Poland: Commercial Proxy (Prokurent) Liable for Failing to Submit a Bankruptcy Motion – New Rules Coming into Play in 2016

From 1 January 2016, in Poland, a commercial proxy (prokurent) will be liable for failing to submit a bankruptcy motion on time. This will be one of the results of the amendments introduced by a new Polish restructuring law.

Commercial proxy under Polish law

Under Polish law, a commercial proxy has wide authorisation to act on behalf of a company. It is entitled to represent an entrepreneur in most actions connected to the enterprise’s business activities and, in regard of third parties, cannot be effectively limited.

In Polish business practice, companies are commonly represented by commercial proxies in, for example, negotiating and signing agreements, authorising money transfers or submitting letters and in proceedings before courts or other authorities. Outsiders may think that commercial proxies hold similar positions to a management board member, but this similarity extends only to external company activities and dealings. In internal affairs and decision-making processes, management board members generally have greater rights and obligations than proxies.

Current liability for failing to submit a bankruptcy motion

Until now, one of the most important differences between management board members and commercial proxies has been the liability of commercial proxies (prokurent) in relation to a company’s legal obligations. Management board members are obliged to submit a bankruptcy motion within two weeks from the date when the grounds to file such a motion appeared (ie, from the date the company becomes insolvent). Every management board member is personally liable for damage caused to the company’s creditors by failing to submit a motion on time. Damage is calculated as the difference between the amount actually received by a creditor and the amount which a creditor would have received if the company’s representative had submitted a motion within the statutory deadline.

New liability rules

The above-mentioned liability rules will change as of 1 January 2016. The deadline for submitting a bankruptcy motion will be extended to 30 days and liability for failing to submit a motion will extend to commercial proxies as well. Furthermore, the amended law provides for an assumption that the damage caused to the company’s creditors is equal to the amount of receivables uncollected from the company.

The representatives of a company (including its commercial proxies) may avoid liability by proving: (i) that they are not culpable for failing to submit a motion, or (ii) that the restructuring proceedings of the company have commenced, or (iii) that the arrangement (układ) with the company’s creditors has already been approved.

Practical consequences

The new law makes commercial proxies personally liable for failing to submit a bankruptcy motion. The amendment also applies to commercial proxies appointed before 1 January 2016. As a result, every commercial proxy should pay special attention to the financial standing of a company to minimise the risk of overlooking a company over-indebtedness or actual insolvency.

In addition, commercial proxies may want to renegotiate their agreements with the companies they represent to reflect their extended liability, and to set out the scope of their obligations more strictly. If monitoring of a company’s financial standing is excluded from a commercial proxy’s scope of obligations, it could be argued that the commercial proxy is not culpable for failing to submit a bankruptcy motion. Judicial practice in upcoming months will soon show whether the courts will be willing to accept such a view.

Commercial proxies may want to renegotiate their contracts with the companies they represent to reflect their extended liability, and to set out the scope of their obligations more strictly.

author: Krzysztof Leśniak