Polish corporate law: piercing the corporate veil

The Polish government is proposing a new law that would make parent companies liable for violations by their subsidiaries of the law on the protection of competition if the parent company “exerted decisive influence” over the subsidiary.

Currently, Polish law could be described as extremely strict in not recognizing the “piercing of the corporate veil” between parent companies and their subsidiaries. The proposed law would represent a breakthrough and milestone in Polish company law by providing much clearer grounds for holding a parent company liable for the actions of its subsidiary. Furthermore, it would significantly increase the power and authority of the head of the Office for Competition and Consumer Protection (UOKiK), who under his current leadership has become much more active in imposing fines material for violation of the Polish law on competition and consumer protection. Law.

The rationale for the proposal is the need to incorporate the so-called ECN+ directive into Polish legislation. In doing so, the proposal responds to the general requirements of the Directive, which aims to ensure more effective and efficient enforcement of competition protection laws in EU Member States, and to strengthen the powers of competent authorities in this regard. respect.

Mechanism for calculating dangerous fines

The government’s proposal extends fines for breaching competition law to parent companies that have “exerted decisive influence” over the offending subsidiary. Currently, a fine for violation of a law on the protection of competition can reach 10% of the turnover of the offending entity for the year preceding that in which the fine was imposed. According to the proposal, if it is determined that decisive influence was exercised over the offending entity, the head of the UOKiK will examine both the turnover of the offending entity and that of the company (or companies) exercising a decisive influence. The two entities would be jointly liable for payment.

Liability for violation of competition laws in European law

Liability of a parent entity for its subsidiary’s breach of antimonopoly law has long existed in European law, having been established by extensive case law. According to European law, if a parent company and its subsidiary form a single economic unit, they constitute a single undertaking within the meaning of Article 101 of the Treaty on the Functioning of the European Union (TFEU). Therefore, the commission can impose a fine directly on the parent company, without determining whether it was directly involved in the infringement. This position was taken in the judgment delivered by the European Court of Justice (ECJ) on 14 July 1972 in C-48/69 Imperial Chemical Industries v. the Commission, according to which the responsibility for the actions of the subsidiary was attributed to the parent company on the basis of the concept of “single economic unit”. According to this concept, a subsidiary does not make its own strategic decisions. Instead, it carries out the will of its parent company, which exercises decisive influence over it, although the degree of independence of a company must be determined from time to time. This definition of the enterprise has also been corroborated, inter alia, in the judgment of the ECJ handed down on October 24, 1996 in C-73/95 Viho Europe v Commission and in the European Commission guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal cooperation agreements.

Polish provisions in the light of European regulations

The essential condition for the liability of a parent company is “the exercise of decisive influence” over another company. The proposal currently clarifies that there is an exercise of decisive influence when there are economic, legal and organizational links between the undertakings such that the undertaking over which the influence is exercised does not determine its own course of action over the market but, in principle, the offer of the company exerting the influence (which reflects the concept of a single economic unit). A company is presumed to exercise such decisive influence if it holds all (or almost all) of the capital of the company over which it exercises decisive influence. Given its vagueness and room for interpretation, the proposal leaves much to the discretion of the UOKiK leader when assessing the particular elements comprising the notion of decisive influence. Moreover, what escapes precise interpretation in the proposal is the notion of “virtually all social capital”. Is it sufficient, for the precondition to apply, to hold, for example, 80% of the shares, or perhaps 90% (and would it not be more reasonable to refer to the percentage of votes at meetings of shareholders, rather than that of shares held)

Extensive executive liability

Since 2015, executives of the entity that violates competition law can be fined if they deliberately allowed the violation. The proposal also extends this responsibility to the directors of the entity exercising a decisive influence.

Fines imposed on business associations

A separate issue arises with regard to associations of enterprises, defined in Polish legislation as chambers, bodies and other organizations to which enterprises affiliate. To date, cases of infringements of competition law show that associations of undertakings often commit such infringements. According to the ECN+ directive, antimonopoly authorities should be allowed to impose fines on associations of undertakings, taking into account the turnover of the members of the association. The Competition and Consumer Protection Act is silent on any specific regulations relating to the calculation of fines imposed on business associations. However, one should not draw conclusions from this that the imposition of such fines is impossible. So far, the practice indicates that – for the purposes of assessing a potential violation – an association of companies is considered as a single commercial entity. Current Polish legislation does not, however, contain any regulations concerning the calculation of the turnover of an association of undertakings and its individual members for the purpose of imposing a pecuniary fine, nor to allow the enforcement of such a fine if the association is insolvent.

The proposal tries to solve this problem. It assumes that the cumulative total of the turnover of each member of the association should determine the amount of a fine. The fine imposed on an association of undertakings may not exceed 10% of the total turnover of each member of the association operating on the market on which the infringement was committed, in the financial year preceding that during which the fine was imposed. However, if a business association becomes insolvent (likely outcome if a fine is imposed close to the maximum level), association members would be required to pay dues to cover the fine. The impossibility of paying such contributions would lead to more serious consequences, in particular by requiring that the fine be paid by each of the companies whose representatives were the leaders of this association.

Companies that suspend operations do not avoid responsibility

Currently, one of the biggest enforcement issues is for businesses that – fearing liability for a violation and possible fine – have suspended their business operations. The proposal aims to end such practices by assuming that – for law enforcement purposes – the definition of business will also include a natural person who has ceased to carry on business.

Legislative stage

The bill would amend the Competition and Consumer Protection Act. It is currently at an early legislative stage. Therefore, it is likely that a number of his proposals will be developed. Nevertheless, the proposal reflects an ever tougher approach to tougher competition and consumer protection law provisions and the associated ramifications for businesses and their subsequent activities. “Piercing the corporate veil” in this particular sector would also reflect a fundamental development in Polish company law.