What to do when a company lacks funds to pursue legal proceedings?
In business practice, it may happen that a company seeks to pursue claims (e.g. for an unpaid invoice), and the opposing party refuses to settle the dispute amicably. In such cases, the only option left is litigation — which, however, entails certain costs, including a court fee that generally amounts to 5% of the value of the claim.
For many companies, especially young technology firms (e.g. startups), this can be a difficult barrier to overcome. However, Polish company law provides for the possibility of an exemption from court fees if the company proves that it lacks the funds to cover them. This mechanism implements the constitutional right to a fair trial (Article 45 of the Polish Constitution) and allows businesses to protect their interests even in financially challenging circumstances.
Legal basis – Article 103 of the Act on Court Fees
According to Article 103(1) and (2) of the Act on Court Fees:
“1. The court may grant an exemption from court fees to a legal person or an organisational unit without legal personality but having legal capacity under the law, if it demonstrates that it does not have sufficient funds to pay them.
2. A personal company should also demonstrate that its shareholders, who are liable for its obligations, do not have sufficient funds to increase the company’s assets or grant it a loan”.
It is worth noting that the previous version of the Act stated that:
“1. The court may grant an exemption from court fees to a legal person or an organisational unit without legal personality but having legal capacity under the law, if it demonstrates that it does not have sufficient funds to pay them.
2. A commercial company must also demonstrate that its partners or shareholders do not have sufficient funds to increase the company’s assets or to grant it a loan.
3. Paragraph 2 shall not apply to a company in which the State Treasury is the sole shareholder or partner”.
The previous version was therefore less favourable to capital companies, as it required them to also demonstrate the inability of their shareholders to provide financial support to the company.
The current regulation simplifies the procedure – a limited liability company or joint-stock company is no longer required to assess the financial situation of its shareholders, but only to demonstrate its own lack of funds. This facilitates access to courts for capital companies involved in commercial disputes. However, it also creates a risk of abuse, particularly within corporate groups, where parent entities may seek court fee exemptions for their subsidiaries special purpose vehicles.
How can a capital company demonstrate a lack of funds to pay the court fee?
To obtain an exemption from the obligation to pay the court fee, a commercial company must demonstrate that it does not have sufficient financial resources. What does this mean in practice?
According to established case law (see e.g. decisions of 28 October 2015, case no. II CZ 70/15, and 27 October 2016, case no. V CZ 65/16), a company may demonstrate its financial situation, for instance, by submitting:
- its annual balance sheet or financial statement,
- bank account statements,
- cash reports and tax declarations,
- loan agreements or letters from banks regarding creditworthiness,
- documents confirming the amount of liabilities.
However, a mere statement from the management board that the company lacks funds, without attaching documents confirming this fact, will not be sufficient (see decision of the Court of Appeal in Warsaw of 12 March 2014, case no. VI Acz 3686/13). The best approach is to submit a management board statement together with appropriate financial documentation clearly confirming the company’s inability to pay, for example, the filing fee.
Exemption of a personal company from court fees – obligations and practical concerns
For a personal company to obtain an exemption from the obligation to pay the court fee, it must – similarly to a capital company – demonstrate that it lacks funds to cover it. This requires submitting an appropriate statement and presenting financial documents confirming its difficult financial situation.
However, in the case of personal company, the requirements are more stringent. In addition to documentation concerning the company itself, it is also necessary to demonstrate that its partners who bear liability for the company’s obligations do not have sufficient means to increase the company’s assets or to grant it a loan.
Where do practical problems arise?
The exemption of a personal company (e.g. a general or limited partnership) raises serious concerns. Here are several examples:
- Must a personal company disclose the assets of all its partners?
For small companies, obtaining such information about a partner is not a major issue. However, in more complex structures (e.g. a limited partnership with multiple general partners), one of the partners may refuse to provide the company with details about their financial standing. In such cases, a functional interpretation of Article 103(2) should lead to the conclusion that a personal company – in certain exceptional situations – is not required to demonstrate the lack of ability to increase its assets or grant a loan for all partners.
- What if the company sues one of its partners?
It sometimes happens that a company pursues claims against one of its partners. In such a case, should it request financial data from that partner to obtain an exemption from the court fee?
Such an interpretation could effectively prevent the company from pursuing its claims. Therefore, a functional interpretation of Article 103(2) leads to the conclusion that in the case of a dispute with one of its partners, the company does not have to demonstrate that this particular partner also lacks sufficient funds to increase the company’s assets or to grant it a loan.
- What does “lack of sufficient funds” mean?
It does not mean the total absence of assets, but rather the inability to cover the costs without losing liquidity. A partner possessing PLN 300,000 may be unable to pay a PLN 100,000 court fee without risking financial destabilisation.
Consequences of changes in company court fee regulations
Currently, the regulations provide for different conditions for exemption from court fees depending on the type of company.
A capital company must only demonstrate that it lacks sufficient funds to cover the litigation costs. There is no longer any need to assess the financial situation of its shareholders– it is sufficient to document the company’s own financial hardship.
A personal company must still meet a dual requirement: first, to demonstrate the lack of funds within the company itself, and second, to prove that its partners who bear liability for the company’s obligations also lack the means to increase its assets or to grant it a loan.