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Excessive requirements for members of supervisory boards at joint-stock companies

The basic obligation of the supervisory board is to oversee the activities of the management board, so that it acts in compliance with applicable laws, good practices and the company’s best interest. Based on the draft bill amending the Code of Commercial Companies, the lawmaker intends to extend the powers of supervisors, e.g. by allowing them to obtain information on the company’s operations, which is supposed to ensure information-related balance between the management board and the supervisory board. At the same time, the plan is to implement more options of penalizing supervisory board members. Supervisory authorities are starting to set requirements that few supervisory board members are able to meet.

Capacity to act as a supervisory board member

The activities of supervisory boards at joint-stock companies are governed predominantly by article 382 § 1 of the Code of Commercial Companies, according to which a supervisory board performs ongoing supervision over the company’s operations in all their aspects. Who can serve as a supervisory board member? Pursuant to article 18 of the Code of Commercial Companies, this can be a natural person who has full legal capacity and has not been convicted for specific offences under the Criminal Code, i.e. offences against protection of information, credibility of documents, assets, business, civil-law transactions, and money and securities trading, as well as the offences discussed in articles 585, 587, 590 and 591 of the Code of Commercial Companies.

Additional requirements need to be fulfilled by candidates for supervisory board members at enterprises owned in total or in part by the State Treasury. These criteria are covered by articles 19-21 of the State-Owned Assets Management Act, and involve (among others) the obligation to have adequate educational background, professional title and certificates (incl. ones awarded on the basis of relevant exams).

Pursuant to the Certified Auditors Act, it is required to appoint an audit committee at public interest entities only. One of the members of such committee needs to have knowledge and skills in accounting or auditing.

Consequently, there are no additional criteria regarding knowledge or experience, which should be met by supervisory board members, unless they also serve as members of the audit committee. This means that shareholders are free to choose supervisory board members who – due to their professional skills and qualifications – will ensure effective supervision over the company’s operations.

Supervisory boards made up of financial experts only

We have recently witnessed a change in the approach of the Polish Financial Supervision Authority which is starting to require all members of supervisory boards to have substantial expertise in accounting or auditing, combined with knowledge of the industry in which a given company operates, even if they do not act as members of the audit committee. As a result, the Polish Financial Supervision Authority is increasingly pointing to the liability of supervisory board members in case of any inadequacies in the financial reporting processes.

It is worth analyzing two main provisions that determine the scope of tasks performed by supervisory board members, i.e. article 382 of the Code of Commercial Companies and article 4a of the Accounting Act. They form the basis to assume that a supervisory board is obliged to verify the accuracy of the procedure involving the preparation and submission/publication of financial statements. The above does not mean, however, that members of supervisory boards are responsible for a substantive review of financial reports, or that they are obliged to arrive at the same findings as those identified by accounting professionals, i.e. auditors or audit committee members. The objective of the supervisory board’s evaluation of financial reports is to determine whether they fairly present the company’s financial standing. Nevertheless, supervisory board members are not required to boast specialist knowledge of accounting; instead, they are only supposed to showcase the knowledge of basic functions and principles related to balance sheets, profit and loss accounts, other financial documents and balance sheet valuation. Their knowledge of these areas is necessary to make a general assessment of whether the management board’s key accounting decisions reflect the company’s interests, have been made with due diligence and are reasonable from the economic perspective[1].

Financial reporting and the audit committee

As a general rule, public interest entities are obliged to have an audit committee whose members are responsible for a comprehensive audit of the company’s financial reporting. The role of the audit committee is to release the supervisory board (as a whole) from the obligation to perform professional monitoring over financial reporting. This conclusion also arises from the Code of Best Practices for WSE-Listed Companies, which notes that the scale and nature of operations of most public companies are extensive. Hence, it is virtually impossible for supervisory board members to independently perform the supervision tasks specified in applicable legal regulations. This produces a situation in which the supervisory board needs to rely on internal processes and functions, e.g. the audit committee; sometimes, it is also necessary to use the services of external entities/individuals, particularly auditors and audit firms[2].

