Subsidiary liability of a partner in a general partnership

Issues related to the subsidiary liability of partners in a general partnership are regulated in Article 31 of the Act of 15 September 2000 – the Commercial Companies Code (hereinafter: “CCC”). It should be noted that this regulation on subsidiary liability is a novelty in Polish law, as the previously applicable Commercial Code did not provide for this institution. Nevertheless, this institution has significantly increased the attractiveness of the general partnership, because the fundamental element of this subsidiary liability is the fact that a creditor may enforce claims against a partner’s assets only after enforcement against the partnership’s assets has proved ineffective.

Subsidiary liability of a partner

The basis for a partner’s liability for the obligations of a general partnership is set out in Article 22 § 2 of the Commercial Companies Code, pursuant to which “each partner is liable for the obligations of the partnership without limitation with all of his or her assets, jointly and severally with the other partners and with the partnership, subject to Article 31 of the Commercial Companies Code.” Therefore, a partner in a general partnership bears liability for the partnership’s obligations without limitation as to scope or subject matter; it should also be emphasized that this liability is personal in nature.

Since a partner in a general partnership is liable for the partnership’s obligations with all of his or her assets, the question arises whether a creditor may immediately enforce claims against both the partnership’s assets and the partner’s assets. At this point, attention should be paid to the regulation provided for in Article 31 of the Commercial Companies Code. As indicated above, the subsidiary liability of a partner in a general partnership arises only once enforcement against the partnership’s assets proves ineffective. In other words, a partner is liable for the partnership’s obligation from the moment it arises, but the creditor’s ability to pursue satisfaction directly from the partner’s assets arises only when enforcement against the partnership’s assets becomes ineffective (see the judgment of the Supreme Court of 16 June 2010, case file no. I CSK 453/09).

Another important possibility resulting from subsidiary liability for creditors is the right to bring an action against a partner even before enforcement against the partnership’s assets proves ineffective (see Article 31 § 2 of the Commercial Companies Code). Therefore, it is quite common practice to file a single statement of claim for payment against both the partnership and its partners, which ultimately significantly speeds up the resolution of the dispute. Moreover, it should be noted that despite this entitlement, a creditor is not required to bring an action against a partner in order to commence enforcement proceedings against them. Pursuant to Article 778¹ of the Code of Civil Procedure, a creditor may initiate enforcement against a partner without first obtaining a judgment against that partner, as the court may grant an enforcement clause against the partners who bear unlimited liability with all their assets for the obligations of the general partnership to an enforcement title issued against the partnership. Of course, before the court issues an enforcement title against the partners, enforcement against the partnership must first be shown to be at least manifestly ineffective.

Summary

At present, it is difficult to imagine a general partnership without the subsidiary liability of partners. This institution has significantly increased the attractiveness of this legal form of business activity and has introduced a sense of protection for the partners’ assets. Of course, it should be borne in mind that this protection does not last indefinitely, but only until enforcement against the partnership’s assets proves ineffective. It should be emphasized that, unlike joint and several liability, subsidiary liability determines the order in which a creditor may satisfy its claims.

It is also worth mentioning that contractual provisions of a partnership that are inconsistent with Articles 31–33 of the Commercial Companies Code do not have effect vis-à-vis third parties.

In light of the above, when considering the choice of legal form for business activity, one should remember the subsidiary liability of partners, which on the one hand provides protection of the partners’ assets until enforcement against the partnership becomes ineffective, but on the other hand efficiently facilitates the creditor’s ability to enforce its claims against a partner’s assets.