Multi-million losses for a company due to the actions of its CEO and his acquittal. How is this possible

Acting to the company’s detriment, not only with intent It

is very easy to expose oneself to such a charge, after all the Polish Criminal Code provides that the offence of acting to the company’s detriment may also be punishable as a result of unintentional actions, and therefore the actions of managers, although unintentional, may be punishable.

Thus, it is possible to join the ranks of those on the criminal record, as it is commonly referred to, even where there was no intention to commit an offence and yet the offender’s action led, for example, to multi-million pound property damage.

This is due to the fact that more and more areas of economic life are being brought under the legal protection of criminal law.

It is not, of course, the case that the public prosecutor’s office performs regular due diligence on companies in order to impose criminal law consequences on their management, just like the tax office performing tax audits.

Thus, a number of questionable activities often do not see the light of day.

The situation is different when there is a dispute within the company.

At that point, everyone is watching and scrupulously taking advantage of every slip-up, including through the use of criminal law instruments.

It is also sometimes the case that certain actions, although apparently appropriate, may be presented in the course of a criminal trial or, more precisely, in the mere notification of a possible criminal offence, in a way that will arouse the interest of law enforcement authorities.

Criminal proceedings will then be triggered, and the onus will be on the company’s management to explain the situation.

The board has robbed the company. Now what?

It was no different in one of the cases I handled, in which a shareholder, dissatisfied with the management board’s actions, successfully triggered the law enforcement authorities.

The subject of his notice was, in short, the alleged derivation of assets of great value by the management.

The shareholder pointed out that the chairman of the management board of the parent company, as a result of a complex, multi-entity transaction involving, among other things, real estate, had deprived the company of a substantial part of its assets, as the company had not received any counterpart as a result of the transaction.

Colloquially speaking: according to the hypotheses put forward in the notice:

“the board has robbed the company“.

Enough evidence?

The public prosecutor, having received such a notice, after conducting an extensive investigation, appointed an expert to determine the amount of damage caused.

As expected, the expert confirmed that the property damage caused by the actions of the President of the Management Board amounted to more than PLN 7 million.

In such a situation, the public prosecutor considered that he had sufficient evidence to bring an indictment against the President of the Management Board before the Court.

It should be marginally noted that at this stage of the proceedings, the public prosecutor unfortunately remained intransigent with regard to any arguments raised by me, as defence counsel, and dismissed all motions for evidence, thus forcing me to argue against the indictment only at the jurisdictional stage.

The conduct included in the indictment, criminalised on the basis of Article 296 of the Code of Criminal Procedure, is of a complex nature.

However, simplifying the construction of this offence to a great extent, we can say that the necessary prerequisites for its occurrence are (1) abuse of power and (2) infliction of material damage.

It is a truism to say that both of the indicated prerequisites should already be examined at the pre-trial stage, in particular when considering whether to charge anyone with the offence.

Judicial proceedings

At the judicial stage of the case, I raised a number of arguments which have not been recognised at all in the case so far – as I indicated earlier, the prosecutor, having obtained an expert opinion, decided to terminate the possible dialogue with the defence of the accused.

Meanwhile, a search of the case file and the whole spectrum of circumstances concerning the transaction charged in the indictment led to the conclusion that there were quite a lot of arguments for the defence, but in part no one paid due attention to them, and in part, unfortunately, they had not yet been revealed in the course of the proceedings.

Well, it was possible to show that the accused CEO did not abuse the powers granted to him at all, but, on the contrary, exercised due diligence on the transaction, including the use of so-called private opinions on the legitimacy of the subsequent stages of the transaction, obtained the required corporate approvals and even tax interpretations, according to the now notorious Business Judgement Rule.

Moreover, the entire transaction had its rational and business justification, contrary to the rhetoric first adopted in the notice of possible criminal offence and then uncritically repeated in the grounds of the indictment.

It remained to demonstrate this in the proceedings.

Re-examination of the experts and the verdict

Finally – regardless of the amount of damage caused by the actions of the accused CEO – the Regional Court found that the premise of abuse of power by the manager had not been realised , indicating:

The above considerations have been supplemented by reference to the extensive case law developed on the basis of Article 296 of the Criminal Code, according to which:

Although the above-mentioned findings were already sufficient to acquit my client, the issue of the existence of a pecuniary damage and its amount was not left unanswered by the defence counsel. In fact, it was possible to produce a supplementary expert opinion and consequently a reassessment, which this time, already carried out on behalf of the Court and not the prosecutor, was quite different😊 and obviously favourable to the accused:

As it turned out, the private opinion, which had been drawn up at the request of the defence and submitted to the case file, was also not without significance for the Court. At the same time, one has to agree with the Court that such an expert opinion does not have the value of a court-appointed expert opinion, it nevertheless contains the opinion of an expert in a given field, which may constitute a significant argument in the case:

An additional background to the whole case, was the additional obligations of a number of creditors towards the subsidiary company, this, however, was not included in the allegation of the indictment and, consequently, was not of interest to the Court. Nevertheless, should such an allegation nevertheless arise, I can assure you that, in this case too, a number of arguments would speak in favour of the board of directors – albeit, by now, with a different composition.

However, the years-long battle proved successful. The President of the Management Board was acquitted in the first instance, and after an appeal by the District Public Prosecutor’s Office, the acquittal was upheld by the Court of Appeal in Warsaw:

It should therefore be noted that the fact that a charge has been presented by the prosecutor opens up a discussion of criminal liability, especially if – in accordance with criminal procedure – the defence counsel is not allowed to act in pre-trial proceedings. This is all the more so when the subject of the charge is a complex criminal act requiring expert opinions and the quality of the evidence raises doubts for the defence counsel.