Polish restructuring proceedings.
16 grudnia 2018

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The project of the new Polish Restructuring Law was submitted to the Parliament - as a government submission (print no. 2824) - on 9th October 2014. The lower chamber of the Parliament finally passed the bill, after consideration of the Senate's amendments, on 15th May 2015. The act came into force on 1st January 2016 (hereinafter “RL”).[1]

 

Former Bankruptcy and Reorganization Law of 2003 introduced a single bankruptcy procedure designed both for restructuring or for liquidation. After the declaration of bankruptcy, the proceedings were conducted either in the course of proceedings involving the liquidation of the assets of the bankrupt or with the possibility of entering into an arrangement. The "transition" from one mode of bankruptcy proceedings to the other could take place theoretically several times, while the declaration of bankruptcy - despite changes in the procedures - took place only once. The proceedings concerning the change of the procedure resulted in its effects as of its issuance. Changing the course of proceedings was associated in practice with various complications. The justification for the draft of Bankruptcy and Reorganization Law criticized the former separation of bankruptcy and restructuring proceedings. Provisions from 1934 provided for a separate bankruptcy and arrangement procedure. It was pointed out that "with this solution, the creditors bear the negative consequences of the debtor's insolvency. At the same time, creditors are deprived of the opportunity to influence the initiation of arrangements proceedings. They cannot object even an erroneous ruling on the opening of arrangement proceedings. (...) this solution is of little use, if not harmful. First of all, it is abused by dishonest debtors to the detriment of creditors." Indeed, in practice there have been cases in which debtors filed applications for the opening of arrangement proceedings to obtain protection from bankruptcy, with no intention to execute the arrangement.

 

Renewed separately bankruptcy and the arrangement proceedings – by virtue of Reorganization Law Act - enforces legal safeguards against the above mentioned harmful practices. How should restructuring law deal with this problem? First, by introducing measures to accelerate the restructuring proceedings. Second, through the institution examining the grounds for opening restructuring proceedings. Indicate in this place on art. 8 sec. 1 RL, according to which the court is obliged to refuse to open a restructuring proceeding, if its opening would be aimed at harming the creditors. In addition, pursuant to art. 8 sec. 2 RL, the court refuses to open the arrangement or remedial proceedings, if the debtor's ability to settle the costs of the proceedings and liabilities arising after its opening have not been probable. Thirdly, by introducing the possibility of removing the debtor's own board and establishing the court supervisor in the accelerated arrangement proceedings and arrangement proceedings, by entrusting the management of administrator with the debtor's assets in the rehabilitation proceedings. Fourthly, through ongoing monitoring - through the institution of the monthly reports of the court supervisor - whether the debtor settles liabilities arising after the opening of the accelerated arrangement proceedings and composition proceedings (art. 31sec. 2 point 1 RL). In the case of the application for opening the arrangement proceedings and the application for opening the rehabilitation proceedings (and thus assuming the longest-lasting proceedings), the debtor is obliged to make his capacity to perform obligations after the opening day of proceedings (art. 284 sec. 1 RL) 4). Finally, through the institution of a simplified application for bankruptcy (art. 334 RL).

 

After more than a decade of validity of the new regulations of Bankruptcy and Reorganization Law of 2003, the legislator decides to completely change the structure of the regulations. Why? The law on bankruptcy and entrepreneurs 'restructuring is increasingly perceived as an important factor in encouraging economic development and investment, as well as a factor favoring entrepreneurs' activity and preservation of jobs (for example in the preamble of the United Nations Commission on International Trade Law and in the preamble of Resolution No. 65/24 General Assembly, in: UNCITRAL Legislative Guide on Insolvency Law, Part Three: Treatment of enterprises in insolvency, New York 2012, pp. 113 and 115). Substantive condition of bankruptcy and restructuring law has a very real impact on the economy. There is no doubt that a number of solutions adopted in the Bankruptcy and Reorganization Law of 2003 have been subject to serious criticism both in theory and in the practice of applying the law. The importance of bankruptcy and reorganization law should be underlined in the context of the effects of macroeconomic crises.

 

Regarding the economic reasons for the introduction of the Restructuring Law, the justification for the draft law stated that "Poland is ranked 37th in the Doing Business sub-banking of the World Bank, including analysis of bankruptcy proceedings. It indicates a relatively long duration of proceedings, high costs and low average satisfaction of creditors. The analysis of statistics allows us to indicate that in Poland the number of applications for bankruptcy is increasing, while the proceedings involving the liquidation of the enterprise prevail. Conducted examinations indicate the unsatisfactory ratios of satisfying creditors from the bankruptcy estate and a high rate of dismissal of applications for bankruptcy due to poverty of mass. The first of these circumstances leads to the so-called the domino effect associated with defaulting insolvency by subsequent unsuccessful creditors of the bankrupt. The analysis of global economic phenomena, as well as macroeconomic trends in Poland, indicates the growing number of entities that are real or potentially interested in effective restructuring due to the global recession. (...) Comparison of bankruptcy statistics in Poland with other EU member states also clearly indicates that bankruptcy proceedings in Poland are used relatively rarely, and insolvent entrepreneurs in most cases are removed from trading through informal liquidation. This situation is unfavorable for creditors and for the safety of trading, because in such cases, the bankruptcy mechanisms that protect them are not applied. "

