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Expiry of powers of attorney in the context of declaring bankruptcy

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by Karolina Sieraczek

18 December 2020

 

 

The Civil Code says that if an enterprise declares bankruptcy, the commercial power of attorney (prokura) expires. It is not necessary to remove commercial attorneys (prokurent) from their functions or to take any other actions to report this fact to the National Court Register.

 

A commercial power of attorney means a power of attorney granted by an enterprise subject to entry in the Central Registration and Information on Business or in the register of enterprises of the National Court Register, the holder of which is authorised to act in court and out of court in matters related to running a business.

 

Expiry of a contract of mandate

 

A power of attorney is usually granted upon conclusion of a contract of mandate under which the contractor undertakes to take specific actions for the client. The power of attorney is usually a separate document which lists the actions the attorney is authorised to undertake.
The bankruptcy law provides that contracts of mandate concluded by the bankrupt as a client expire on the date of bankruptcy. The resulting loss may be claimed in bankruptcy proceedings.
Where contracts of mandate have been concluded by the bankrupt as a contractor, it is possible to withdraw from them on the date of bankruptcy without compensation.

 

Power of attorney

 

While the contract of mandate expires or you can withdraw from it, the regulations do not say whether the power of attorney expires as well.
There are two inconsistent approaches to this issue.


In its ruling of 7 November 2003 (I CZ 127/03), the Supreme Court stated that upon declaration of bankruptcy the power of attorney granted under substantive or procedural law expired, as it was no longer possible for the bankrupt to be represented by the attorney. Since a power of attorney is usually granted upon conclusion of a contract of mandate, both the contract and the power of attorney should have the same effect.


The second approach refers to the type of bankruptcy proceedings. According to this approach, the power of attorney expires only if the declared bankruptcy leads to business liquidation, thus being compared to death of a natural person, which results in expiry of a power of attorney under the Civil Code. Other types of proceedings, such as an arrangement in bankruptcy, do not trigger this effect. Some other approaches also refer to the scope of the power of attorney and determine its validity on this basis.

 

It is also important to establish the underlying relationship behind the power of attorney. Can we therefore assume, in the absence of clear regulations and in view of different approaches, that a power of attorney always expires? We would be happy to assist you in a case-by-case analysis and suggest the safest solutions. You are welcome to contact us.

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