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Historic intervention of Polish financial regulator to order review of accounts of listed company

The Polish financial supervisory authority Komisja Nadzoru Finansowego (KNF) has for the first time ever, used its statutory power to appoint an auditor to review the accounts of a company quoted on the Warsaw Stock Exchange.

This has been seen as a positive development for institutional investors and banks involved in public companies in Poland as previously it been thought that Polish law devices for monitoring a company's accounts, without majority shareholder agreement, were not effective.

The ownership of Polish public companies is relatively concentrated compared to many mature economies. As a result, Polish law contains various devices to address the risk of abuse of minority interests by majority shareholders. One device is the minority shareholders' or KNF's right to demand the appointment of an independent auditor to review a company's financial situation.1 However, this device has proved to be of limited effectiveness in the past. Whilst 5% of shareholders may demand that a shareholders meeting is convened to vote on the appointment of an auditor, the actual appointment is subject to a majority vote. Often this majority vote will be delayed, thus reducing the effectiveness of this device for the minority. Up until March 2013 there had been no reports of KNF using its powers to appoint an auditor.

However, in March 2013 KNF used its power to appoint an auditor to Solar Company SA, a clothing manufacturer, controlled by a group of individuals, which runs a chain of shops in Poland and abroad. After having achieved commercial success, in 2012 Solar attracted new investors through a public offering of a new issue of shares and was listed on the Warsaw Stock Exchange. Several financial institutions, including investment and pension funds, attracted by Solar's stated excellent financial situation and financial prospects, responded to the offer and became shareholders. However, soon after the public offering, the majority-controlled management drastically revised Solar's financial prospects for 2012. In fact, the net profit for 2012 eventually turned out to be four times lower than the figures presented to the investors in the issue prospectus. As a result, the minority institutional investors demanded that a shareholders' meeting be convened to appoint Ernst &Young as auditor to review the company's accounts. They were successful in convening the shareholders' meeting, but given the opposition from the majority, were not able to appoint the auditor of choice. The majority instead appointed a different auditor.

The minority shareholders asked KNF to appoint Ernst & Young to review Solar's accounting records, independently of the audit carried out by the auditor chosen by the controlling shareholders. On 14 March 2013 KNF decided to intervene and, accordingly, hired Ernst & Young to audit Solar's periodic reports and financial accounts regarding financial years 2011 and 2012.

Solar lodged a complaint in the regional administrative court to challenge the appointment of Ernst & Young as auditor. On 30 July 2013 the court rejected the application on the grounds that KNF's competence to appoint an auditor to review the financial situation of a regulated company is part of KNF's general supervisory role and thus not subject to review. Solar's appeal to the Supreme Administrative Court was dismissed on 5 December 2013.


This development is good news for institutional investors and financing banks involved with Polish public companies as it shows that an independent audit of a company's account is possible without majority shareholder agreement. KNF's unprecedented intervention marks its increasingly pro-active approach to the Polish capital market. The courts' decision that the appointment of an auditor is not subject to judicial review reinforces the KNF's supervisory role.


1. See Article 84 (for the minority shareholders' power) and Article 68 (for the KNF's power) of the Act on Public Offerings, the Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies dated 29 July 2005, as amended (consolidated text, J. L. 2009, No 185, item 1439).