The above leads to the conclusion that joint-and-several liability of members for inadequacies in financial statements may only emerge if it is established that each of the members bears individual liability resulting from failure to abide by the standards applicable to their functions, so long as the obligations and requirements for each member of the supervisory board have been precisely defined[3].

Different qualifications = broad supervision options

If all members of a supervisory board had financial expertise, this would make it nearly impossible to properly supervise the operations of a given company. For example, it would be extremely difficult to analyze contracts or transactions in various fields as supervisors would simply not have any idea about them. Consequently, it is crucial to combine diverse industry-specific experience and the professional skills of supervisory board members. Apart from financial and legal expertise, industry knowledge and the ability to broadly analyze a company’s problems, the ability to thoroughly review the company’s transactions or to assess HR issues are of considerable importance for the efficient operations of a supervisory board and proper cooperation with the management board.

As noted in the Diversity in Supervisory Boards 2021 report, it is not the supervisory board’s task to persistently contest the management board’s actions or to blindly accepts such actions. Given the vast number of tasks and responsibilities, only a diverse (in terms of education, experience, qualifications, age and gender) supervisory board, which is at least partially independent from the majority shareholder, offers an actual opportunity to come up with the best solutions and effectively supervise the company’s operations[4]. Supervisory boards should be composed in a way that ensures the representation of different skills/qualifications, thus favorably influencing the overall quality of supervision.

Summary

Supervisory board members should always be selected on the basis of the needs of a given company, the scale and profile of its operations, business dynamics, technological developments or the expectations of its customers. Only by staffing the supervisory board with specialists in various fields is it possible to ensure proper supervision. Needless to say, some members should have knowledge and skills in accounting and auditing, e.g. in order to form the company’s audit committee or to properly analyze financial documents. However, it cannot be expected that all board members will be financial experts because in such case, there would be an insufficient number of adequate candidates in the market. This is yet another reason to negatively assess any legislative changes, such as the intended new version of article 96 section 6a item 2 of the Public Offering Act, which would make it possible to impose liability directly on supervisory board members for companies’ offences related to financial reporting. The same applies to the Polish Financial Supervision Authority’s extension of requirements concerning the financial knowledge of all supervisory board members. Such actions will result in a drop in the number of professional members of supervisory boards, who are aware of the growing risks associated with the performance of supervisory functions.

[1] E. Krześniak, Odpowiedzialność członków rady nadzorczej spółki akcyjnej za prawidłowość sprawozdań finansowych spółki [Responsibility of supervisory board members at a joint-stock company for the adequacy of the company’s financial statements], Przegląd Prawa i Administracji 112, 2018; https://repozytorium.uni.wroc.pl/Content/109206/07_Krzesniak_E_J_Odpowiedzialnosc_czlonkow_rady_nadzorczej_spolki_akcyjnej_za_prawidlowosc_sprawozdan_finansowych_spolki.pdf

[2] https://www.gpw.pl/pub/GPW/files/PDF/dobre_praktyki/Wskazowki_DPSN2021_v2_29.07.21.pdf

[3] Nowe obowiązki spółek publicznych i członków organów – implementacja do prawa polskiego dyrektyw 2006/43/WE i 2006/46/WE [New obligations of public companies and members of their bodies – transposition of directives 2006/43/EC and 2006/46/EC], prof. dr hab. Adam Opalski, MOP 2010, No. 5.

[4] za: Piotr Rybicki [w:] https://www.wmadvisory.pl/wp-content/uploads/2021/11/Raport-30-Club-Poland-Investor-Group-final.pdf

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Piotr Wojnar
Adwokat / Partner zarządzający
+48 22 420 59 59
piotr.wojnar@actlegal-bsww.com

Łukasz Świątek
Adwokat / Starszy prawnik
+48 22 420 59 59
lukasz.swiatek@actlegal-bsww.com

Katarzyna Krzykwa
Aplikant adwokacki / Prawnik
+48 22 420 59 59
katarzyna.krzykwa@actlegal-bsww.com

act legal Poland advises on financing of prestigious apartment hotel project in Gdynia

act BSWW legal & tax advised an investment company, CVI, on a debt financing transaction involving the issue of bonds with a total value of PLN 38 million. The funds obtained by the issuer, Affiliate Gdynia, a special-purpose vehicle associated with the key management staff of the Allenort Group, served to co-finance the purchase of the real estate located at Kościuszko Square in Gdynia. The bonds redemption is scheduled for October 2026.

