Proposed changes concerning the auditor of special cases

On 12 June 2023, a government bill amending certain laws in connection with ensuring the development of the financial market and the protection of investors in that market (the “Draft”), was submitted to the Parliament. The document is marked as print No. 3381 and is available at: https://www.sejm.gov.pl.
The Draft concerns the ordering and streamlining of the functioning of financial market institutions, in particular with regard to the elimination of barriers to access to the financial market, the improvement of financial market supervision, the protection of customers of financial institutions, the protection of minority shareholders and in public companies, and the increase of the level of digitisation in the execution of supervisory duties by the FSA.

The planned legislative changes relate in particular to the institution of the auditor for special cases (the “Auditor”), as regulated in the Act on Public Offerings and the Conditions for Introducing Financial Instruments into the Organised Trading System and on Public Companies of 29 July 2005 (the “Act on Public Offering”).
Pursuant to the current regulation of Article 84(1) of the Act on Public Offering, at the request of a shareholder or shareholders of a public company holding at least 5% of the total number of votes, the general meeting may adopt a resolution on the examination by an expert, at the company's expense, of a specific issue related to the establishment of the company or the management of its affairs (special affairs auditor). For this purpose, these shareholders may request that an extraordinary general meeting be convened or request that the issue of this resolution be placed on the agenda of the next general meeting. Articles 400 and 401 of the Act of 15 September 2000. - Commercial Companies Code (the “CCC”), shall apply accordingly.
Under the Draft, Article 84(1) of the Act on Public Offering is to be amended to read as follows: “At the request of a shareholder or shareholders of a public company holding at least 5% of the total number of votes, the general meeting may adopt a resolution on the examination by an expert, at the company's expense, of a specific issue related to the establishment of the company or its subsidiary, or to the management of the affairs of that company or its subsidiary (special affairs auditor).”

Firstly, it is a modification of a substantive nature. Namely, the amended standard extends the Auditor’s powers under this provision by also referring to subsidiaries of public companies. According to the justification, the aforementioned amendment is aimed at meeting the demand made by the minority shareholder community and should contribute to strengthening the protection of their interests.
Secondly, the drafter deleted the part of the provision concerning the right of minority shareholders to request the convening of an extraordinary general meeting or to request that the issue of adopting this resolution be placed on the agenda of the next general meeting. This is an appropriate amendment, of a tidying-up nature, aimed at removing superfluity. The relevant rights of minority shareholders derive anyway from Articles 400 and 401 of the CCC and can be applied directly (without a separate reference) and not, as currently provided for in the Act on Public Offering, accordingly.

In my opinion, the answer to this question should be in the negative.
First of all, because the proposed regulation does not take into account the scale of abuses that may take place within capital groups (e.g. not constituting groups of companies within the meaning of Art. 4 § 1 item 5¹ of the CCC), which are also felt by minority shareholders of a public company.
In the practice of trading, there are situations in which the majority shareholder of a public company - in agreement with the management board - marginalises the activities of the public company. In such cases, the activities competing with the public company are taken over by a new entity (e.g. a sister company to the public company). This type of operational reorganisation within the capital group is to the detriment of the minority shareholders of the public company, as lucrative contracts are concluded directly by the 100% subsidiary of the majority shareholder, while the public company is assigned the role of, for example, subcontractor. As a consequence of the above, the margin from the contract is collected predominantly by the sister company vis-à-vis the public company, which indirectly affects the value of the investment of the minority shareholders of the public company.

A real strengthening of the rights of minority shareholders will take place if the Auditor is able to examine issues relating to the formation or conduct of the affairs of the public company concerned or of entities forming part of the same capital group. By group I mean here the parent company together with its subsidiaries. Nevertheless, at the request of the public company or other group company that would be affected by the examination, the registration court could limit the subject matter of the examination or determine the manner in which the results of the examination are to be made available, taking into account the legitimate interests of the applicant or the participants in the proceedings or the other companies in the group, in particular the need to safeguard business secrets or other legally protected information.
In other words, one may be inspired by the solution adopted in Article 21⁹ of the CCC as regards groups of companies, which may be of less practical importance compared to ordinary, non-formalised, capital groups.