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Criminal liability of management board members

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by Anastazja Niedzielska-Pitera

2 February 2022

 

The Code of Commercial Companies says that the management board represents a company and manages its affairs. Management board members perform their tasks in a manner prescribed by various laws, for which they may be held both civilly and criminally liable.


Criminal liability is governed not only by the Criminal Code and the Fiscal Crime Code but also by the Labour Code and the Code of Commercial Companies. Detailed types of offences are also included in ordinary statutes. The most common ones will be described below.

 

Business offences


An entire chapter of the Criminal Code is devoted to offences against business and property interests in civil law transactions. One of the most common white-collar offences is the so-called breach of trust. The offence described in Article 296 of the Criminal Code applies to all persons obliged to deal with the assets or business of the company. If they abuse their rights or fail to fulfil their obligations thus causing significant property damage (i.e. over 200,000 zloty), they may be imprisoned from 3 months to 5 years.


In some situations, direct causing of damage is sufficient to incur criminal liability. The company may not necessarily suffer any financial loss for management board members to be held liable under the Criminal Code. The penalty may increase to as much as 8 years in prison if the perpetrator acts to obtain a personal financial benefit. Criminal liability may be aggravated to 10 years in prison if the damage is large, i.e. exceeds 1 million zloty. However, the statutory penalty may be mitigated if the damage is accidental. If the perpetrator (e.g. a management board member) voluntarily compensates for the damage before criminal proceedings are commenced, then he or she will not be punished.


Company managers may also be liable for business corruption. This offence is defined in Article 296a of the Criminal Code. Those who seek or accept financial or personal benefits or promises of such benefits may be imprisoned from 3 months to 5 years. Law enforcement authorities may only bring a charge of business corruption, if the remaining features (requirements) of such an offence are present. These include abuse of power or breach of duty, which must be related to potential damage to a business entity or an act of unfair competition or an inadmissible preferential action. Article 296a(2) says that not only seeking or accepting benefits but also promising or granting them is punishable. However, in the case of active business corruption (promising, granting) a penalty can be avoided if the benefit or promise has been accepted but the perpetrator (the one granting the benefit) has notified the law enforcement authorities about it. Of course, the notification must be made before the authorities become aware of the offence and should describe all relevant circumstances of the case.


An interesting provision can be found in Article 308. It extends the liability of persons involved in property affairs of businesses(including management board members) to debt offences as defined in particular in Articles 300 and 302 of the Criminal Code. The offence described in Article 300 of the Criminal Code consists, among others, in preventing creditors from being satisfied or diminishing their satisfaction in a situation of imminent insolvency or bankruptcy. The perpetrator may act in various ways, involving e.g. removing, hiding, selling, donating, destroying, actually or purportedly encumbering (e.g. by mortgage or pledge) or damaging assets that could be used by the creditor. Such behaviour is punishable by imprisonment of up to 3 years. On the other hand, unauthorised repayment or securing of only some debts to the detriment of other creditors may result in criminal liability under Article 302 of the Criminal Code. Sanctions for this offence include a fine, restriction of freedom and imprisonment for up to 2 years. Summing up, according to Article 308 of the Criminal Code read together with Article 300 or 302 of the Criminal Code, the president or a member of the management board may be criminally liable for debt offences even though they are not debtors themselves.

 

Other offences described in the Criminal Code


Irrespective of the white-collar offences described above, management board members may be held liable under other provisions of the Criminal Code. Among the most frequent offences related to management board activities is an offence against property, i.e. fraud. Either the company or its business partner may become a victim of the offence described in Article 286 of the Criminal Code. The perpetrator faces imprisonment from 6 months to 8 years for committing this offence.


A separate category are document offences. The most common are violations of Article 270 of the Criminal Code, i.e. material forgery. It usually means forging or modifying a document and using it in business dealings. In some cases, a management board member may also be liable under Article 271 of the Criminal Code. If s/he certifies false information of legal significance in a document which s/he is entitled (meaning more than authorised) to draw up, s/he may be imprisoned from 3 months to 5 years.


It should be emphasised that intellectual forgery does not apply to all documents in legal transactions. As a rule, signing a contract on behalf of a company, the content of which differs from the actual legal relationship between the parties, is not an offence described in Article 271 of the Criminal Code. In accordance with the case law, an application for company registration filed with a district court by the management board, along with unlawful statements on raising the share capital or acts of governing bodies of a limited liability company drawn up to shape internal company relations and having legal effect only between company’s shareholders and governing bodies, including the minutes of the meeting of shareholders of the company – is not an offence referred to in Article 271 of the Criminal Code. The same applies to other internal company documents and most of the statements made in private legal transactions. However, falsification of such documents may constitute aiding and abetting to commit other offences, such as fraud. Providing false information in court or administrative proceedings may, in turn, result in liability under Article 233 of the Criminal Code (giving false testimony).


To sum up, false certification described in Article 271 of the Criminal Code relates to documents having the value of public trust. For example, accounting documents enjoy public trust, however their falsification may be punishable under separate provisions. Article 271a of the Criminal Code is particularly important in this context. Any person who issues (or, as a management board member, instructs to issue) an invoice for a significant amount (i.e. more than 200,000 zloty), falsifying circumstances that affect tax calculations, is liable under that provision. This applies in particular to dummy invoices, back-dated invoices or invoices indicating incorrect amounts. In such a case, the perpetrator is liable for intellectual forgery with respect to invoices (Article 271a of the Criminal Code) and not for certifying false information as defined in Article 271 of the Criminal Code. However, it may happen that the issuer of an invoice falsifies it in a way that does not affect public dues. Then, s/he commits intellectual forgery described in Article 271 of the Criminal Code. Still, this forgery must be related to obligatory elements of an invoice.

