I INSOLVENCY LAW, POLICY AND PROCEDURE
i Statutory framework and substantive law
Since 1 January 2016, insolvency in Poland has been regulated by the provisions of the Bankruptcy Law of 28 February 2003 (known as the Bankruptcy and Reorganisation Law until 1 January 2016) and the Restructuring Law of 15 May 2015, which is an entirely new legal act.2
These two Acts regulate the situation of companies that are struggling with insolvency – both at an early stage (the threat of liquidity loss) and at its very advanced stage (bankruptcy). Together, the Acts provide a comprehensive set of rules of conduct used in cases of insolvency or the threat of insolvency of the debtor, and introduce substantial reform to Polish insolvency law.
The main purpose of the amendment of the Bankruptcy and Reorganisation Law was to adjust Polish law to internationally applied and accepted practices, and thus to provide companies with access to procedures providing both effective restructuring of liabilities and tools to protect creditors.
The key changes, apart from separating restructuring and reorganisation procedures from insolvency proceedings, include, inter alia:
- introducing four new restructuring proceedings (arrangement approval proceedings, accelerated arrangement proceedings, arrangement proceedings, remedial proceedings);3
- changing the definitions of 'debtor insolvency' and 'threatened with insolvency';4
- clarification of bankruptcy prerequisites;5
- introduction of pre-packaged liquidation;6
- the increased role of the Council of Creditors;7
- changes to claims categories and lists of claims;8
- changes to the cost of proceedings catalogue;9 and
- establishing a Central Register of Restructuring and Bankruptcy.10
Respective provisions concerning insolvency law matters are contained in other legal acts, such as the Civil Code (provisions concerning a creditor's protection in the event of a debtor's insolvency), the Penal Code (regulations on crimes involving thwarting the satisfaction of a creditor) and the Commercial Companies Code (provisions governing the liability of board members for non-compliance with the Bankruptcy Law), which also underwent changes owing to the reform of Polish insolvency law.
In recent years, there has been a clear trend indicating primarily a change in attitudes towards businesses that have fallen into insolvency.
The legislator considered that the preferred form of resolving insolvency problems was restructuring, the purpose of which is to conclude an arrangement with creditors, and consequently the survival of the business within the market.
For these reasons, the need to change existing insolvency regulations has become obvious. The source of the chronicity and ineffectiveness of insolvency proceedings was recognised in the regulations in force up to 1 January 2016.
At the heart of changes to the Bankruptcy Law, and the introduction of the new Restructuring Law, is the regulator's idea that liquidation of a debtor's property should be the last resort. Therefore, bankruptcy proceedings should be implemented only when it is obvious that it is the only path to ensure creditors can recover at least part of the amounts due. As long as there are chances for reaching an agreement with creditors through debt restructuring, the preferred form of the regulator is an arrangement.
According to the legislator, restructuring is beneficial owing to its twofold action: it allows the debtor to repair its business and the creditors to collect their receivables, while at the same time benefiting the economy, primarily by maintaining employment.
It is not yet possible to make a comprehensive assessment of the effects of introducing the new provisions of law since it is still only a short time since their entry into force. However, early experiences confirm that the overall goal of the new legislation has been achieved. This is reflected in the data derived from the Court and Economic Monitor, according to which there was a significant increase in 2016–2018 in the number of initiated restructuring proceedings.
iii Insolvency procedures
Polish insolvency law contains four separate procedures for concluding an arrangement with creditors – ranging from the less formalised, conducted to a large extent outside the court, to profound legal and factual restructuring carried out by the trustee under the strict supervision of the restructuring court.
In general, both in commencing restructuring proceedings and preparing arrangement proposals, laying down the methods of restructuring a debtor's liabilities are on the debtor's side. Nevertheless, after the restructuring proceedings commence, alternative arrangement proposals may also be submitted by the court supervisor, administrator, sole creditor, creditors' group or the council of creditors.
The restructuring court refuses to open restructuring proceedings if their effect would be detrimental to creditors, or when a decision on the declaration of bankruptcy is final and binding.
Arrangements may provide a wide range of restructuring methods, including, inter alia, spreading repayment of the debt by instalments, postponement of payment deadlines, conversion of receivables into shares, or a liquidation plan.
Each restructuring proceeding requires approval from the restructuring court of the arrangement accepted by the majority of the creditors. The court is entitled to reject the arrangement if it violates the law, if it is obvious that the arrangement will not be performed, or if it is detrimental to the creditors who voted against the arrangement and expressed reservations.
