Is the process of granting support under the Financial Shield an administrative process? Is the appeal or clarification procedure indicated in the Financial Shield Regulations administrative in nature?
This is the position of the SME Ombudsman in the public space, indicating in his submission to the Minister of Development that the refusal to grant a subsidy should be by means of an administrative decision.
On appeal procedures a story old..
A long, long time ago, that is nine years ago;) I decided to commit my first serious scientific article. While researching the issue of the Act of 20 March 2002 on financial support for investments, which had been lying in the archives for a long time – the ancestor of the current implementation laws, even before the accession to the European Union, I came across an important and serious dilemma at the time. In what form does the state provide support to entrepreneurs. Without going into too much detail, after looking into the subject for a while, Professor Rafał Poździkand I decided to jointly prepare an article entitled „The judicial route in matters related to the co-financing of projects from structural and cohesion funds„.
In this article, we made an exegesis of the legal acts of public law covering the – at that time very sparse – regulations concerning various forms of administrative benefits for entrepreneurs. Our findings led us to a conclusion that is still valid today – the legislator himself did not know in what form he would like to grant support to beneficiaries, and if so, both civil and administrative paths remained open.
This was indicated, for example, by the provisions of the aforementioned Act on financial support for investments, but also by the provisions of the Act on proceedings in public aid cases . In the latter, the legislator explicitly indicated that the granting of aid may take place on the basis of a decision or an agreement (as indicated by its Article 27), thus prejudging that the administration is not condemned to only one appropriate form of granting aid.
Therefore, we finally formulated the following view in the article:
The legislator decided that the transfer of the subsidy takes place on the basis of a civil law contract. He had the right to decide that public administration bodies will perform such public tasks not with the use of forms of action proper to them, in particular administrative decisions, but that such tasks will be performed in forms proper to private law, in particular by concluding civil law contracts. It is a question of the State's choice of how to perform certain public tasks, i.e. the sphere of lawmaking and management and administration.
What does the SME Ombudsman say
In his speech and also in his press comments, the SME Ombudsman advocates the use of the administrative procedure for appeals and explanatory procedures applied in the Financial Shield. In his position formulated to the Minister of Development, the Ombudsman refers to the provisions of the Act on the System of Development Institutions and the Act on the Principles of Cohesion Policy, pointing out that the provisions of the aforementioned Acts define the sovereign competence of the PFR related to the granting of subsidies. Consequently, in the Ombudsman’s view, the administrative procedure should be properly applied to the process of granting subsidies.
We are mindful of the positive aspects of the financial shield assistance provided by the state, but in our opinion it is necessary to clarify the vagueness of the appeal procedure against PFR decisions refusing to provide financing to entrepreneurs. I would like to point out that the essence of administrative control is to protect the freedom and rights of entrepreneurs in their relations with entities performing public administration tasks. In our opinion, the PFR, when considering applications for support, is an entity performing public administration tasks. Therefore, in my opinion, decisions made by PFR on the rejection of an entrepreneur's application take the form of a decision against which an entrepreneur should be entitled to appeal. Consequently, an entrepreneur should have the right to lodge a complaint with a provincial administrative court after such a decision issued in an appeal procedure. Such control is necessary to ensure entrepreneurs equal and lawful access to aid offered by the state.
Kogel - mogel - or how it was and how it is with EU funds
The discussion that the SME Ombudsman is now trying to raise has already taken place once – on the grounds of the rules of implementation of cohesion policy – on the occasion of the Act on the Principles of Development Policy. In 2008, would-be beneficiaries of EU funds could enjoy the 'appeal procedure’ introduced into the Implementation Act, which is not at the same time an appeal procedure within the meaning of the KPA. In accordance with Article 37 of the Implementation Act, the provisions of the Code of Administrative Procedure were not applicable to the competition procedure – instead, the legislator decided to create a quasi-administrative appeal procedure – specific and appropriate only for programmes financed from EU funds.
This procedure was introduced into the Implementation Act as a consequence of the Ombudsman’s motion to the Constitutional Tribunal to examine the compliance of the aforementioned provision with the Constitution of the Republic of Poland. These proceedings – in connection with the amendment of the Implementation Act – were finally discontinued by the Tribunal.
In the course of the proceedings, the Ombudsman pointed out that the actions of administrative authorities which grant or refuse to grant subsidies to an applicant are acts of public law. They have the characteristics of administrative decisions, due to their unilateral and authoritative nature, and are addressed to an entity outside the structure of public administration and conclusively resolve the rights and obligations of subjects. The basis for issuing an administrative decision is, according to the Ombudsman’s claim, Article 30(1) of the Act on the Principles of Development Policy, which uses the phrase 'projects selected for co-financing’, content-wise analogous to the wording of the Act on the NDP (…)This procedure consists of two separate stages. The first one ends with a unilateral authoritative decision, which opens up the possibility of concluding a contract of a civil law nature. In the Ombudsman’s opinion, the exclusion of the application of the Code of Administrative Procedure to the procedure for granting financial aid from the Structural Funds does not prejudge the impossibility of qualifying a given act as an administrative decision and qualifying this stage of the procedure as an administrative procedure. Given the public-law nature of the procedure and the very act of awarding or refusing funding, the exclusion of the provisions relating to proceedings before the administrative courts results in a situation in which the entities involved in these proceedings do not have the possibility to effectively seek judicial protection in the event of possible violations of their rights in these proceedings.
