Poland is experiencing in 2018 a new wave of investments. The most common choice for Polish investments is a limited liability company which is similar to a German GmbH or Italian societa a responsabilita limitata. What is the right business structure for you and whether a limited liability company will be the most appropriate choice – this should be established by your advisors. Getting things right from the start will increase your chances for a successful investment.
If you choose a limited liability company as your vehicle for the investment in Poland, you should be aware that there are rules in place 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.
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 not 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. In other words, if a creditor takes the company to court, receives a verdict and then tries to execute this verdict against the company but the company has no assets, then this creditor is allowed to sue directors for the entire company’s debt.
There has not to be any “guilt” on the directors side. Directors become liable for the company’s debts automatically. This can be very dangerous for directors 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). It is like the old musketeers’ motto “one for all, all for one!”.
The directors can defend themselves against this liability if they prove in the court of law that they filed for bankruptcy on time which means 14 days from the moment when the company becomes technically insolvent. In day-to-day practice it is very difficult to ascertain the exact moment when the company is 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 decide what to do.
There is no way to limit this liability. Because the liability is joint and several the most prudent thing to do is to divide the area of responsibility 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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