Arrangement approval proceedings (Articles 210 to 226 of the Restructuring Law)
This is the most informal and the simplest restructuring procedure, which is available to debtors who are able to reach an agreement with the majority of their creditors without involving the court. It does not require a list of creditors to be established. The main prerequisite for this procedure is that the sum of disputed claims does not exceed 15 per cent of the total claims.
This procedure involves the debtor's continued management of its business, but subject to the appointment of a licensed supervisor, who acts as supervisor of the arrangement.
The debtor determines the arrangement date immediately after the arrangement supervisor begins performing its function.
This procedure does not include a creditors' meeting for voting. The debtor presents the proposed restructuring plan to the creditors and collects their votes in writing (with the assistance of the licensed supervisor). Subject to obtaining the required majority of approving votes, the debtor submits an application to the court for approval of the agreement. This submission is required to be made within three months of the date of voting.
Accelerated arrangement proceedings (Articles 227 to 264 of the Restructuring Law)
This procedure is available if the sum of disputed claims does not exceed 15 per cent of the total claims. In comparison to arrangement proceedings, this procedure is simplified, mainly in the terms of the procedure for determining the claims carrying the voting rights.
Within this procedure, all enforcement proceedings regarding the claims to be covered by the arrangement are suspended by law. From the opening of the proceedings, the debtor is not allowed to perform any pecuniary and non-pecuniary obligations that are to be covered by the arrangement. The procedure consists of management of the debtor's estate (arrangement estate) by the debtor, subject to this management being supervised by the court supervisor. However, in some cases, the court may not agree to the debtor's self-administration and will appoint an administrator. The court's involvement in this procedure is much greater than in arrangement approval proceedings. The restructuring court examines the debtor's application for opening the accelerated arrangement proceedings (not longer than one week after the application is filed), and issues a decision to open the accelerated arrangement proceedings, or to refuse such (the latter the debtor may appeal).
Arrangement proceedings (Articles 265 to 282 of the Restructuring Law)
This procedure applies only if the sum of disputed claims exceeds 15 per cent of all claims.
These proceedings are also commenced once a debtor's application is filed before the restructuring court. The application should be accompanied by copies of the arrangement proposals.
This procedure involves an interim period (from filing the debtor's application until the procedure commences) within which the restructuring court is entitled to appoint a temporary court supervisor to secure the debtor's estate. In certain cases, the court may not agree to the debtor's self-administration and will appoint an administrator to take over management of the debtor's assets.
Analogous to accelerated arrangement proceedings, this procedure also assumes that all enforcement proceedings regarding the claims to be covered by the arrangement are suspended by law.
The main difference between this and accelerated arrangement proceedings is that, owing to the higher percentage of the disputed claims, the allowance of claims is more formalised, and consequently much longer. According to the assumptions, arrangement proceedings should be completed in approximately 10 months.
Remedial proceedings (Articles 283 to 323 of the Restructuring Law)
This is the most formalised of the restructuring procedures, but it ensures the broadest range of restructuring options, and the widest range of protection of a debtor's assets against creditors. This procedure is also commenced once a debtor has filed an application with the restructuring court.
This procedure involves the mandatory appointment of an administrator (zarządca) to take over the full management of the debtor's assets (remedial estate), unless management by the debtor is necessary for successful restructuring and ensures proper management.
All enforcement proceedings regarding the claims to be covered by the arrangement are suspended by law. Remedial proceedings enable the debtor to carry out remedial actions and conclude the arrangement after the table of claims has been prepared and approved. Remedial actions include legal and business acts that aim to improve the debtor's economic situation and restore the debtor's capacity to perform its obligations, while protecting it against debt enforcement proceedings.
Pursuant to the regulations of Polish law, the only available insolvency proceeding is the procedure that stipulates the liquidation of a debtor's assets. However, even in this far-reaching procedure, it is possible for a debtor to enter into arrangement with creditors.
Pre-packaged liquidation (Article 56, paragraphs a to h of the Bankruptcy Law)
This procedure introduces the possibility of filing an application for the court's approval of the terms of the sale of the debtor's enterprise or its substantial part, with the petition for bankruptcy. The application must specify at least the price and the purchaser, and be accompanied by a description and valuation of the assets prepared by an expert.
The court may accept or reject the application for approval of terms of sale in the bankruptcy order. The decision to accept the application may be contested by each of the creditors within one week of the date of its publication.
