Analysis

Supreme Court: Joint commercial representation only with other proxy

Legal alert (4/2015)

On 31 January 2015 the Supreme Court finally solved an issue, causing numerous discrepancies in judicial decisions, even those made by one court, related to joint commercial representation with a member of a management board in companies.

On 31 January 2015 the Supreme Court finally solved an issue, causing numerous discrepancies in judicial decisions, even those made by one court, related to joint commercial representation with a member of a management board in companies.

In accordance with the resolution of seven judges of the Supreme Court adopted upon a request of the First President thereof: “entering one commercial proxy to the register of entrepreneurs of the National Court Register with the reservation that he can act only jointly with a member of the management board is inadmissible".

Such an ‘irregular’ form of joint commercial representation was a popular solution granting members of the management board full control over the activities of the proxy. Importantly, the scope of proxy’s authority is very wide. Commercial representation entitles to carry out all court and out-of-court acts on behalf of the company except for disposing of the enterprise, transferring it for temporary use and disposing of and encumbering real property.

The lawyers have disagreed about ‘irregular’ commercial representation for many years. Critics of joint commercial representation quoted Article 1091 §2 of the Civil Code, stating that the commercial representation cannot be limited with the effect on third parties. Supporters, however, claimed that the prohibition concerns the scope of activities of commercial representation not the persons covered. Both sides also presented a number of more or less convincing arguments.

Without entering dogmatic deliberations, however, one should analyse practical consequences of the resolution of the Supreme Court instead.

What about commercial representation granted in such a form?

It is too early to decide, because the Supreme Court has not interpreted the issue in its justification for the resolution.

It has not been decided yet whether registry courts will request companies to amend entries concerning ‘irregular’ commercial representation in the National Court Register.

In practice, it is still unclear if companies will have to issue a new document granting commercial representation without the obligation of joint representation with a board member. It may be assumed, however, that a commercial proxy acting under an ‘irregular’ joint commercial representation may be able to represent the company as a sole proxy after the limitation has been deemed inadmissible.

Still, the Company’s best interest and the wording of the document appointing commercial representation should also be considered to decide whether sole commercial representation would be granted to a given person had the limitation not been questioned by the Supreme Court. The interpretation questioning the validity of the document appointing 'irregular' joint commercial representation cannot be excluded either. In extreme cases is it possible that validity and effectiveness of legal acts carried out by a company represented in such a manner may be questioned.

An adverse interpretation is also possible, which, when followed consistently, could lead to questioning the effectiveness of legal acts carried out by a company represented in such a manner.

To avoid future problems related to unclear consequences of the discussed resolution, companies which have appointed 'irregular' joint commercial representation should consider adjusting the content of the documents granting such powers to the decision of the Supreme Court. Filing an appropriate data update form to the competent registry court also seems advisable.

Has the proxy more powers than a member of the management board?

Interestingly, following the resolution of the Supreme Court, in certain companies proxies whose powers have been limited by a countersignature of a board member will in fact enjoy more freedom to act than individual members of the management board subject to the obligation of a joint representation. According to the Code of Commercial Companies, companies with a management board composed of more than one member may restrict that individual members will not represent the entity unless acting jointly with another member of the management board or a commercial proxy.

'Irregular' joint commercial representation with a member of the management board in companies was introduced so that the commercial proxy did not enjoy more freedom in representing the company than members of the board. Still, assuming that the commercial representation remains valid, while joint representation with a member of the management board will no longer be required, a proxy, unlike board members, will be entitled to sole representation. Significantly, unlike board members, proxies are not liable for the obligations of a company under Article 299 of the Code of Commercial Companies.

In this case, one solution may be to appoint joint commercial representation (with two commercial proxies acting together), limit the empowerment of the proxy (to cover a branch of an enterprise only) or to introduce sole representation of the management board.

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