Special Duties of Persons from Article 61 of the Companies…

The Companies Act (hereinafter: the Act) prescribes several key duties of persons who manage the affairs of the company, whereby these duties represent the basic standards of their behavior in the management process. The reason for distinguishing and more closely regulating the special duties of persons who manage the affairs of a company, according to Article 61 of the Act, is the need to ensure a high level of corporate governance and the protection of the interests of the company, its creditors and members. Bearing in mind that managers directly influence business operations with their decisions, the legislator, by precisely defining these obligations, sought to introduce a higher degree of responsibility, transparency and control in governance.

According to Article 61 of the Act, special duties toward the Company belong to:

1. a member of the Company who holds a significant share in the Company’s share capital, or a member of the Company who is a controlling member of the company in the sense of the Companies Act;
2. director;
3. members of the supervisory board;
4. representatives;
5. procurators;
6. the liquidation administrator.

Also, the founding act of the company may expand the circle of persons to whom the special duties apply. However, it is not possible to narrow the number of persons who are obliged to observe them, given that this is a mandatory provision relating to the circle of persons from Article 61 of the Act.

Duty of care. The first duty that the aforementioned persons must observe is the duty to act with the care of a prudent businessperson, which implies conscientious, careful and reasonable decision-making, while respecting the relevant regulations, internal acts and decisions of the company’s bodies. The care of a prudent businessperson implies the degree of care with which a reasonably careful person would act, who would possess the knowledge, skills and experience that could reasonably be expected for performing that duty in the company. If a person, who has special duties, also possesses certain specific knowledge, skills or experience, these shall be taken into account when assessing the degree of care. Therefore, a person who manages the affairs is obliged, when making decisions, to have adequate information and to undertake actions that any reasonable and responsible manager would undertake in the same situation.

Duty to report transactions and actions in which a personal interest exists. The second, exceptionally important duty is the duty of loyalty to the company, which includes the obligation to act exclusively in the interest of the company, and not in one’s own interest or the interest of third parties. The person who manages the affairs must not use his position to obtain personal gain, nor undertake actions that would harm the company. The person from Article 61 of the Act is obliged to inform the board of directors, i.e. the supervisory board if the company has a two-tier management system, of the existence of a personal interest (or the interest of a related person) in the legal transaction the company is concluding, or the legal action the company is undertaking. This duty also includes the prohibition of misuse of company assets, the use of confidential information for obtaining gain, and participation in transactions that may be harmful to the company. It is particularly important that any transaction in which a personal interest exists be timely reported to the competent body of the company, and the person who manages the affairs must refrain from voting or making decisions in situations in which his interest is contrary to the interest of the company.

Duty to avoid conflicts of interest. The third obligation refers to the prohibition of conflicts of interest, i.e. the duty of the person from Article 61 to avoid situations in which his private interests may influence or appear to influence the making of business decisions. It applies both to them and to persons related to them, and the prohibitions relate to the use of company assets, including the use of information obtained in that capacity and not publicly available, as well as the use of opportunities for concluding transactions that have appeared to the company. This obligation includes the duty to disclose a potential conflict of interest, undertake actions to eliminate it, and act so as to prevent any negative impact on the company. Concealing a conflict of interest represents a serious breach of duty, because it directly jeopardizes the integrity of corporate governance and may lead to personal liability of the person who manages the affairs, and this duty to avoid conflicts of interest exists regardless of whether the company was able to use the assets, information or conclude transactions.

Namely, the law also prescribes the obligation to act within the limits of authority. Persons who manage the affairs are obliged to act in accordance with the law, the agreement/statute and the decisions of the assembly or board of directors. Exceeding authority may lead to personal liability for the damage caused.  

Duty to preserve business secrets. Persons from Article 61 are obliged to preserve business secrets, i.e. all information that is not available to the public and whose disclosure could cause damage to the company. The obligation to preserve business secrets continues even after termination of the function or employment relationship, which is explicitly stipulated by the Act. Disclosing business secrets represents a serious breach of duty and may result in liability for damages, as well as other legal consequences. In addition to the persons from Article 61, this duty, according to the Act, is extended to all employees of the company.

Duty to respect the non-competition prohibition. The last duty relates to respecting the non-competition prohibition, which implies that the persons from Article 61 must not perform activities that are in competition with the company’s business, participate in competing legal entities, nor undertake actions that would diminish the company’s business position on the market. The non-competition prohibition represents an important mechanism for protecting the interests of the company, because it prevents conflicts between personal interests and the company’s interests and prevents the misuse of knowledge, information and the position that the manager has.

Failure to fulfill the duties from Article 61 may result in filing: (i) an individual lawsuit (in one’s own name and for one’s own account) by a member of the company due to breach of special duties, which may be filed within six months from the day of learning about the breach, and no later than within five years from the day the breach was committed, as well as (ii) a derivative lawsuit (in one’s own name and for the account of the company) by one or more members of the company if, at the time of filing the lawsuit, they hold shares or interests representing at least 5% of the company’s share capital, if prior to filing the derivative lawsuit they requested in writing from the company to file a lawsuit on that basis, and that request was denied, or no action was taken upon the request within 30 days from the day of submission.

By introducing clear standards of behavior, the legislator has established a firm framework for healthy, predictable and responsible corporate governance. The precise application of the duties from Article 61 of the Act contributes to greater legal certainty, protection of the interests of the economy, and building the trust of investors and business partners.