Greater liability of the proxy for the company’s obligations

December 10, 2015
Anna Wasilewska

As a result of amendments made to the Act of 28th February 2003 on Bankruptcy and Reorganization (consolidated text: Dz. U. of 2015, pos. 233, with amendments) under the Law of 15th May 2015 on restructuring (Dz. U. of 2015, pos. 978), since 1 January 2016 the liability of a proxy for the company’s obligations is going to change.

The current wording of Art. 20 paragraph 2 point 2 of the Law on Bankruptcy provides that anyone who has the right to represent the legal person or an organizational unit without legal personality that a separate law recognizes the legal capacity, either alone or jointly with others, is entitled to the filing of a bankruptcy petition. However, since 1st January 2016 an entity authorized to submit the petition in relation to legal persons and organizational units without legal personality that a separate law recognizes the legal capacity, will beanyone who under the act, the articles of association or the statute has the right to manage the affairs of the debtor and to represent him, individually or jointly with others“.

Consequently, it should be noted that the amendment broadens the circle of entities authorized to fill such a petition by proxies who – although not specifically mentioned in the abovementioned provision – in accordance with Art. 1091 of the Act of 23th April 1964 – the Polish Civil Code (consolidated text: Dz. U. of 2014, pos. 121, with amendments), as the people managing the affairs of companies and representing them, exceed the circle of entities for which this obligation has been introduced. That provision provides that “the proxy is a power of attorney granted by the entrepreneur subjected to a mandatory entry into the register of business entities, which includes the authorization to carry out judicial and extrajudicial acts, which are related to the course of business“. At this point it should be indicated that “the business has been included in the functional sense of this term” while the term “acts” should be understood as “an act related in any way to the carrying out each business and not just an act related to the carrying out the business of a particular entrepreneur” (J. Strzebinczyk [in:] E. Gniewek, P. Machnikowski (ed.), The Civil Code. Commentary, pub. 6, Warsaw 2014, Legalis).

Moreover, the scope of matters to which the proxy is authorized, stipulated in the Act, indicates his authority to make legal and substantive acts – therefore he may represent an entrepreneur outside, including before all courts, state agencies and self-government bodies (J. Strzebinczyk [in:] E . Gniewek, P. Machnikowski (ed.), The Civil Code. Commentary, pub. 6, Warsaw 2014, Legalis). As a consequence, it must be concluded that the proxy covers both acts related to managing the affairs of the company and representing it outside.

The result of enlargement of the circle of entities entitled to request a bankruptcy petition is a change of entities responsible for failure to file the bankruptcy petition in accordance with Art. 21 paragraph 1 of the Act on Bankruptcy. According to the current wording of Art. 21 paragraph 2 of the Act on Bankruptcy and Reorganization in the case of a debtor being a legal person or other organizational unit without legal personality, that a separate law recognizes the legal capacity the obligation to fill the bankruptcy petition within two weeks from the date of the occurrence a prerequisite to this rests “on anyone who has the right to represent it individually or together with others”. Faced with such wording of quoted provision this obligation applies to members of the board of the company now. In fact, in the doctrine and case law there has established a view that this liability under the current legal status does not include proxies.

On the other hand, resulting from the enactment of the Act on restructuring an amendment of Art. 21 paragraph 2 of the Act on Bankruptcy indicates to the obligation to fill of a bankruptcy petition to the court within 30 days from the date of the occurrence a prerequisite to this by anyone who under the act, the articles of association or the statute has the right to manage the affairs of the debtor and to represent him, individually or together with others, in a situation when the debtor is a legal person or other entity without legal personality that a separate law recognizes the legal capacity. Consequently, this obligation – for the reasons given above – will also include proxies. The opposite view of the proxy’s obligation to the fulfillment of a bankruptcy petition has been expressed by prof. P. Zimmerman, who said that “even after the amendment dated as of 1.1.2016, as in the previous legal status, to the group of persons obliged to submit petition do not belong proxies” (P. Zimmerman, Bankruptcy Law. Restructuring Law. Commentary, pub. 4, Warsaw 2016, Legalis).