The planned investment project entails the construction of one or more five-storey buildings accommodating a hotel, residential apartments and retail space. The project will be implemented in the city’s most popular section, close to Gdynia Marina, the Gdynia Aquarium, the beach and the harbour, offering a view onto the iconic ships ORP Błyskawica and Dar Pomorza.

act BSWW legal & tax advised on the preparation of the issue documentation and establishment of collaterals, as well as on negotiations of the issue terms and conditions.

The transaction was handled by Piotr Smołuch (Managing Partner, Head of the Bonds) and Sebastian Sury (Partner), supported by Kornelia Walczak (Senior Associate) and Edyta Krzepicka (Associate).

CVI is an independent investment firm operating since 2012, focusing on investments in Central and Eastern Europe. CVI manages 7 investment funds with a total AUM of almost PLN 4 billion (as of December 2020). CVI provides flexible financing solutions for SMEs that address a wide range of capital needs (e.g. capital expenditure, working capital, LBOs, refinancing, recapitalizations and restructurings).

Upper Finance was responsible for obtaining the financing.

act BSWW legal & tax provides comprehensive debt financing advisory services. The team has conducted over 500 debt financing transactions with a total value of almost PLN 7 billion.

act legal Poland advises TK Finans Tomasz Księżopolski on the bond issue

The Bonds Team provided comprehensive legal advice to TK Finans Tomasz Księżopolski in relation to the issue of 3-year bonds worth PLN 20 million. The funds obtained from the issue will be used to finance a real estate development project in Lublin.

The firm’s advisory covered the preparation of issue documentation and collaterals, as well as the negotiation of issue terms and conditions. The law firm also conducted an analysis of the legal status of the real estate collateral.

The transaction was led by Kornelia Walczak (senior associate) assisted by Cezary Zieliński (associate). The analysis of the legal status of the real estate collateral was carried out by Michał Semetkowski (senior associate). The project was supervised by Piotr Smołuch, managing partner, head of the Bonds Team.

act BSWW legal & tax provides comprehensive debt financing advisory services. The team has conducted 500 debt financing transactions with a total value of almost PLN 7 billion.

Capital Newsletter

Crowdfunding services in light of ECSP Regulation

November 10, 2021 marks the effective date for Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937 (the “ECSP Regulation”). It lays down uniform requirements for the provision of crowdfunding services and for the organization of crowdfunding service providers, applicable to all EU Member States. This seems to be the right moment to take a closer look at how the ECSP Regulation will influence the Polish and European crowdfunding market.

1. What are crowdfunding services according to the ECSP Regulation?

The ECSP Regulation covers two types of crowdfunding services:

– lending-based crowdfunding – consisting in the facilitation of granting of loans, defined as agreements whereby an investor makes available to a project owner an agreed amount of money for an agreed period of time, and whereby the project owner assumes an unconditional obligation to repay that amount to the investor, together with the accrued interest, in accordance with the instalment payment schedule;

– investment-based crowdfunding – the placing, without a firm commitment basis, of transferable securities and admitted instruments for crowdfunding purposes, and the reception and transmission of client orders. This means that the role of a crowdfunding service provider comes down to the “sale” of such securities/instruments on the public market. The provider is not obliged to subscribe the instruments that have not been acquired by third parties, unlike in the case of other types of placements.

2. How will the ECSP Regulation affect the maximum issue value as part of crowdfunding campaigns?

Until November 10, 2023, the maximum issue value with respect to investment-based crowdfunding is going to be EUR 2.5 million. After that date, the threshold will rise to EUR 5 million. The issue of securities whose total value will exceed the respective amount shall be based upon the conditions specified in Regulation (EU) 2017/1129.

As a general rule, the ECSP Regulation applies to crowdfunding offers with a consideration of more than EUR 5,000,000, which are to be calculated over a period of 12 months as the sum of:

– the total consideration of offers of transferable securities and shares in private – limited liability companies, and amounts raised by means of loans through a crowdfunding platform by a particular project owner; and
– the total consideration of offers to the public of transferable securities made by – the project owner in its capacity as an offeror pursuant to Regulation (EU) 2017/1129.

