Business Judgment Rule

What is this?

This fall’s amendment to the Commercial Companies Code will bring many revolutionary changes. In addition to the introduction of the holding law, another change will be the introduction of the business judgment rule, which will apply to actions of:

  • members of the management board,
  • supervisory board,
  • audit committee
  • or liquidators of limited liability companies and joint-stock companies.

Such a rule has already been introduced for members of the bodies of a simple joint-stock company.

Impact of the changes on the liability of (not only) board members

Currently, the aforementioned persons are liable to the company for damage caused by an act or omission contrary to the law or the provisions of the company’s articles of association/ unless they are not at fault. In addition, these persons, in the performance of their duties, are obliged to exercise diligence resulting from the professional nature of their activities.

According to the amendments, such persons will not be in breach of the duty to exercise diligence arising from the professional nature of their activities if, acting loyally to the company, they act within the limits of reasonable economic risk, including on the basis of information, analysis and opinions that should be taken into account under the circumstances in making a careful assessment.

Limits of reasonable economic risk

The rule being introduced determines when the duty of due diligence on the part of board members (and non-board members) has been observed. One of the prerequisites for exercising due diligence will be to act within the limits of reasonable economic risk.

Careful risk assessment should be based on information, analysis and opinions provided, in particular, by professional entities that are appropriate under the circumstances. Based on such data, an appropriate business decision should be made. The assessment of fulfilment of the duty of care will be made with reference to the specific situation.

New powers of the advisor to the supervisory board

It is also worth mentioning the new powers of the advisor to the supervisory board of limited liability companies, simple joint-stock companies and joint-stock companies.

If the limited liability company’s articles of association so permit, or – in case of simple joint-stock companies and joint-stock companies – company’s articles of association  do not exclude or limit such a right, the supervisory board will be able to pass a resolution to have a certain matter relating to the company’s business or its assets examined by a selected advisor to the supervisory board at the company’s expense. Such an advisor will also be able to be selected to prepare certain analyses and opinions.

The new regulations will thus allow the supervisory board to audit certain activities of the company without the need for the supervisory board itself to finance such an examination. However, the articles of association of a simple joint-stock company or the articles of association of a joint-stock company may impose restrictions on the maximum remuneration of advisors.

How can we help?

  • We will analyse the company’s existing procedures regarding the organization’s decision-making procedure and make proposals for changes in this regard, in particular to make changes to take into account the need to obtain an appropriate opinion.
  • We will verify the company’s contracts/statutes and propose relevant changes in terms of the possibility of the supervisory board exercising the right to examine a certain action of the company by an advisor, or limitation/exclusion of this right.
  • We will prepare relevant opinions or analyses (within the scope of our competence).

Thank You

Your message has been sent.

Contact us

Latest news

More articles