Under the “100 changes for companies” package, work is being performed at the Seym on the draft law on succession management of an enterprise of a natural person. It is aimed to serve as a rescue for the paralysis of functioning of the company after the death of its owner. The provisions will apply to nearly 80% of Polish entrepreneurs.
Chaos after the death of entrepreneur
Currently, if the entrepreneur conducts an individual business activity (based on an entry in the Central Register of Individual Business Activity – CEIDG), then, in principle, at the time of his/her death, the company ends its existence. Its brand is forfeited, all concessions, licences and permits expire, similarly to all agreements concluded with employees. Although heirs inherit the assets and liabilities of the deceased, from the operational point of view, they must create an enterprise from the scratch. If there is also a dispute between the heirs, then, for a period of a few months or years, the company may be in a condition of a critical paralysis.
A suggestion – a succession manager
As a rescue for the paralysis of the enterprise, the legislator suggests an institution of succession management, i.e. temporary management of the enterprise after the death of kits owner.
In order to appoint succession management, it is necessary to:
- indicate the succession manager;
- obtain the consent of the appointed person to serve the function of the succession manager;
- make an entry in CEIDG.
The requirements which the manager will have to meet will not be high. It must be a natural person who is fully capable of performing legal acts. The criteria of affinity or qualification are not stipulated in the law. And this is correct, because they should not be stricter than the formal conditions for the conduct of a business activity by entrepreneurs. Therefore, a succession entrepreneur may be both a beloved grandson who has some talent in business, a professional who deals with asset management or an appointed commercial representative.
The succession manager may be appointed still during the life of the entrepreneur, and after his/her death. The appointed management, similarly to the known institution of commercial representation (prokura), will be authorized to take court and out-of-court decisions on behalf of the entrepreneur. However, contrary to the commercial representative, the manager will also be obliged to run the enterprise. The manager will act on his behalf, but on the account of the owners of the enterprise.
From the hands to the manager to the hands of the successor
The enterprise, from the time of death of the entrepreneur to the time of being taken over by the heirs, will operate under the name of the enterprise with the addition of the phrase “inherited”. The basic rule will be the manager’s care over the enterprise until the time of division of the inheritance, but with a time limit of up to 2 years from the death of the entrepreneur. The draft anticipates certain exceptions from this rule. They are aimed both at the extension of that period, and at the relevant shortening, e.g. in the event that within two months of the death of the nestor, no heir accepts the inheritance or, on the contrary, the business inheritance is taken over only by one heir.
At the time of expiry of the succession management, the person serving the function of the manager is obliged to immediately hand over the enterprise to the successor. In order for the heir not to take over a “pig in a poke”, he/she has a right to request the manager , within one month of the expiry of the management, to submit a written report of the enterprise, including an indication of the condition in which the enterprise is at the time of expiry of the succession management.
What liability is borne by the manager? Similarly to a receiver or an administrator of real estate, s/he will bear liability for damages caused as a result of undue fulfilment of his/her duties. Therefore, the principle of fault will apply here.
The manager will also be held liable for a damages caused to the heir, the beneficiary of legatio vindicatio, the spouse of the entrepreneur and third parties subject to general rules – both liability in tort and liability for a failure to perform or undue performance of an obligation.
Concessions, licences, permits
So far, all administrative decisions expired upon the death of their addressee and, in many sectors, this meant the end of the business. Concessions, permits, licences connected with the business activity condition further “life” of the enterprise as a business entity.
The draft law introduces a category of “decisions connected with the enterprise” – this term refers to any concessions, licences, permits and authorizations connected with the conduct of a business activity, in particular those stipulated in the Act on the Freedom of Business Activity. Decisions connected with the enterprise will no longer expire automatically, with the exception of those which are connected with the entrepreneur himself, e.g. licence of a restructuring adviser. Personal achievements, e.g. a passed examination, may not be subject of succession.
The above does not mean that heirs may sit back and do nothing. Is the succession management is established, then, within 3 months of the date of its approval, it will be required to submit an application has to be submitted to a relevant authority for confirmation of a possibility of execution of the decision. If no management is established, then the owner of the enterprise should, within 6 months, submit an application for the decision to be transferred to him/her. Otherwise, decisions connected with the enterprise will expire after the lapse of the aforementioned deadlines.
The legislator did not overlook the existing problem of continuation of contractual relations established during the life of the entrepreneur, both with contractors, clients and employees.
The remedy is supposed to be constituted by the rule, according to which the appointed succession manager will be able to exercise all the rights and fulfil all the duties under the concluded agreements. This rule will not apply to the agreements whose execution depends on personal characteristics of the deceased entrepreneurs. If the manager is established before the death of the entrepreneur, he will be able to exercise the rights and fulfil the duties deriving from the concluded agreements without any obstacles and delays. In the second situation – when the succession management is not established upon the death, the execution of the agreements will be suspended until the time of appointment of the manager by the heirs. Therefore, the dates cease to run, and one should restrain from the fulfillment of the benefits until establishing a manager.
Will the same rule apply to contracts of employment? Until now, on the date of death of the employer, all the contracts of employment expired, which sometimes constituted a big problem. The solution is to be the rule of continuation. It will be fully followed if the succession manager is appointed at the time of death. The situation of employees whose employer did not appoint a manager will be different. The period of 30 days from his/her death will be most important. With the lapse of the last day of that period, contracts of employment will expire, unless, before the lapse of that period, an agreement is concluded regarding continuation of the co-operation. So what should an employee do for those 30 days? This period will be treated as a period of excused absence from work.
If the period of 30 lapses, the contract of employment will expire and, upon the appointment of a manager, the enterprise will commence recruitment in the same professional group, and there will be a parachute mechanism offered to former employers in the form of an offer to return to work, subject to the previous terms and conditions. There is one condition – an intention of taking on the employment will have to be notified within one month of the date of establishment of the succession management.
The draft law introduces a complete novum consisting of granting the legal-tax personality of an inherited enterprise. An inherited enterprise will therefore be a separate payer of VAT, excise tax, income tax, tonnage tax, ship tax and tax on gambling.
The legislator also gave a tip of the hat to the heirs whom were exempted from tax on inheritance and donation at the time of take-over of a single-person enterprise. Before now, such exemption applied only to closely-related people. Two conditions were introduced which will have to be jointly met in order to be awarded such exemption:
- the acquisition has to be reported to the head of the revenue office,
- the acquired enterprise has to be run for at least 5 years.
Polish entrepreneurs waited for a long time for someone to think of their interest when they will no longer be able to do so. The act is not simple, but it tackles a number of important problems. Complex regulation of the problem will require an introduction of changes in approximately 20 legal acts. Even though similar solutions have existed in individual EU states for years (e.g. a commercial power of attorney after the death of the entrepreneur), we get the impression that so far no-one has addressed the problem of succession concerning a one-person enterprise in such a wide perspective.
If the legislative process ends efficiently (and so far it has been welcomed by all political parties), then the new law will come into force within the next few months.
The author of the article is Katarzyna Adamin, a lawyer at the individual client advisory team of GWW.