However, for a period of 24 months from November 10, 2021, in case the threshold of total consideration for the publication of a prospectus in accordance with Regulation (EU) 2017/1129 is below EUR 5,000,000 in a given Member State, the ECSP Regulation shall apply in that Member State only to crowdfunding offers with a total consideration up to the amount of that threshold. In Poland, that amount is set at EUR 2,500,000.

3. Which entities will be allowed to provide crowdfunding services?

Crowdfunding services can be provided by legal entities with their registered office in the European Union, which have obtained an authorization from a competent authority (in Poland: the Financial Supervision Authority). The European Securities and Markets Authority (ESMA) will hold a register of all authorized crowdfunding service providers. The fact that such authorizations can be given exclusively to legal entities means that in Poland, only private limited liability companies, joint-stock companies and simplified joint-stock companies will be able to provide crowdfunding services. Partnership will be excluded due to their lack of legal personality.

It is worth noting that in its announcements issued in relation to the risk of failure to adjust the Polish legal system to the ECSP Regulation until November 10, 2021, the Financial Supervision Authority notes that until the Polish business crowdfunding act (the “Crowdfunding Act”) is adopted, there will be no designated authority that could grant the aforesaid authorizations, which will render it impossible to embark on licensing processes. Pursuant to the ECSP Regulation, the competent authority shall, within three months from the date of receipt of a complete application, adopt a decision granting or refusing to grant authorization. Consequently, crowdfunding service providers might find it difficult to adapt their operations to the new laws before the end of the transitional period (i.e. until November 10, 2022).

4. Can shares in a private limited liability company be covered by an investment-based crowdfunding campaign?

Based on new crowdfunding regulations, shares in a private limited liability company cannot be subject to a crowdfunding campaign. Investment-based crowdfunding can involve transferable securities or other admitted instruments for crowdfunding purposes. The latter means, in respect of each Member State, shares of a private limited liability company that are not subject to restrictions that would effectively prevent them from being transferred, including restrictions to the way in which those shares are offered or advertised to the public. The draft Crowdfunding Act involves a ban on addressing offers for subscription of shares in private limited liability companies to unspecified recipients, and on promoting them through advertising or other forms of promotion intended at unspecified recipients. This legislative change would mean that it is not possible to conduct crowdfunding campaigns concerning shares in private limited liability companies.

5. Does the ECSP Regulation include different investor statuses, depending on their level of experience?

MiFID 2 does not apply to crowdfunding service providers. The ECSP Regulation distinguishes between sophisticated and non-sophisticated investors. In order to be categorized as a sophisticated investor, it is necessary to submit a relevant request. The approval of the sophisticated investor status shall have a validity term of two years.

Legal entities meeting at least one of the following criteria shall be regarded as sophisticated investors: own funds of at least EUR 100,000; net turnover of at least EUR 2,000,000; or balance sheet of at least EUR 1,000,000. Natural persons meeting at least two of the following criteria shall be regarded as sophisticated investors:

– personal gross income of at least EUR 60,000 per fiscal year, or a financial instrument portfolio, defined as including cash deposits and financial assets, that exceeds EUR 100,000;
– the investor works or has worked in the financial sector for at least one year in a professional position which requires knowledge of the transactions or services envisaged, or the investor has held an executive position for at least 12 months in a legal entity that meets the sophisticated investor criteria;
– the investor has carried out transactions of a significant size on the capital markets at an average frequency of 10 per quarter, over the previous four quarters.

6. How does the ECSP Regulation protect non-sophisticated investors?

Pursuant to the ECSP Regulation, before giving prospective non-sophisticated investors full access to invest in crowdfunding projects, it is required to assess whether and which crowdfunding services offered are appropriate for them. For that purpose, service providers will be obliged to carry out an entry knowledge test and simulation of the ability to bear loss.

In case a non-sophisticated investor plans to invest an amount that exceeds the higher of either EUR 1,000 or 5% of their net worth, the crowdfunding service provider shall ensure that such investor receives a risk warning, submits an express consent, and proves to the crowdfunding service provider that the investor understands the investment and its risks.

