the company’s debts in case it does not pay. According to Article 299 of the Commercial Code, directors are personally liable for the company’s debts if the execution against the company turns out to be ineffective. So, if a creditor takes the company to court, wins the case and then tries to execute the judgement against the company but the company has no assets, then the creditor is allowed to sue directors for the entire amount of the company’s debt.
There has not to be any fault or guilt on the directors’ side. Directors become liable for the company’s debts automatically. This can be very dangerous for members of the board especially that their liability is joint and several which means that a creditor may choose whether to sue one of them or all of them (whatever will be easier for the creditor).
The directors can defend themselves against such claims only if they prove in the court of law that they filed a timely motion for bankruptcy which means 14 days from the moment when the company becomes technically insolvent. In the day-to-day practice, it is very difficult to ascertain the exact moment when the company is becoming insolvent. There could be some receivables which are not paid but should be paid. Sometimes even the loss of major client may trigger insolvency. The entire risk in this respect is shifted on the directors. They have to monitor situation and be ready to file a motion for bankruptcy.
Is there any way to avoid this liability? In practice, the answer is negative. If a company has debts and directors did not file a motion for bankruptcy on time, it is very likely that the directors will be held liable for the company’s debts. One of the solution to improve the situation is to divide responsibilities among the directors so that each of them is responsible only for his or her particular area. For instance: one person deals with the sales, another deals with the production and the third one deals with the accounting issues. If the scope of responsibility is clearly defined and the director’s actions may be assigned to the particular area, then a director from another area may defend himself by arguing that he or she has not been aware of the company’s situation and therefore can not be held liable.
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