13 October 2022 is an important date for owners and holders of corporate bodies as well as practitioners of commercial law. On that day, an amendment to the Polish Commercial Companies Code and certain other acts comes into force. Under the amendment, the business judgement rule will be introduced into the Code to a wider extent.
Until now, this rule has only been applied to recently established Simple Joint Stock Companies, while the amendment introduces an analogous principle with regard to the directors of a limited liability company and a joint-stock company.
The new provisions of Article 293 § 3 and Article 483 § 3 of the Commercial Companies Code will contain a presumption that the members of the body did not breach the duty to exercise due care resulting from the professional nature of their activity, if, acting in a loyal manner towards the company, they acted within the limits of justified economic risk, including acting on the basis of information and factual studies which should be taken into account when making corporate decisions. With that said, the burden of proof for demonstrating the aforementioned circumstances rests on the defendant organ member (art. 6 of the Civil Code).
The principle of business judgement creates a so-called safe harbour for organ members. A member of an organ of a capital company can be wrong as long as he or she acts professionally and loyally towards the company and the decision-making process has been preceded by a proper factual analysis.
The business judgement rule also recognises that business decisions are often made under conditions of uncertainty or risk. By taking reasonable business risks, companies can achieve higher profits, make territorial expansion and invest in technological development. Indeed, risk is integral to the idea of growth. Taking reasonable business risks can therefore be a prerequisite for the success of a venture, while avoiding them can determine failure.
Furthermore, in the light of the business judgement rule, the actions of board members should be assessed not retrospectively, through the perspective of current results, but at the time of the decision, taking into account the circumstances existing at that time.
The measure of care and the scope of application of the business judgement rule requires individualisation in each situation. Determining the care required in a given case depends, among other things, on the size of the company, the seriousness of the potential consequences of the decision and the circumstances of the action taken. However, exceeding the limits of reasonable business risk does not allow a member of the body to exculpate himself by invoking the principle of business judgement.
The author of the article is attorney-at-law Zuzanna Łozińska, Associate at RKKW.