Moreover, the ECSP Regulation provides for a four-day reflection period for non-sophisticated investors. During that period, the prospective non-sophisticated investor may revoke their offer to invest or expression of interest in the crowdfunding offer, without specifying any reason and without incurring any penalty. Crowdfunding service providers are obliged to adequately inform non-sophisticated investors about their rights related to the reflection period.

7. Can a crowdfunding platform facilitate the investors’ further trading of rights acquired as part of crowdfunding?

Crowdfunding service providers may operate a bulletin board on which they allow their clients to advertise interest in buying and selling loans, transferable securities or admitted instruments for crowdfunding purposes that were originally offered on their crowdfunding platforms. Nevertheless, the bulletin board shall not be used to bring together buying and selling interests by means of the crowdfunding service provider’s protocols or internal operating procedures in a way that results in a contract.

8. Does an authorization issued in Poland make it possible to provide cross-border services?

Pursuant to the ECSP Regulation, a provider that has obtained an authorization is entitled to perform crowdfunding services in another Member State, as long as it has gone through the relevant validation procedure. In order to do, it is required to provide the domestic supervisory authority with a notice about the intention to embark on cross-border operations. Such notice will be forwarded to supervisory authorities in the target Member States and ESMA.

9. How is the ECSP Regulation going to affect the Polish investment-based crowdfunding services?

Until now, Polish investment-based crowdfunding platforms have operated upon the principle of freedom of business activity. They have acted as entities that operate websites which deliver solutions making it possible to advertise public offers. Domestic entities will be obliged to adjust their activities to the ECSP Regulation and to obtain an authorization from the Financial Supervision Authority. It is worth noting that providers can continue their operations in accordance with the existing domestic regulations until the earlier of November 10, 2022 or the date when they obtain the authorization.

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Piotr Wojnar
Attorney-at-law / Managing Partner
+48 22 420 59 59
piotr.wojnar@actlegal-bsww.com

Łukasz Świątek
Attorney-at-law / Senior Associate
+48 22 420 59 59
lukasz.swiatek@actlegal-bsww.com

Przemysław Kret
Trainee Attorney-at-law / Associate
+48 22 420 59 59
przemyslaw.kret@actlegal-bsww.com

 

act legal Poland advises 7R on PLN 41.3 mln bond issue

act BSWW legal & tax advised Kallisto 17, a company from the 7R SA group, on a bond issue with a nominal value of PLN 41.3 million. The funds obtained from the issue will serve to finance a logistics investment project in the Tricity. The bonds redemption is scheduled for October 2024.

The Bonds Team advised comprehensively on the preparation of the issue documentation and establishment of collaterals, as well as on negotiations of the issue terms and conditions.

The bond issue project was led by Łukasz Piekarski (Partner), supported by associates Milena Zawisza, Kamil Stankiewicz and Cezary Zieliński. The project was supervised by Piotr Smołuch, Managing Partner and Head of Bonds.

act BSWW legal & tax provides comprehensive debt financing advisory services. The team has conducted 500 debt financing transactions with a total value of almost PLN 7 billion.

Łukasz Świątek joins Capital Markets Team at act legal Poland

act BSWW legal & tax has strengthened its Capital Markets practice with the arrival of a senior associate Łukasz Świątek.

Łukasz has over five years of experience in capital markets transactions, with a strong focus on tender offers, acquisitions of significant blocks of shares, delisting and IPOs/SPOs.

He also advises companies listed on the main market of the Warsaw Stock Exchange and New Connect on ongoing corporate issues, including fulfillment of disclosure obligations, communication with shareholders and supervisory authorities, conduct of general meetings and implementation of incentive schemes.

He is an author of numerous publications on the capital market and commercial law, as well as a co-author of the comments the Anti-Money Laundering and Counter-Terrorism Financing Act.

Since 2020, he has been a member of the Supervisory Board of a brokerage house, Ceres Dom Inwestycyjny S.A.

Before joining the team of act BSWW legal & tax, he worked for leading Polish law firms.

