Withdrawal from a company under new rules – draft provisions on withdrawal in the Commercial Companies Code

A draft amendment to the Commercial Companies Code has been published on the website of the Civil Law Codification Commission under the Ministry of Justice. It provides for a significant change regarding participation and the options for terminating it for members of a limited liability company and shareholders of a non-public joint-stock company.

1. Draft withdrawal right modelled on that of a public limited company

The new regulation is modelled on the existing right of a shareholder to withdraw from a simple public limited company, which is governed by Article 300(50) of the Commercial Companies Code. The draft amendment also includes modifications to this existing regulation in the following respects:

1. updating the conditions for valuing the shares of a withdrawing shareholder in a simple joint-stock company, granting the court the right to take into account the fair value that the withdrawing shareholder’s shares would have had had they not been grossly prejudiced;
2. extending liability for payment of the share buy-out price to all remaining shareholders rather than only those against whom legal proceedings have been brought.

Returning, however, to limited liability companies (sp. z o.o.) and public limited companies (S.A.), in accordance with the proposed provisions, a partner in a limited liability company or a shareholder of a non-public limited company will be able to bring an action before the court to withdraw from the company, if there is a valid reason justified by the relations between the shareholders/partners or between the company and the withdrawing shareholder/partner, resulting in grossly unfair treatment of the withdrawing shareholder/partner. The action will be brought against the company and all remaining shareholders/partners.

2. Compulsory redemption of shares

If the court upholds the claim, this will lead to the compulsory redemption of the shares of the withdrawing partner/shareholder, with the redemption price corresponding to the fair value determined by the court as at the date of service of the statement of claim. The draft also provides for the possibility of the court taking into account the value that the shares would have had had the unfair treatment not occurred, which should be regarded as a significant solution from the point of view of protecting the economic interests of the departing partner/shareholder who has been wronged by the company or the other partners/shareholders. The company and the other partners/shareholders are to be jointly and severally liable for payment of the buy-out price.

The proposed mechanism applies primarily to those companies in which the trading of shares is restricted, and the possibility of selling them is, in practice, difficult or unrealistic.

In such cases, a partner/shareholder in conflict with the other members of the company often has no real possibility of terminating their participation without incurring a significant loss. Existing legal instruments, such as an action for the dissolution of the company or the exclusion of a partner, are either piecemeal or too far-reaching, and their application does not always meet the needs of commercial transactions.

3. Economic consequences

The proposed amendment introduces a protective mechanism that effectively safeguards the interests of a minority partner/shareholder by completely reversing the economic consequences of their prior disadvantage. The most significant benefit for the withdrawing partner/shareholder is that the valuation of their shareholding ceases to be merely a reflection of the current, often manipulated, state of affairs within the company, and instead becomes an instrument of restitution. Thanks to the court’s ability to take into account the value the shares would have had had the gross injustice not occurred, the partner/shareholder recovers the lost benefits that were taken from them, for example through the deliberate underreporting of profits, the withholding of dividends or the transfer of assets to related entities. In this way, the buy-out price serves a compensatory function, restoring the partner/shareholder to the financial position they would have been in had the other partners/shareholders acted loyally towards them and in accordance with good practice.

At the same time, this provision serves a key preventive function, acting as a deterrent to the other partners/shareholders and the company’s governing bodies long before a real conflict arises. Awareness of the existence of such a statutory provision introduces a kind of ‘spectre of liability’, which drastically alters the economic calculation of potential abuses. The majority loses the incentive to take actions detrimental to the minority, as the new legal norm renders such behaviour entirely unprofitable – any attempts to artificially reduce the value of shares will be neutralised by the court at the buy-out stage. As a result, this provision compels controlling partners/shareholders to uphold high ethical and corporate standards from the very outset of their partnership, promoting dialogue and the amicable resolution of disputes rather than aggressive tactics. Ultimately, this strengthens the stability of the company itself, protecting its structure from the destructive effects of internal power struggles.

4. Interpretative uncertainties

However, the proposed solution is not without its uncertainties. First and foremost, attention should be drawn to the discretionary nature of the grounds for applying the institution of withdrawal. The concepts of ‘valid cause’ and ‘gross injustice’ are vague in nature, and their meaning will depend on the court’s discretion. Determining the ‘fair’ value of shares will also pose a significant challenge. Questions also arise regarding the mechanism for the company to buy back shares on behalf of the remaining shareholders, including in particular the timing of the transfer of share rights and the relationship between the court’s judgment and the procedures relating to the transfer of ownership of shares.

In summary, the proposed right to withdraw from a company constitutes a significant and necessary addition to the system. It introduces a mechanism enabling the termination of participation in a company in situations of persistent conflict and strengthens the economic protection of company participants. At the same time, its effectiveness will largely depend on how case law develops, particularly regarding the interpretation of the conditions for applying this institution and the determination of the ‘fair’ value of participation rights.

Authors:

Maciej Marzec – trainee legal adviser, Certified ASO Adviser

Filip Sadowski – legal assistant