Request to wind down a company on the basis of art. 271 of the Commercial Companies Code
Author: Iwona Gielo-Benza
Adoption of a winding down resolution by the shareholders, followed by commencement of liquidation proceedings, is a typical way for winding down of a limited liability company. In accordance with art. 270.2) of the legislative Act of 15 September 2000 – the Commercial Companies and Partnerships Code (2016 Journal of Laws item 1578, as amended), such a resolution ought to be confirmed by a notarial deed. For companies whose deeds of incorporation have been executed using a standard form agreement, the formal requirement may also be fulfilled by producing a winding down resolution bearing the qualified electronic signatures of all the shareholders or a signature certified with an ePUAP trusted user profile. Such a resolution is adopted by a 2/3 majority of the votes; in the case of a resolution adopted in accordance with art. 233 of the Commercial Companies and Partnerships Code (where the balance sheet drawn up by the Management Board displays a loss exceeding the sum total of the contingency and reserve capitals and half the share capital, the Management Board must call a General Meeting to resolve on further existence of the company), an absolute majority will suffice.
But what happens if continuing the company as a going concern becomes unviable or significantly impeded, but attainment of the majority needed to resolve on its winding down is impossible ?
Under such circumstances, one might consider the avenue offered by art. 271 of the Commercial Companies and Partnerships Code, whereunder the court may rule on winding down of a limited liability company at the request of a shareholder or a member of the company’s governing bodies where attainment of such company’s objectives has become impossible, or there arise other material grounds relating to the company’s corporate affairs.
A statement of claim seeking such winding down is submitted to the general court competent for the company’s registered seat. In technical terms, this is a statement of claim against the company – if, then, it is filed by a member of the company’s Management Board, the rules regulating representation of the company in a dispute with one of its directors as laid down in art. 210 of the Commercial Companies and Partnerships Code shall apply. Under these rules, the company should be represented by its Supervisory Board or by a plenipotentiary appointed by its shareholders via a resolution; where the company does not have a Supervisory Board or no plenipotentiary has been appointed, the competent court shall appoint a curator.
Entitlement to apply to the courts for winding down under the procedure described above extends to a shareholder (irrespectively of the share capital or the number of shares held by him), to a member of the company’s governing bodies, and to the company’s liquidator. ln its decision of 8 March 2012 in case ref. III CZP 95/11 (OSNC 2012 no. 11, item 125), the Polish Supreme Court ruled that this right shall also extend to a company curator appointed on the basis of art. 42 of the Civil Code and empowered by the court to perform acts geared at liquidation, subject to the reservation that the curator’s request to this effect should be addressed to the registry court and that the pertinent proceedings shall not have the character of litigation.
Art. 271 of the Commercial Companies and Partnerships Code does not lay down a closed catalogue of grounds for winding down by a court. Accordingly, any factor which indicates that the company will be unable to achieve its objectives or points to other material issues of a corporate nature may qualify.
Polish judicature has it that, if the company is unable to achieve its objectives (usually those defined in its shareholders agreement / deed of incorporation), this inability must be permanent, not temporary, and objective in character; in other words, the inability must persist despite legal and organisational efforts at attaining the company’s goals. Typical examples would include failure to secure, forfeiture, or expiration of a licence or similar administrative decision necessary for the company’s operations. Inability to attain the company’s objectives may also stem from relationships within the company – especially a conflict between its shareholders – which amount to a permanent and material impediment to the company’s due operations and/or impact upon its activities or upon the rights of its shareholders (Supreme Court rulings of 15 May 2009, case ref. II CSK 18/09, LEX 519335; 10 April 2008, case ref. IV CSK 20/08, LEX 393849; and 13 March 2013, case ref. IV CSK 228/12, LEX 1324315).
As regards other material grounds, judicial authorities and legal doctrine also refer to internal workings of the company, i.e. to the dynamics persisting between the company’s corporate bodies and its shareholders. In each and every instance, the cause must be an actual, rather than potential one, meaning that the company’s inability to achieve its objectives must have already transpired.
As the Appeals Court in Krakow aptly stated in its ruling of 10 September 1993 (case ref. I ACr 343/93, LexisNexis 302790), grounds stemming from relationships within the company justify winding down of such a company when they produce a crisis situation of a magnitude comparable to the company’s inability to achieve its goals. In this connection, judicial authorities and legal doctrine refer to circumstances such as inability to make decisions within the company, irresolvable conflicts between its directors, lack of interest in the company’s affairs, persistent deprivation of a shareholder of his material rights by other shareholders wielding a majority of the votes (where the harm thus inflicted cannot be remedied via other means of legal recourse available to the aggrieved shareholder), and notorious abuse of a majority shareholder position.
All along, it should be borne in mind that, whatever grounds for winding down are cited in the statement of claim brought under art. 271 of the Commercial Companies and Partnerships Code, these will be subject to assessment by the court. It will be up to the court to decide whether such grounds actually exist, and whether they justify winding down of the company; in doing so, it will assess the situation of the specific company, and a set of circumstances found to justify winding down in one case needs not be sufficient in another one.
If the court does agree to rule on winding down of the company, it may appoint a liquidator and specify her remuneration. A final court ruling enjoining winding down does not actually terminate the company’s legal existence – rather, it opens the company’s liquidation proceedings.
In the course of such liquidation proceedings, it might be necessary for the shareholders to cooperate towards its completion and towards striking of the company from the register. This point should be kept in mind when considering an application for winding down due to irreparable breakdown of relations between the shareholders; in some instances, it might be easier to file for exclusion of a shareholder rather than for winding down.