The above conclusion prof. P. Zimmerman justifies by the introduction of the phrase “right to manage the affairs of the debtor” next to “to represent him” separate both phrases by “and” indicating of the conjunction. According to his statement the board members have the right both to manage the affairs and to represent, while proxies as entitled to judicial and extrajudicial acts which are associated with carrying out the business, do not have the authority to represent the company. Consequently, he states that it will not be met the total requirement specified in Art. 20 paragraph 2 point 2 and Art. 21 paragraph 2 the Act on Bankruptcy and Reorganization.

 

However, referring to considerations related to the scope of the mandate of a proxy, as well as to the justification for the bill of the Act on restructuring, it cannot agree with this view. It must be argued that the legislator’s intention has been that “the change of Art. 20 paragraph 2 point 2 of the Act on Bankruptcy and Reorganization aims to clearly eliminate doubt as to an entitlement to submit the petition by proxies”. In the justification there has been indicated that despite the dominant view in the literature about no obligation of proxies to submission of such a petition, this issue is not treated uniformly. The legal assurance requires that “in order to eliminate from the act ambiguous and questionable regulations. The corresponding change has been made in Art. 21 paragraph 2 the Act on Bankruptcy and Reorganization” (the justification of the bill of the Act on restructuring, pages 67-68, http://www.sejm.gov.pl/sejm7.nsf/druk.xsp?nr=2824). It follows that the introduction to the Art. 20 paragraph 2 point 2 and Art. 21 paragraph 2 the phrase “right to manage the affairs of the debtor” next to “to represent him” had to eliminate ambiguous, questionable provisions of the act and impose on proxies liability for filing of the bankruptcy petition within the statutory period almost equal to members of the company, in relation to which there are reasons to an announcement of bankruptcy.

Significantly, the obligation stated in paragraphs 2 implies the liability of proxies, as people obliged to submit a bankruptcy petition, for damage caused as a result of failure to submit it within 30 days from the date of occurrence grounds to declare a bankruptcy – unless they are not at fault. Proxies will be able to free themselves from the liability, especially if they can demonstrate that in the abovementioned period the restructuring proceedings have been opened or if the settlement has been approved in the procedure for approval of the settlement (Art. 21 paragraph 3 of the Act on Bankruptcy). As a result of changes proxies – in order to demonstrate no fault in failure of submit the petition within the statutory period, they will have to constantly monitor the financial situation of the company.

In accordance with paragraph 5 introduced to Art. 21 of the Act on Bankruptcy the liability for the failure of submit the bankruptcy petition within the statutory period will also be excluded during the conduct of execution by compulsory administration or by the sale of the company, on the basis of the Polish Code of Civil Procedure, when the obligation to submit the bankruptcy petition has been made during the execution.

It also should be pointed out that the amended act eliminates doubts to the amount of damages for failure to fill the bankruptcy petition within the statutory period in case of claiming compensation by the creditor of the insolvent debtor in this respect. Art. 21 paragraph 3a of the Act on Bankruptcy introduces a presumption that “the damage referred to in paragraph 3, includes the amount of unsatisfied claims of the creditor against the debtor.

To summarize, the changes to the Act on Bankruptcy, which will come into force on 1 January 2016, the situation of the proxy in the subject in which he has been called changes significantly. Proxies will be entitled to the filing of a bankruptcy petition, and thus they will be liable for failure to submit such petition within the statutory period. Legal basis:• the Act of 28th February 2003 on Bankruptcy and Reorganization (consolidated text: Dz. U. of 2015, pos. 23, with amendments),• the Act of 23th April 1964. – Polish Civil Code (consolidated text: Dz. U. of 2014, pos. 121, with amendments)• the justification of the Act on restructuring – http://www.sejm.gov.pl/sejm7.nsf/druk.xsp?nr=2824.