The sale agreement on terms specified in the court's order must be concluded no later than 30 days after the date the decision becomes final, unless the terms and conditions of the agreement accepted by the court provide for a different time limit. Funds from such sales are used up in bankruptcy and are distributed among creditors appropriately. The speed of the sale is intended to increase the debtor's enterprise's chances of survival.
Main and ancillary proceedings
The Polish Bankruptcy Law11 provides for ancillary (non-main) insolvency proceedings in Poland, where the main proceedings are pending before a foreign court. Polish courts have exclusive jurisdiction over bankruptcy cases if the principal place of the debtor's business is located in Poland. Ancillary bankruptcy proceedings occur when the Polish courts have no exclusive jurisdiction (i.e., if the principal place of the debtor's business is not located in Poland). Polish courts are competent if the debtor is engaged in an economic activity, or has its place of residence or registered office or assets, in Poland. If Polish courts have exclusive jurisdiction, bankruptcy proceedings are considered to be main bankruptcy proceedings. In other cases, bankruptcy proceedings are considered to be secondary.
If a ruling to initiate foreign main bankruptcy proceedings has been recognised, bankruptcy proceedings initiated in Poland are always secondary bankruptcy proceedings.
iv Starting proceedings
The preconditions for commencing restructuring proceedings are insolvency or the risk of a debtor's insolvency and restructuring capacity. The restructuring capacity is granted to the following types of entities:
- both limited liability companies and joint-stock companies that are not engaged in business activity;
- partners in commercial partnerships who are liable for the obligations of the partnership without limit with the entirety of their assets; and
- partners in a professional partnership.
Restructuring proceedings may be initiated only by an insolvent debtor or a debtor at risk of insolvency. Restructuring proceedings, unlike bankruptcy proceedings, are conducted only at the debtor's request. Unless the Restructuring Law provides otherwise, restructuring proceedings are instituted on the basis of a debtor's restructuring application construed as an application for the opening of the restructuring proceedings, and an application for approval of the arrangement adopted in the arrangement approval proceedings.
In an accelerated arrangement proceedings, the debtor is obliged to pay an advance to cover the expenses of the procedure to an amount equal to the average monthly remuneration in the sector of companies; however, the court may demand a higher amount. Also, in the proceedings for the opening of arrangement proceedings and remedial proceedings, the court may demand that a debtor make an advance payment towards the expenses thereof.
The main prerequisite for opening bankruptcy proceedings is the debtor's insolvency. A debtor is considered insolvent if it is no longer able to pay its debts as they fall due. It is presumed that the debtor is unable to pay its due debts if the delay in the payment of debts (towards at least two creditors) exceeds three months. Also, a debtor who is a legal person, or an organisational unit without legal personality that is granted legal capacity by a separate act of law, is considered insolvent when its debts exceed the value of its assets. The liabilities of a debtor are presumed to exceed the value of its assets if the balance sheet liabilities, excluding provisions for liabilities and liabilities owed to related entities, exceed the value of the debtor's assets, and that situation continues for more than 24 months.
Bankruptcy can be announced against specific entities (bankruptcy capacity), namely:
- entrepreneurs,13 unless otherwise provided for in the Bankruptcy Law;
- limited liability companies and joint-stock companies that are not engaged in any business activity;
- partners in commercial partnerships who are liable for the obligations of the partnership without limit with the entirety of their assets; and
- partners within a professional partnership.
The regulation states that a petition to declare bankruptcy may be filed by a debtor or any of its personal creditors.
According to the amended Polish regulations, a petition to declare bankruptcy should be submitted to the court competent for the main centre of the debtor's business. In the case of organisational units, it is presumed that the main centre of the debtor's business is its registered office, and in respect of natural persons the place of business, or if a person does not conduct business, the place of his or her habitual residence.
The debtor shall make an advance payment for expenses arising in the course of proceedings in the matter of declaration of bankruptcy, in the amount of a single average monthly remuneration in the sector of companies.
Currently, bankruptcy proceedings are largely identical to liquidation bankruptcy, as it was known in legal terms before 1 January 2016.
Concurrent applications for restructuring and bankruptcy
Pursuant to the Bankruptcy Law, a company may not be declared bankrupt during the period between the commencement of restructuring proceedings and the termination or those proceedings or final discontinuance.
In the case of filing a restructuring application and a bankruptcy application at the same time, the restructuring application should be given priority and be examined first.
v Control of insolvency proceedings
Insolvency proceedings are conducted by the respective courts – restructuring courts in the case of restructuring proceedings, and bankruptcy courts in relation to bankruptcy proceedings. Both types of courts are special units of the district courts (the lowest tier of courts in Poland). Bankruptcy courts are long-established institutions, whereas restructuring courts were introduced on 1 January 2016.