We are delighted that Łukasz has joined our team. I am convinced that his transactional experience will translate into further growth of our practice,” says Piotr Wojnar, Managing Partner, Co-Head of Capital Markets Practice at act BSWW legal & tax.

act legal Poland advises 7R on PLN 51 million bond issue

act BSWW legal & tax advised a company from the 7R SA group on a bond issue with a nominal value of PLN 51 million. The funds obtained from the issue will serve to finance three real estate projects in Gdańsk, Katowice and Kraków. The bonds redemption is scheduled for July 2024.

The law firm advised comprehensively on the preparation of the issue documentation and establishment of collaterals, as well as on negotiations of the issue terms and conditions.

The transaction was led by Łukasz Piekarski (Partner), supported by Małgorzata Czarnecka (Associate). The project was supervised by Piotr Smołuch, Managing Partner and Head of Bonds.

act BSWW legal & tax provides comprehensive debt financing advisory services. The team has conducted more than 500 debt financing transactions with a total value of over PLN 6 billion.

act legal Poland advises Cordia on its first bond issue in Poland

act BSWW legal & tax advised Cordia Polska, a member of a Hungarian development group, on the issue of three-year A-series bonds worth PLN 68.8 million. The bond issue was arranged by Michael / Ström Dom Maklerski S.A., which also acted as the offering agent.

The bonds were launched into the alternative trading system at Catalyst. The funds obtained will support Cordia’s further expansion in Poland.

The law firm provided comprehensive advice on the bond issue documentation and collaterals, while also performing the function of the collateral agent.

The project was led by Piotr Smołuch (Managing Partner) and Sebastian Sury (Partner).

Cordia forms part of the highly capitalised, Hungarian-owned Futureal Group, one of Central Europe’s largest property development and investment groups. Cordia operates in Hungary and Romania, and has also been operating in Poland since 2014, where it has been consistently expanding its portfolio of completed and ongoing residential projects.

act BSWW legal & tax provides comprehensive debt financing advisory services. The team has conducted more than 500 debt financing transactions with a total value of over PLN 6 billion.

act legal Poland advises on prestigious project in premium hospitality sector

act BSWW legal & tax has comprehensively advised on a complex investment process involving the luxury 5-star Baltic Wave hotel in Kołobrzeg.

The team consulted MA Investment sp. z o.o. on the acquisition of 100% shares in Baltic Wave sp. z o.o., the company conducting the investment process. In addition, the acquisition of Baltic Wave sp. z o.o. was combined with the issue of bonds to refinance the company’s existing debt. The new financing structure was adjusted to the current construction schedule and the hotel’s intended standard.

The law firm also advised on execution of the general contractor agreement with FB Antczak sp. z o.o., a company that has been acting as the general contractor since July.
The law firm’s team was made up of Piotr Smołuch, Managing Partner, Sebastian Sury (Partner), Edyta Krzepicka (Associate) and Arkadiusz Kocel (Associate).

We are pleased to have participated in this complex investment process. We have been involved in it from the very beginning, so it is even more satisfying to see it come to life. The Baltic Wave Hotel is definitely a unique project in the Polish hospitality market and one of the largest in the coastline at the moment,” emphasizes Piotr Smołuch, Managing Partner at act BSWW legal & tax.

The luxurious five-star Baltic Wave Hotel, which is emerging under the Crowne Plaza brand just 200 meters from the beach in Kołobrzeg’s health resort district, will ultimately comprise 468 apartments on 14 floors. The hotel will have an infinity edge swimming pool, a luxurious spa & wellness area, restaurants and cafés, as well as modern conference space for 500 people. The hotel will operate in the self-service system.

act legal Poland advises Cavatina Holding S.A. on bond issue

The law firm advised Cavatina Holding S.A. on the PLN 23 million issue of F-series bonds.

The team provided comprehensive advice on the preparation of bond issue documentation. The bonds redemption date is 31 March 2024.

The transaction was handled by Matylda Juzala, Partner, with Piotr Smołuch, Managing Partner and Head of Bonds, acting as the project supervisor. Michał Semetkowski (Senior Associate) and Kamil Stankiewicz (Associate) were also involved in the transaction.

act BSWW legal & tax provides extensive advisory services on debt financing. The team has conducted nearly 500 debt financing transactions worth a total of over PLN 6 billion.