 

Fiscal offences, violation of finance and accounting standards


Falsification of invoices and other accounting documents is related to a number of violations described in the Fiscal Crime Code. Among the most common offences for which management board members may be held liable is the offence defined in Article 62 of the Fiscal Crime Code. It involves not issuing invoices or bills (contrary to applicable laws) or issuing them in an incorrect or unreliable manner. Please note that the offence under Article 62 of the Fiscal Crime Code with respect to unreliable invoices partially overlaps with the offence under Article 271a of the Criminal Code. Remember, however, that the provision of the Criminal Code applies to invoices totalling over 200,000 zloty. Article 62 of the Fiscal Crime Code does not contain that limitation but the envisaged penalty is lower than that under Article 271a of the Criminal Code.


Management board members may be held liable for failure to disclose the taxable object or taxable base, tax evasion, failure to file tax returns (Article 54 of the Fiscal Crime Code), inclusion of false tax information in a return or statement (Article 56 of the Fiscal Crime Code), unreliable or incorrect keeping of books or records (Article 61 of the Fiscal Crime Code), failure to pay the collected tax on time (Article 77 of the Fiscal Crime Code) or failure to file a tax report on time (Article 80 of the Fiscal Crime Code).

 

Violations of employee rights


Management board members may be held liable for violations of employee rights. These are described in Articles 281–283 of the Labour Code and Articles 218–221 of the Criminal Code. The offences described in the Labour Code generally apply to all employers or persons who act on their behalf. The persons liable are not always the persons entitled to represent the entity. Offences against employee rights include but are not limited to:

 

  • concluding a civil law contract instead of an employment contract,
  • paying a higher salary than the one specified in the contract (without remitting public dues),
  • failing to notify relevant authorities of the conclusion of an employment contract,
  • terminating or dissolving contracts with employees contrary to law,
  • applying unlawful disciplinary sanctions,
  • infringing parental rights or the rights of young employees,
  • failing to keep or store employee records in a proper manner.


A fine is imposed on persons who do not pay wages or benefits on time, do not issue work record certificates or do not grant leave or reduce its amount. Another type of offences are occupational health and safety violations.


Malicious or persistent violation of employee rights is already an offence under the Criminal Code (Article 218 of the Criminal Code). Entrusting work during the trade ban on Sundays and public holidays may also be an offence if it is malicious or persistent (Article 218a of the Criminal Code). Failure to register an employee for social insurance purposes or providing false data is also a statutory offence (Article 219 of the Criminal Code). The consent of the insured does not affect the criminal liability of the perpetrator. Endangering the life or health of employees similarly involves committing an offence by persons responsible for safety in the workplace (Article 220 of the Criminal Code). The chapter on offences against the rights of persons pursuing gainful employment closes with Article 221 of the Criminal Code. It penalises failure to notify, prepare or submit documentation relating to accidents at work and occupational diseases.

 

Criminal provisions of the Code of Commercial Companies


The Code of Commercial Companies introduces several other types of offences that may be committed by management board members. The most frequent offences include failure to file a bankruptcy petition on time, despite the occurrence of circumstances described in the bankruptcy law (Article 586 of the Code of Commercial Companies). The company's liquidator may also be found guilty of this offence.


Any person who publishes (e.g. in Monitor Sądowy i Gospodarczy or in another official gazette specified in the articles of association) or provides false information about the functioning of a business entity to the company's authorities, auditors or state authorities may also be held criminally liable (Article 587 of the Code of Commercial Companies). This provision does not apply to all information but only to that specified in Titles III and IV of the Code. The latter include, among others, announcements on the reduction of share capital, additional contributions, liquidation report or merger, division and transformation of companies. Article 587 of the Code of Commercial Companies also penalises submitting incorrect or incomplete annual financial statements and other documents for audit. Not only management board members but also members of the supervisory board, the audit committee, liquidator, court-appointed administrator or even a certified auditor can be perpetrators of that offence.


Any person who allows a company to acquire its own shares or become a pledgee of such shares may also be punished (Article 588 of the Code of Commercial Companies). A management board member may be held criminally liable for issuing registered or bearer documents or endorsable documents to order shares or rights to profits in the company (Article 589 of the Code of Commercial Companies). It is forbidden under penalty to allow a simple joint-stock company to issue documents granting rights of participation in the company's income or distribution of its assets, or to allow a joint-stock company or a partnership limited by shares to issue documents granting rights of participation in income of that company or partnership or in distribution of its assets. Any person who enables illegal voting or unlawful issue of shares may also be criminally liable.


Additionally, management board members may be fined for, among other things:

 

  • defective marking of company letters,
  • failing to file shareholder lists with the National Court Register,
  • failing to keep a share register or a register of shareholders,
  • failure to register shares,
  • failing to convene meetings of shareholders or AGMs,
  • allowing the absence of a supervisory board in the company contrary to law or the articles of association.

 

Summary


Serving as a management board member comes with various powers and prestige. However, this role involves numerous responsibilities and a huge legal liability. As elaborated on above, management board members may be personally liable under criminal law for their actions within the company operations. According to Article 18(2) of the Code of Commercial Companies, a perpetrator of certain offences detailed in the Criminal Code or the Code of Commercial Companies may be banned from serving as a member of the management board, supervisory board or as a commercial attorney or liquidator. Irrespective of the above, s/he may also be punished by a fine, restriction of freedom or imprisonment. However, if you act in an ethical and conscious manner, you can protect yourself against being found guilty and other adverse effects. 

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Anastazja Niedzielska-Pitera

Attorney at law (Poland)

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