 

It should be clearly pointed out that many European countries have recently also decided to modernize their own bankruptcy and restructuring laws. Significant changes in this regard took place in Germany, Spain, Austria, Switzerland, Italy, Greece, England, Slovakia, the Czech Republic, etc. The amendment of the law in Poland thus corresponds to a general European trend related to the global economic crisis that began at the end of the first decade XXI century.[2]

 

 

The issues of bankruptcy and restructuring are of interest to various centers with a global influence, which underlines the importance of effective legal regulation in this area. UNCITRAL has published important documents relating to the problem of insolvency law. First - UNICITRAL Legislative Guide on Insolvency Law - from 2005, consisting of two parts: Part One. Designing the Key Objectives and Structure of Effective and Efficient Insolvency Law, Part Two. Core Provisions for an Effective and Efficient Insolvency Law. The second document is the UNCITRAL Legislative Guide on Insolvency Law. Part three: Treatment of enterprise groups in insolvency, published in New York in 2012. UNCITRAL reserves that it is not its intention that recommendations regarding bankruptcy law included in the Legislative Guide become an element of individual legal orders. The Legislation Guide contains important issues that are recommended to consider when creating the norms of bankruptcy and restructuring law. What's more, UNCITRAL does not recommend only one solution, but points to various possibilities of solutions that may possibly be used by legislators, taking into account the local (national) legal context.

 

According to art. 2 RL the debtor's restructuring is carried out in the following four restructuring proceedings: (1) in the proceedings for the approval of the arrangement (“postępowanie o zatwierdzenie układu”), (2) in the accelerated arrangement proceedings (“przyspieszone postępowanie układowe”, (3) in arrangement proceedings (“postępowanie układowe”, (4) in the rehabilitation proceedings (“postępowanie sanacyjne”).

 

The procedure for the approval of the arrangement makes it possible to conclude the arrangement as a result of the debtor's independent collection of votes without the participation of the court. The accelerated arrangement proceedings allow the debtor to enter into an arrangement with the creditors after preparing and approving the inventory of receivables in a simplified manner. The arrangement proceedings allow the debtor to conclude the agreement after preparing and approving the list of receivables. The rehabilitation proceedings enable the debtor to carry out the rehabilitation activities and conclude the agreement after preparing and approving the list of receivables.

 

The indications of the opening of a restructuring procedure can be understood as premises (referring to the so-called restructuring capacity - see Article 4 RL) and the objective premises. Objective premises can be divided into general premises and specific premises. General conditions are those that determine the initiation of restructuring proceedings. Among the general and specific premises, there are so-called positive and negative premises. Special conditions are the conditions for the admissibility of initiating a given type of restructuring proceedings.

 

 

[1] There is a work is in progress on a draft of a directive of the European Parliament and Council on a preventive framework for restructuring, a second chance policy and measures to increase the effectiveness of restructuring procedures, insolvency. In practice, this means unification of restructuring at the community level. The Restructuring Law will fall to the rank of an act implementing the directive. On 22th November 2016, the European Commission presented a proposal for a new directive that aims to put in place an effective framework for preventive restructuring across Europe to ensure that honest entrepreneurs get a second chance and improve their insolvency proceedings. http://ec.europa.eu/information_society/newsroom/image/document/2016-48/proposal_40046.pdf. The main objective of the project is to introduce an effective preventive restructuring framework, "preventive" in the Member States. The aim of creating such a framework is to encourage entrepreneurs to early restructuring in order to maximize the value of satisfying creditors. The project met with a generally positive opinion, among others Of the European Central Bank of 7 June 2017 on the proposal for a directive of the European Parliament and of the Council on the legal framework for preventive restructuring, second chances and measures to increase the effectiveness of restructuring, bankruptcy and redemption proceedings and amending Directive 2012/30 / EU (CON / 2017 / 22).

 

[2] See e.g. Insolvency reforms in Europe, Loan Market Association News, 2012, No. 7, p. 21, S. Braun, German Insolvency Act: Special Provisions of Consumer Insolvency, Proceedings and the Discharge of Residential Debts, German Law Journal 2005, Vol. V, No. 1, p. 59, G. Hoher, German for "Modernising Bankruptcy Law", Eurofenix, 2012, No. 1, p. 16., A. Satava, M. Dancisin, New Czech Insovency Law on its Way, Butterwoths Journal of International Banking and Financial Law, 2006, No. 11, p. 450, A. Scarsso, Debt restructuring in the "new" Italian Insolvency Law, Studio Iuridica Toruniensia, vol. V, p. 7.

 

 

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