Possible criminal law consequences of not dematerialising shares

The process of dematerialising shares, i.e. the replacement of paper share documents with electronic records in the register maintained by Krajowy Depozyt Papierów Wartościowych (National Depository for Securities), is a key element of capital market modernisation. In Poland, this obligation stems from amendments to the Code of Commercial Companies and the provisions of the Act on Trading in Financial Instruments. Failure of a public company to comply with this obligation may lead to serious consequences, including criminal law consequences, which will be discussed in detail in this article.

Obligation of dematerialising shares

Pursuant to Article 328(1) of the Commercial Companies Code, all shares in public companies are subject to mandatory dematerialisation, which means that they lose the form of a paper document and are recorded in a register maintained by the NDS. Public companies that fail to dematerialise expose themselves to various legal and financial sanctions, and this also applies individually to their board members.

The provisions imposing the obligation to dematerialise shares themselves are contained in the Act amending the Commercial Companies Code and certain other acts ((Dz.U.2019.1798).

Consequences of not dematerialising

Article 18 of the Act amending, inter alia, the Companies Act introduces criminal sanctions for managers of companies issuing shares for two types of violations:

1. failure to summon shareholders to deposit share documents with the company,
2. failure to conclude an agreement to maintain a shareholder register or an agreement to register shares with a securities depository.

However, the legislator introduced analogous regulations in Article 585 of the Code of Commercial Companies, according to which a member of the management board of a commercial company who allows the failure to maintain a register of shareholders or the failure to register shares in a securities depository is subject to a fine of up to PLN 20,000. The key point, however, is that according to §4 of this provision, the fine is imposed by the registration court, which implies civil liability and not criminal liability. The jurisprudence of the Supreme Court is unanimous in this respect – since the fine is imposed by the registration court, there can be no criminal offence (Resolution of the Supreme Court, Civil Chamber of 27 August 2015, ref. no.: III CZ 62/15; so also the Supreme Court in case V CZ 89/16).

Full article is available in Polish here.