Seizure of a debtor’s shares in a company: is it enough?

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Often debtors’ shares in companies are seized as part of security or enforcement proceedings. But the debtor does not lose his quality of shareholder of the company after the seizure of the shares, and the creditor remains a third party with regard to the company. Thus, the debtor can continue to exercise the social rights attached to the seized shares, making it difficult for the creditor to satisfy his rights. Thus, it is advisable to recall the possibility of contesting company resolutions, and of appointing a receiver for shares seized within the framework of an enforcement or security procedure.

In accordance with art. 9102 §1 of the Polish Code of Civil Procedure, under an attachment, a creditor may exercise all property rights of the debtor arising from the seized right necessary to satisfy the creditor by way of execution. The creditor may also take all necessary measures to preserve the right of ownership. But in such a situation, the creditor cannot exercise the social powers of the debtor, for example attending general meetings or voting on resolutions. However, creditors have a number of “precautionary” rights that should be borne in mind if they wish to obtain satisfaction of their claims.

Repeal or invalidate shareholder resolutions

According to the case law of the Supreme Court of Poland, the scope of precautionary actions within the meaning of Art. 9102 §1 includes the right of an enforcement creditor (or a creditor obtaining security) to bring an action for nullity or annulment of a resolution of the general meeting of shareholders threatening the possibility satisfaction of seized actions (for example, judgment of the Supreme Court of December 19, 2013, case no. II CSK 150/13). A legal right to bring such an action can be conferred on the creditor who is carrying out the execution (or the guarantee) only in cases where the action seeks to preserve the right in course of execution or of guarantee and that the contested resolution is the source of a threat to the creditor’s ability to obtain satisfaction (or security).

Thus, a creditor can bring an action for annulment of a resolution of the general meeting of a company jeopardizing the ability of the creditor to obtain satisfaction of the attached right. The threat does not have to flow directly from the substance of the resolution, but may simply be indirect. It cannot be ruled out that a resolution which does not relate directly to the participation rights (but which is irrational or economically detrimental to the company) will harm the ability of the creditor to obtain satisfaction for the shares seized – in terms of proceeds which could be obtained from the sale of the seized shares, as well as the exercise of the resulting property rights (as provided for in art. 911 of the Code of Civil Procedure6 §1). Indeed, one can easily imagine that a dishonest debtor will begin to pass resolutions under which a company will squander its assets, leading to a loss in value of the company’s shares, thereby reducing or eliminating the creditor’s ability to obtain effective satisfaction from shares. Thus, such unnecessary or outright dishonest actions by the debtor may be thwarted by the creditor by action to invalidate or repeal the detrimental corporate resolution.

The time period available to a creditor seeking enforcement or security to bring such an action under Art. 9102 §1 and the relevant provisions of the Code of Commercial Companies run from the moment the creditor has been able to become aware of the content of the resolution. The time when the time limit for contesting a resolution begins to run is also linked to the publication of the resolutions in Monitor Sądowy and Gospodarczy (Judgment of the Supreme Court of December 19, 2013, case no. II CSK 151/13).

Appointment of receiver for shares

According to art. 9102 §2, if it is necessary to exercise rights arising from the attached rights other than those referred to in §1, the court appoints a trustee at the request of the debtor or creditor or ex officio. The provisions relating to forced execution on immovable property apply to the trustee thus appointed.

The Supreme Court has ruled that the court-appointed receiver of actions can further the interests of the creditor, so to speak, beyond the right of conservatory action discussed above. In other words, based on Art. 9102 §2, a court-appointed administrator must be appointed when the subsequent exercise of corporate rights by the shareholder/debtor of the seized shares poses a realistic threat to the property interest of the creditor pursued in the context of enforcement or security proceedings (Judgments of the Supreme Court of 19 December 2013, cases nos. II CSK 150/13 and II CSK 151/13).

In our view, the appointment of a receiver of shares will be justified in particular when the behavior of the shareholder/debtor demonstrates a lack of diligence for the proper functioning of the company (for example an inability to manage or control its business processes) or a failure to act honestly towards the creditor (eg a tendency to take fraudulent actions to the detriment of creditors).

The competent court of first instance for the appointment of a receiver of the shares of a company is the court of first instance responsible for the bailiff seizing the social rights in the context of a procedure of security or execution. .

If under Art. 9102 §2 the court appoints a receiver of the shares, the receiver exercises the subjective rights of the shareholder, including corporate powers. As mentioned, a creditor seeking execution or security may exercise all proprietary rights arising from the foreclosed actions necessary to satisfy the creditor. However, the powers of a corporate nature related to these rights can only be exercised by the receiver. There are no obstacles to cooperation between the receiver of the shares and the creditor in the context of enforcement or security proceedings, including the exchange of information on the basis of which the creditor can take appropriate measures under these conservatory powers (Supreme Court resolution of November 25, 2011, Case No. III CZP 64/11).

Therefore, the appointment of a receiver to the actions under s. 9102 §2 can be very useful to the creditor, in particular to help him exercise his rights under Art. 9102 §1 protecting the satisfaction of actions. In certain situations, this may even be essential for the smooth running of the enforcement or security procedure. Then, for their own good, creditors should make their own efforts to get the court to appoint a receiver.

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