Directors’ Duty of Care and the Business Judgment Rule in Poland

As the CEO you’re responsible for everything.
 
You have to accept responsibility for the company’s actions, even if something is not your fault. You serve as the official representative of the company and your decisions impact every aspect of the business, not only the bottom line.
 
There is always a risk with carrying out economic activity. The daily operation of a business, as well as its long-term strategy, requires making controversial decisions or taking actions that put the company at risk. All business decisions are to some extent risky, whether they involve starting a new line of business or buying another company. Generally speaking, higher profits require taking greater risks.
 
What happens if you’ve made a mistake and the company under your management incurred a significant loss, for instance, you have forgotten to enforce the outstanding invoices and the invoices became time-barred? Can the company (and the shareholders) sue you for payment?
 
In common law countries, there is legal principle called “business judgement rule” which protects directors of a company from personal liability to the company for loss incurred in business transaction that are within their capacity and power to make when sufficient evidence demonstrates that the transactions were made in good faith. The rule states that directors are presumed to act in "good faith"—that is, within the fiduciary standards of loyalty, prudence, and care directors owe to shareholders. Fiduciary standards include the "duty of care” and the "duty of loyalty”. The first is an obligation to act on an informed basis within the boundaries of reasonable business risk. The second requires directors to put the interests of the company and its shareholders over the interests of others.
 
In the example of time-barred invoices, it is very likely that the CEO will be responsible for the forgotten invoices because the duty of care has been breached. A reasonable manager should look after the business properly and keep an eye on outstanding invoices. But there could be many other cases where it is not so easy to decide whether the CEO has acted within the boundaries of the business risk or not, for instance buying or selling options.
 
In Poland, the legal situation of the CEO making a wrong decision is not clear. There is no business judgement rule in the law although Polish courts sometimes refer to this unwritten principle. The existing provisions in the Commercial Code state that the CEO can be held liable if he or she breaches the law or breaches the Articles of Association.
 
The Polish government is planning to introduce changes to the Commercial Code by adding a business judement rule. It will state that directors are not liable for a loss if they acted “within the boundaries of reasonable business risk” with with the degree of care, skill and diligence that may reasonably be expected from a manager. In the period of Covid -19 pandemic and the economic turbulences on the market, such an amendment is absolutely necessary.