You don’t file financial statements? Be careful, because you are putting yourself at risk of criminal liability

The number of court cases concerning criminal liability for the offence of failure to submit the financial statements to the relevant court register on time is growing every year. As early as in 2010, courts throughout Poland issued a conviction in 327 cases for the offence under Article 79(4) of the Accounting Act. In 2018, this number increased more than 3 times to 1,008 cases ended with a conviction. The penalties imposed for this offence are also increasing. While fines remain the standard, the courts are more likely to apply an alternative penalty of restriction of liberty in this case. Therefore, it is worth bearing in mind that the maximum fine for this offence amounts to PLN 1,080,000. In turn, the penalty of restriction of freedom, consisting in performing social work or deducting from 10% to 25% of remuneration for work on a monthly basis, may be imposed for up to 2 years.

The statistics show that the times when the spectre of criminal liability for failure to submit financial statements to the court register was illusory are gone. The new method of preparation and submission of financial statements, in force as of 1 October 2018, may be a real opportunity for further and more effective enforcement of the criminal law on non-compliance with reporting obligations.

Let us recall that the Accounting Act provides for the obligation to submit financial statements both for companies and partnerships and for natural persons conducting one-man business, where those entities must keep accounting books in accordance with the Accounting Act or have voluntarily chosen to keep accounting books in accordance with that Act. The timely submission of annual financial statements is the responsibility of the entity’s managers, i.e.: 

• members of the management board of companies;
• partners conducting the affairs of the partnership, whether it is general, civil or a partnership;
• active partners conducting company’s affairs in a limited partnership and a partnership limited by shares;
• liquidators, receivers or administrators in bankruptcy proceedings.

It is worth noting that in a situation where the manager of an entity is a multi-member body (e.g. a multi-member board of a company), all members of that body are obliged to submit financial statements and each is individually liable for failure to comply with that obligation. In practice, there are situations when, e.g., persons disclosed in the National Court Register, on the date when the obligation to submit financial statements to the relevant court register arises, are no longer actually members of the management board. In such a situation, these persons will be exempt from criminal liability, albeit in connection with the presumption of the truthfulness of the entry in the National Court Register, it will be in their interest to prove (e.g. with documents or witnesses) that they were not a member of the company’s management board at the time in question.

When the perpetration and fault do not give rise to doubts, it is always worthwhile to carefully analyse the circumstances accompanying the misconduct of failure to file a financial statement because they may have an impact not only on the level of the penalty, but may also determine the possibility of conditional discontinuance of the proceedings (which do not give rise to consequences related to the conviction and the offender will receive from the National Criminal Register a certificate of his or her clean criminal record), or even its discontinuance in view of the negligible social harmfulness of the act. One of the arguments in favour is no potential damage to another entity. If, for example, the company has not conducted any business activity since its establishment, it has not entered into business relations with other entities that may search in the register of entrepreneurs for information on its financial condition, then it is accepted that the seriousness of the offender’s breach of obligations is not excessive and that the failure to submit financial statements does not significantly affect the legitimate value of transparency of economic transactions. Similarly, it may be the case that the person responsible for filing the financial statements could not, despite all efforts to obtain resolutions approving the financial statements, did not have all the financial documentation of the company and could not, despite all efforts to obtain access to it, find an accountant who would undertake to prepare the statements on the basis of the infinitesimal documentation. In addition, circumstances, such as a one-off (incidental) failure to comply with the reporting obligation, submitting the report at a later time, and the assumption of the position of manager of the entity shortly before the date on which the financial statements are required to be submitted, may also be evidence of negligible (a prerequisite for discontinuation of the proceeding) or insignificant (a prerequisite for conditional discontinuation) social harm.

The arguments that the manager of the entity was not aware of the need to file the financial statements with the relevant court register are unconvincing. As indicated in the jurisprudence, an entrepreneur – a professional operating in the business market – is required to exercise particular care in its activities as well as knowledge of the law.

It is certainly not wise to underestimate the obligation to submit financial statements on time. It is not uncommon for many people to find that in this type of cases it is not the punishment that is imposed, but the fact of its ruling that is the greatest ailment. When a charge is made, it is therefore worth looking for arguments that will convince people that the social harmfulness of an act is negligible or not significant, which gives a chance to discontinue or conditionally discontinue the proceedings.

Attorney at law Michał Korszla