Significant changes for members of public company authorities

The governmental draft law on amendments to certain acts in connection with ensuring the development of the financial market and the protection of investors in this market (the “Draft”), provides for significant modifications from the point of view of the liability of members of the management board and the supervisory board of a public company. The amendments relate to Article 68 of the Act on Public Offering and the Conditions for Introducing Financial Instruments to the Organised Trading System and on Public Companies of 29 July 2005 (the “Act on Public Offering”).

Pursuant to Article 68(1) of the Act on Public Offering, at the request of the FSA, persons who are members of the management or supervisory bodies of an issuer of securities admitted to trading on the regulated market or which are the subject of an application for such admission, or whose securities have been introduced to the alternative trading system or are the subject of an application for such introduction, shall be obliged to promptly provide written or oral information and explanations, as well as to prepare and submit, at the issuer’s expense, copies of documents and other information carriers, in order to enable the FSA to perform its statutory tasks with respect to:

1. supervising the manner in which these entities perform their disclosure obligations, including the obligation referred to in Article 17 of Regulation 596/2014;
2. disclosing and preventing market manipulation as referred to in Article 12 of Regulation 596/2014;
3. disclosing and preventing the disclosure or use of inside information;
4. supervising the conduct of a public offering or the admission and introduction of securities to trading on a regulated market;
5. overseeing the manner in which the obligations referred to in Chapter 4 (concerning major holdings) are carried out;
6. supervision of the manner in which the obligations referred to in Articles 18 and 19 of Regulation 596/2014 are carried out.

The draft provides for the addition of a new section designated as 1b in Article 68 (and a corresponding amendment to Article 68(2)) of the Act on Public Offering. The aforementioned provision stipulates the supervisor’s right to request information regarding issuers whose shares have been withdrawn from organised trading.

Namely, according to the planned art. 68, sec. 1b of the Act, the obligation referred to in sec. 1 also applies to issuers whose securities were withdrawn from circulation on the regulated market or in the alternative trading system, if the request of the FSA concerns events and circumstances that took place during the period when the issuer's securities were:

1. admitted to trading on the regulated market or introduced to trading in the alternative trading system, or
2. applied for admission to trading on a regulated market or introduction to trading in an alternative trading system.

The practical implications of the planned regulation can be summarised as follows: no more quantum leap.

In the hitherto legal state, members of the bodies of companies from the organised market, in relation to which proceedings under Article 68 of the Act on Public Offering were pending, could count down the days until the so-called delisting happens. This was due to the fact that if the issuer lost its status as a public company, the FSA could no longer demand explanations and documents referred to in the quoted regulation from the company's officers.

The lack of a regulation ensuring continuity of actions carried out by the FSA after delisting encouraged issuers to prolong administrative proceedings until they became pointless (also due to irreversible imperfections in the evidence).

Meanwhile, the removal of the caesura in the form of withdrawal of securities from organised trading may change this situation, as delisting will no longer amount to de facto immunization of decision-makers.

In the context of this change, companies should ensure that management and supervisory board members, whose liability will - following the planned amendment - be de facto tightened, are adequately trained.

Another thing to do is to review the D&O policies and insurance conditions protecting decision-makers for coverage of risks arising from the proposed changes.

If you have questions about the proposed changes or need advice on implementation, please contact me. I have extensive experience in the implementation of new regulations and the review of intra-corporate documentation, so I will be happy to help you.