Control of restructuring proceedings
Restructuring proceedings always take place under court supervision. The role of the court depends on the type of restructuring proceedings, and varies from agreement approval in the arrangement approval proceedings, to active participation of the court in the process of repairing the company in remedial proceedings.
The restructuring court is made up of one judge. After the opening of restructuring proceedings, judicial acts in the proceedings are performed by the judge-commissioner, with the exception of those acts that are subject to the court that has jurisdiction.
The judge-commissioner directs the course of restructuring proceedings, supervises the actions of the court supervisor and administrator, designates actions that the court supervisor or administrator are not permitted to perform without his or her permission, or without the permission of the creditors' committee, and admonishes them for any misconduct they have committed. The judge-commissioner, in the scope of his or her acts, has the rights and duties of the court and presiding judge.
The judge-commissioner remains in office until the end of the proceedings, or until a decision to discontinue the proceedings becomes valid.
Control of bankruptcy proceedings
Cases involving a declaration of bankruptcy are heard by a bankruptcy court consisting of a panel of three professional judges. However, bankruptcy proceedings are conducted by a bankruptcy judge assisted by a bankruptcy receiver with the occasional involvement of the court.
Duties of management boards and boards of directors
The duties of a board of directors in connection with insolvency proceedings are regulated in the Bankruptcy Law14 and in the Commercial Companies Code of 15 September 2000. As a rule, pursuant to the Bankruptcy Law, a debtor is obliged to file a petition for bankruptcy with the court within the 30 days after the date on which the circumstances that give grounds to declare bankruptcy occurred.
In the event that the debtor is a legal person or an organisational unit without legal personality that is granted legal capacity by a separate act of law, this obligation rests on each person, who is authorised to represent the debtor and manage its affairs, and is mainly applicable to members of boards of directors and liquidators. In the case of limited liability companies, these persons are liable for any damage caused as a result of their failure to file a petition within the established time limit, unless they are not at fault. Similar liability rests on the management board and liquidators of a joint stock company under the Bankruptcy Law. However, these regulations do not apply to proxies.
Additionally, under the provisions of the Commercial Companies Code,15 a member of a management board or a liquidator who fails to file a bankruptcy petition in the name of a commercial company, despite the occurrence of circumstances that give grounds for bankruptcy of the company or partnership under legal regulations, is liable to a fine, penalty of restriction of freedom or imprisonment of up to one year.
Central Register of Restructuring and Bankruptcy
Under the provisions of Regulation (EU) 2015/848 of the European Parliament and of the Council of 25 May 2015 on insolvency proceedings (the Recast Insolvency Regulation), as of 26 June 2018 Poland is obliged to create and maintain a register of restructuring and bankruptcy proceedings. EU Member States have committed to keep in their territory at least one register in which information regarding insolvency and restructuring proceedings is to be published (Article 24(1) of the Regulation).
According to the Restructuring Law of 15 May 2015, the Central Register of Restructuring and Bankruptcy kept by the Ministry of Justice in electronic form was to be operational in Poland from 1 February 2018. However, despite the expiry of this deadline, the Central Register has not yet been established.
On 6 December 2018, the Polish Parliament passed the Act on Central Register of Debtors, which will enter into force as of 1 December 2020 and will implement provisions regarding the Central Register of Restructuring and Bankruptcy (under Article 5 of the Restructuring Law). The Central Register of Debtors will disclose information about the entities for which restructuring or bankruptcy proceedings have been carried out, information about entities that were subject to ineffective enforcement proceedings, and information about natural persons who are still recovering from maintenance for a period of more than six months.
vi Special regimes
The provisions of the Restructuring Law do not apply to the following entities:
- the State Treasury and local government units;
- domestic banks;
- Bank Gospodarstwa Krajowego;
- branches of foreign banks;
- cooperative savings and credit unions;
- investment firms;16
- insurance and reinsurance companies;
- investment funds;
- financial institutions;17
- financial holding companies;18
- mixed financial holding companies;19
- mixed activity holding companies;20
- parent financial holding companies in an EU Member State;21
- EU parent financial holding companies;22
- parent mixed financial holding companies in an EU Member State;23 and
- EU parent mixed financial holding companies.24
The Restructuring Law has introduced a separate restructuring regime for developers and bond issuers.
