Pursuant to Article 328(1) § 3 of the Polish Commercial Companies Code, a shareholders’ register may be maintained in the form of a distributed and decentralised data-base (DLT). The question is whether DLT technology (blockchain) is a suitable solution for a shareholders’ register.
DLT technology is still evolving. I do not have even a fraction of Stanisław Lem’s gift for predicting how particular technologies will develop. Nevertheless, in my view, DLT is not well suited to a shareholders’ register, and this model is unlikely to be implemented in practice. It is simpler and less costly to maintain a shareholders’ register in the form of a centralised database, supervised by the entity responsible for keeping the register.DLT technology is still evolving. I do not have even a fraction of Stanisław Lem’s gift for predicting how particular technologies will develop. Nevertheless, in my view, DLT is not well suited to a shareholders’ register, and this model is unlikely to be implemented in practice. It is simpler and less costly to maintain a shareholders’ register in the form of a centralised database, supervised by the entity responsible for keeping the register.
A central gatekeeper is inherent in the model
A shareholders’ register requires a central entity that verifies and records entries, namely the register – keeping entity. That entity must ensure security (for example preventing unauthorised access) and data integrity. Its role is not purely technical. It is responsible for examining the form and substance of documents underlying entries and, where justified doubts arise, for verifying their legality and authenticity. An investment firm (dom maklerski) must also make statutory notifications (before and after an entry is made) and perform AML obligations.
In other words, the architecture of the shareholders’ register presupposes a single “super” entity. This is the first feature of the register that is difficult to reconcile with the decentralised nature of DLT.
One authoritative dataset is required
The register – keeping entity’s primary task is to ensure that entries correspond to reality; namely this includes recording transfers of shares and maintaining an accurate record of issued shares (so that the register does not show more or fewer shares than have in fact been issued). This effectively requires one authoritative database, to which users (shareholders and the company) have access in a client-type model.
In DLT systems, by contrast, records are typically replicated and stored locally across users’ devices, meaning there is no single “source of truth”.
The need to reverse or correct entries
In practice, certain entries may need to be reversed. Examples include deregistering newly issued shares where a judgment sets aside or invalidates a resolution on an increase of share capital, or where an agreement is declared invalid or avoided (for example, due to defects in declarations of intent). The register must therefore be maintained in a manner that allows defective entries to be eliminated. Under DLT, this would be significantly more difficult.
Transparency vs. continued access by former shareholders
Pursuant to Article 328(5) § 1 of the Commercial Companies Code, the register must be accessible to the company and the shareholders. If the shareholders’ register were maintained under a DLT model, persons who have ceased to be shareholders could retain local access to “historic” datasets forming part of the register.
Conclusion
These arguments (and likely others) support the conclusion that a DLT model is not a good fit for a shareholder’s register. Of course, any technology can be modified to achieve a specific purpose. In this case, however, I remain skeptical. My sense is that we will wait a long time for a shareholders’ register maintained in DLT, though I may be wrong.
Author: advocate Szymon Kaczmarek