Amendments to the Commercial Companies Act – changes in the area of holding law

Polish Parliament has commenced discussions on the government draft amendments to the Commercial Companies Act. The proposed changes will concern mainly the areas of holding law and corporate governance. The amendment provides, inter alia, for the authorisation of a parent company to issue a binding order to a subsidiary, which may cause potential problems while exercising the law.

The amendment responds to calls from the business community on making the regulations of holding law more specific by the legislator in the Commercial Companies Act and in particular the necessity for the governing bodies to consider the interests of a group of companies. Managing a group of companies is to be facilitated by the planned right of a parent company to issue a binding order addressed to a subsidiary.

A binding instruction shall be submitted by the parent company in written or electronic form, and its content will include in particular

i. a description of the expected action / omission of the subsidiary,

ii. the reasons for the order, including how it affects the interests of the group of companies,

iii. the expected benefits or damage to the subsidiary.

The management board, the proxy or the proxies of the parent company (to the extent of their authorisation) are indicated as persons authorised to issue a binding instruction to the subsidiary.

If the amendment is adopted and the new regulations enter into force, there is a risk that the management bodies of subsidiaries will be effectively deprived of any influence over the management of the company’s affairs, for the functioning of which they are responsible.