Compulsory proceeding: registry courts are going into battle with arrears in submitting annual financial statements

Krzysztof WARAKOMSKI
Corporate Advisory Supervisor at RSM Poland at RSM Poland
Legal Counsel/Radca Prawny

More than a year has passed since the introduction of revolutionary changes in preparing and submitting annual financial statements. Namely, since 15 March 2018, annual financial statements are now submitted online: via a dedicated system provided by the Ministry of Justice. What is more, as of 1 October last year, any documents filed with the National Court Register (NCR) must be in electronic format as well. The new solutions surprised many entrepreneurs and caused a lot of turmoil in this sphere of running a business, so systematic before. In previous posts on our blog, we already discussed key issues related to e-reporting, such as: obtaining an electronic signature or the option of submitting the annual financial statements via a proxy, who is a legal counsel or an attorney. Today, as many companies registered in the NCR (in particular those where foreigners participate) continue to have arrears in submitting their annual financial statements, we would like to take a closer look at the weapons used by registry courts to enforce reporting obligations.

REGISTRY COURTS BECOMING LESS LENIENT

It seems that registry courts have decided that the past several months was enough time for entrepreneurs to adapt to the changes that had been introduced. It can be seen in the recent intensified practice of requesting companies to submit their outstanding annual financial statements: within 7 days under pain of a fine in the amount of up to PLN 15,000.00. The courts have such a right under the provisions of the NCR Act regulating “compulsory proceedings”. It should be noted here that a 7-day deadline is set forth in the regulations, and the fine may be re-imposed up to the amount of PLN 1,000,000. The fine is imposed either on the company or directly on persons responsible for submitting the annual financial statements in a given entity. In the case of a limited liability company, being so popular in Poland, these are usually members of the Management Board.

REQUEST TO SUBMIT ANNUAL FINANCIAL STATEMENTS

If you receive a request to submit your outstanding annual financial statements, you should clearly take all the necessary steps to meet this obligation as soon as possible. However, this is not always easy. Difficulties emerge in particular in companies where foreigners are members of the Management Board. The reason behind it is that they have trouble getting through all the formalities involved in getting an electronic signature and using the IT system for submitting documents itself. However, it should be recalled that the latter problem has been mitigated through the option of filing financial statements by a proxy (legal counsel or attorney). What is equally important, if you receive a request to submit your outstanding annual financial statements, you should contact the competent registry court as soon as possible. Experience has shown that if you take decisive actions here, the risk of serious consequences is greatly reduced. What is more, you may avoid paying the fine, even if it has already been imposed.

COMPULSORY PROCEEDING: THE RIGHT TIME TO REFLECT UPON THE COMPANY’S FUTURE

There may be different reasons behind arrears in submitting the annual financial statements, and if reporting obligations are not being met on a regular basis, the Management Board may be prompted to reconsider the further operation of the company on the market. If the company is planning to continue its operations, the best way out for members of the Management Board would be to comply with the formalities in an efficient and consistent manner, i.e. to contact the registry court, obtain an electronic signature, prepare statements, etc. and make sure that financial statements are submitted on time in the future. However, in most cases, arrears in submitting financial statements are identified in limited liability companies that are no longer in operation or are being wound up. If this is the case, it would be a good idea to consider other scenarios.

LIQUIDATION OF A LIMITED LIABILITY COMPANY OR DE-REGISTRATION OF THE COMPANY WITHOUT LIQUIDATION

If the company has assets and some business dealings to complete, but there are no plans of continuing its operation, its formal liquidation should be carried out as a rule in accordance with the provisions of the Commercial Companies Code. If this procedure is properly followed, you will avoid the troublesome compulsory proceedings in the future and protect yourself against legal liability related to the negligent management of your company’s affairs. On the other hand, “dead souls”, i.e. companies that do not have any assets and do not pursue any business activity in fact, may be de-registered without formal liquidation proceedings. Thus, this procedure may be an opportunity for those entities that find it most difficult to meet their obligations. It should be remembered, however, that in both cases you need to make sure that certain requirements and formalities are complied with, also in the sphere of reporting.

COMPUTERISATION OF REPORTING OBLIGATIONS WILL INCREASE CERTAINTY IN BUSINESS TRANSACTIONS?

The greater effort of urging companies to submit their outstanding annual financial statements allows us to make a confident prediction that registry courts are going to be more and more meticulous in their effort to control and identify any breach of reporting obligations made by companies. And this is no wonder, because the computerisation of register cases, according to the assumption behind it, has surely relieved the burden on courts and released resources for verification and enforcement of entrepreneurs’ obligations. Given this fact, the time has come - in particular for companies registered in the NCR - to become fully involved in meeting the obligations of e-reporting, and then to reflect upon the future of these entities on the market. For companies failing to meet their registration obligations, it will be increasingly cumbersome to stay in business, and given the frequent fines and the prospect of criminal liability for the failure to submit annual financial statements – it will also be more costly and risky.

Therefore, if you are struggling with arrears or difficulties in submitting your annual financial statements or are looking for support in closing your business in an effective and safe way, we encourage you to contact us. Our experienced professionals will be happy to provide their comprehensive assistance either in meeting your registration obligations or de-registering your company.