Poland: A White-Collar Crime & Corporate Investigations Overview

Criminal Liability for Causing Damage to a Subsidiary in the Interest of a Parent Company

The exposure of management board members to criminal liability

Serving as a member of the management board of a capital company entails exposure to various forms of legal liability under both public and private law. These include tax liability for the company’s obligations; civil liability in damages owed to the company itself and its shareholders for improper management; liability in damages owed to creditors for failure to file a timely bankruptcy petition; and criminal liability for causing significant financial damage to the company or creating an immediate risk of such damage.

Criminal liability is by far the most difficult to mitigate. Unlike civil liability, which may at least to some extent be covered by insurance or addressed through corporate arrangements, criminal liability is personal in nature. A criminal penalty expresses social condemnation of both the act and the perpetrator and cannot be transferred to another person.

For this reason, the risk of criminal liability cannot be insured, even where the sanction takes the form of a fine. Any contract purporting to insure such liability would exceed the limits of contractual freedom under Article 353 of the Civil Code and be null and void pursuant to Article 58 Section 1. Only the costs of legal representation in criminal proceedings may be insured.

In practice, the only effective protection against criminal liability for acting to the detriment of the company is to avoid situations in which such liability could arise. This requires diligent performance of duties and careful decision-making consistent with the company’s interests.

Criminal liability under Article 296 of the Penal Code

Until 2011, the Commercial Companies Code contained a separate provision establishing criminal liability of management board members for intentional acts detrimental to the company. Since its repeal, board members have been subject to the general regime applicable to persons who, by virtue of statute, decision or contract, manage another entity’s financial affairs.

Under Article 296 of the Penal Code, a management board member who, by abusing granted authority or failing to fulfil duties, causes “substantial” financial damage (exceeding PLN200,000) or creates an immediate risk of such damage, may incur criminal liability.

Penalties vary depending on whether the act was intentional or unintentional and, if intentional, whether committed for financial gain. The assessment also depends on whether actual damage occurred, or only an immediate risk, and on the scale of the damage.

As of 13 October 2022, penalties for intentional offences resulting in high damage have been significantly increased. Where damage exceeds PLN5 million, the penalty is imprisonment from three to 20 years. If damage exceeds PLN10 million, the statutory penalty ranges from five to 25 years. These amendments substantially raise the criminal exposure of persons managing company affairs.

Acting in the company’s interest or in the group’s interest?

Particular difficulties arise when a company operates as a subsidiary within a corporate group. The subsidiary’s individual interest may conflict with the common interest of the group or with the interests of the parent company.

This gives rise to a fundamental question: how should the management board of a subsidiary act in order to remain within the law and avoid criminal liability for acting to the detriment of the company?

At the heart of the issue lies the relationship between the proprietary interest of a specific company and the broader interest of the group to which it belongs.

The legal position before the 2022 amendments

For many years, Polish law did not regulate this matter. There were no statutory provisions clarifying whether it was permissible to sacrifice the subsidiary’s interest in favour of the group’s interest or that of another group member.

In the absence of explicit regulation, part of the criminal law doctrine – drawing on foreign solutions, particularly French law – argued that, under certain conditions, prioritising the group interest over the interest of an individual company should exclude criminal liability.

This reasoning appeared in some judicial decisions acquitting defendants charged under Article 296. However, judicial practice remained inconsistent. The prevailing view held that, for the purposes of Article 296, the relevant point of reference is always the proprietary interest of the specific entity being managed, not the interests of other companies within the group.

Binding instructions under Articles 21(1–16) of the Commercial Companies Code

This legal uncertainty was addressed by amendments to the Commercial Companies Code that entered into force on 13 October 2022. Articles 21(1–16) introduced a comprehensive framework for groups of companies.

Under these provisions, and subject to strict statutory conditions, a parent company may issue binding instructions to a subsidiary participating in a group, provided that strict statutory requirements are met and the instruction is justified by the group’s interest.

Importantly, the amended provisions state that a member of the management board, supervisory board, audit committee, or a liquidator of a subsidiary does not incur liability for damage caused by executing a binding instruction issued in accordance with the statutory framework.

These provisions significantly alter the legal landscape by formally recognising the group interest and creating a mechanism that allows it to prevail over the individual interest of a subsidiary, subject to procedural safeguards.

Consequences for the application of Article 296

In cases arising after 13 October 2022, it can be assumed with considerable certainty that criminal courts will accept that, where the management board of a subsidiary acts within the scope of a properly issued binding instruction, criminal liability under Article 296 is excluded. This may apply even if execution of the instruction results in financial damage to the subsidiary.

More complex is the assessment of conduct that occurred before the amendments entered into force. This issue remains of substantial practical importance, given the length of criminal proceedings in Poland and the number of pending cases concerning acts committed prior to 13 October 2022.

Whether and to what extent courts will take the new statutory framework into account when assessing earlier conduct remains to be seen. However, the legislative changes clearly demonstrate a shift towards recognising the legitimacy of acting in the group interest under defined legal conditions, thereby reducing – at least prospectively – the criminal risk faced by management board members of subsidiaries operating within corporate groups.