Appeal procedure? A development cas
The introduction of a new appeals procedure in the Implementation Act has not solved all the problems related to the disbursement of funds, and has even added to these problems. The current Implementation Act – the Act on the Principles of Implementation of Programmes in the Cohesion Policy Financed in the Financial Perspective 2014-2020, to which the SME Ombudsman erroneously refers in his position paper, now contains a more developed appeal procedure against negative project assessments, nevertheless, it is still an incomplete regulation and does not give all beneficiaries at least comparable guarantees that the Code of Administrative Procedure gives to citizens. For it is still possible to find in the Implementation Act the exclusion of the application of the Code of Administrative Procedure to this procedure (Article 67).
A discussion of these issues is contained, inter alia, in my publication Dofinansowanie ze środków europejskich w orzecznictwie Sądu Najwyższego i sądów powszechnych.
Why is the appeals procedure in the Financial Shield not an administrative procedure
The answer to this question could be summarised in basically one sentence. The appeal procedure – or rather – the explanatory procedure in the Financial Shield is not an administrative procedure, because this was decided from the outset by the administrator of the funds, i.e. the Polish Development Fund. The very structure of the competition indicates that there is no separation of two processes here, i.e. a specific „promise of support” in the form of a decision and then its granting in the form of an administrative agreement, and the subsidy is transferred on the basis of one act – a subsidy agreement. In fact, entrepreneurs, in order to benefit from the support, start the whole application process precisely by signing – through the banking system – a subsidy agreement, in which they make certain declarations and accept a certain competition structure. They therefore „contract” with the PFR to have their subsidy application assessed.
As a result, the „appeal procedure” or rather the explanatory procedure indicated in the regulations is in fact designed to enable entrepreneurs and PFR itself to remove inconsistencies in the subsidy application process, in particular to catch all situations in which e.g. data downloaded from ZUS and US registers deviate from the actual state, which is supposed to be a kind of safety buffer allowing to eliminate inevitable mistakes of the automated system, rather than constitute an administrative path allowing to obtain the subsidy through a more or less extensive evidentiary procedure. In reality, therefore, the „clarification procedure” in the Financial Shield is more akin to a complaint procedure or a complaint/application procedure from the PAC than to an administrative procedure.
Nor do the provisions of the Act on SIR, which, unlike e.g. in the case of EU funds, do not distinguish between the two stages of granting support, provide grounds for reconstructing the appeal procedure. Moreover, from the wording of the provisions of the Act on SIR, the opposite conclusion can be drawn that support will be granted by PFR in typically civilian forms. Pursuant to Article 13 of the Act on SIR, the Polish Development Fund provides financing by: 1) taking up or acquiring shares, stocks, subscription warrants, bonds, receivables and entering into partnerships; 2) granting loans, guarantees and warranties. The financial subsidies in the Financial Shield are granted precisely on the basis of this provision, while their form remains similar to loans with redemption.
Similarly, the SME Ombudsman’s reference to Article 27 of the Implementation Act is inaccurate, disregarding the general nature of this provision – this Act does not apply to the subsidy programme implemented by the PFR, and applies only to operational programmes co-financed with EU funds.
This does not mean that entrepreneurs who have not obtained a subsidy are left in a no-win situation – they can exercise their rights on the basis of the civil process. However, in contrast to the procedure of granting EU subsidies, which is burdened with many conditions and highly evaluative, it should be borne in mind that proving potential claims may be problematic – the conditions for obtaining support are not discretionary in nature, so unless one of the entrepreneurs is deprived of support for „ethical-moral” reasons, proving the right to a subsidy will come down to proving compliance with programme conditions, which are objective in nature. In addition, the finite nature of the programme budget means that it will also be difficult for entrepreneurs to demonstrate a right to support once the funding has ended.
In conclusion - NS
As a summary of the first thesis raised in this entry, it is worth recalling the view of the Supreme Administrative Court expressed on the basis of the provisions of the Act on the National Development Plan in its judgment of 4 March 2008. (II GSK 217/08).
In the opinion of the Supreme Administrative Court, by abandoning the form of an administrative decision and introducing the form of a civil law agreement as the basis for granting financial aid from public funds, the legislator determined that the activities related to the granting of this aid are not of an administrative and legal nature. This position is not undermined by the fact that it concerns the disposal of public funds. In the NSA's view, this cannot be an argument in favour of the interpretation of the administrative-legal nature of the actions of the entity disposing of these funds in a situation where the legislator has introduced a civil law form of disposing of these funds
This view can also be found in more recent rulings. For example, the NSA made a similar statement in its judgment of 25 September 2019. (I GSK 1370/18). Thus, it is up to the choice of the dispenser of funds to select the appropriate mode of transfer. For my part, I would add that once it does so, it is worthwhile for it to stick consistently to the chosen course of action. As the evolution of regulations on the distribution of EU funds shows, listening to bad whispers may end up in a collision of two systems of law – civil and administrative, and as a result the same case may be examined in parallel by an administrative court and a civil court, as I wrote, among others, here. And, after all, the point is not to complicate procedures, but to simplify them.
Experts from the law firm BBS i Wspólnicy from the EU Funds and State Aid practice, invite all beneficiaries of the Polish Development Fund’s Financial Shield S.A. (large companies and representatives of SMEs), to participate in a free webinar to be held on 7 December from 10.00 to 12.00.
During our virtual meeting, we will jointly discuss both 🔹problems arising at the subsidy application stage, which may result in the need for reimbursement, as well as 🔹future changes in the legal or factual situation of companies affecting the support granted under the Financial Shield.
We will also comment 🔹 on the scope and course of a possible audit of the disbursement of funds provided by the PFR and its consequences and the beneficiary’s preparation process prior to the audit. 🔹We will advise on how to proceed in practice in the event of a risk that a subsidy has been wrongfully collected.
This is an unusual opportunity to get answers to a number of burning questions related to the settlement of PFR Financial Shield funds.
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KRZYSZTOF BRYSIEWICZ
Managing Partner / Legal Counsel
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