Pursuant to the Bankruptcy Law, the following entities may not be declared bankrupt:
- the State Treasury;
- local government units;
- independent public healthcare institutions;
- institutions and legal persons established by an act of law;25
- natural persons running a farmstead who do not conduct any other business or professional activities;
- higher education institutions; and
- investment funds.
Under Polish law, special bankruptcy regimes exist for respective entities. The Bankruptcy Law recognises separate bankruptcy proceedings in the following circumstances:
- when instituted after the death of an insolvent debtor;
- against developers;
- against banks and credit unions;
- with respect to mortgage banks;
- with respect to credit institutions, foreign banks and domestic banks operating internationally;
- with respect to insurance and reinsurance undertakings;
- with respect to bond issuers; and
- with respect to natural persons not engaged in economic activities.
The above-mentioned special bankruptcy regimes are described in detail in the provisions of the Bankruptcy Law. The main differences from the standard procedure concern, inter alia, entities authorised to file a petition for bankruptcy, the order of satisfaction of claims and the composition of the adjudicating court.
vii Cross-border issues
In general, these provisions apply only if an international agreement to which the Republic of Poland is a signatory, or the law of an international organisation of which the Republic of Poland is a member, provides otherwise. In practice, in the absence of international agreements on insolvency proceedings for which Poland would be a party, its meaning is reduced to the priority of EU law. The acts of EU law that apply prior to the above-mentioned provisions are Regulation No. 1346/2000 on insolvency proceedings (applied from 25 June 2017) and the Recast Insolvency Regulation (applied from 26 June 2017).
National jurisdiction is regulated in Article 342 of the Restructuring Law and Article 382 of the Bankruptcy Law. In both restructuring and bankruptcy insolvency proceedings, Polish courts have exclusive jurisdiction if the main centre of the debtor's interests is in Poland. Moreover, Polish courts also have jurisdiction if the debtor conducts his or her business activity in Poland, or has a place of residence or registered office or property in the country. Consequently, if the Polish court's jurisdiction is exclusive, the restructuring or bankruptcy proceedings have the nature of the main proceedings. In other cases, restructuring or bankruptcy proceedings have the nature of secondary proceedings.
In this context, the content of the resolution of the Supreme Court of 20 January 2010 issued under Signature III CZP 115/09 deserves special attention. Although this resolution was issued on the basis of the legal status before 1 January 2016, it remains current in terms of determining the groups of entities authorised to institute secondary bankruptcy proceedings in Poland. Pursuant to this resolution, the groups of entities authorised to initiate secondary insolvency proceedings before a Polish court is defined in Article 407 of the Bankruptcy and Reorganisation Law (currently Article 407 of the Bankruptcy Law) and not in Article 20 of the Bankruptcy and Reorganisation Law (currently Article 20 of the Bankruptcy Law). There is no doubt that, under the principle of lex specialis derogat generali, in the scope of secondary insolvency proceedings, Article 407 prevails over Article 20 of the Bankruptcy and Reorganisation Law (currently the Bankruptcy Law).
II INSOLVENCY METRICS
According to the Coface 2018 Annual Report, the number of bankruptcies and restructuring of Polish companies amounted to 975, which constitutes 10 per cent more than in 2017 and 28 per cent more than in 2016. The majority of these proceedings were declarations of bankruptcy (558, or 57 per cent).
Restructuring proceedings introduced at the beginning of 2016 and the new Bankruptcy Law are being used increasingly. Their participation in all proceedings is growing – in 2018, it amounted to 43 per cent, compared with 39 per cent in 2017 and 27 per cent in 2016. Most of the restructuring proceedings that were commenced were accelerated arrangement proceedings (259 compared to 209 in 2017) whereas only five were arrangement approval proceedings. A significant increase was recorded in the case of remedial proceedings – their number increased by as much as 30 per cent compared with the previous year. The sector in which the highest number of bankruptcy and restructuring proceedings were recorded (267) was production (7 per cent more than in 2017).
III PLENARY INSOLVENCY PROCEEDINGS
The details of neither insolvency cases nor court insolvency registers are available for public disclosure. Partial information about pending insolvency proceedings can be found online at www.portal-bankrut.pl.
IV ANCILLARY INSOLVENCY PROCEEDINGS
See Section III.
According to KUKE (Export Credit Insurance Corporation), assuming that the level of economic growth in 2019 will be below 4 per cent, it is likely that around 1,200 companies will enter into bankruptcy or restructuring proceedings this year, which is about 11 per cent higher than in 2018. It may be also envisaged that there will be a further increase in the number of entities subjected to remedial proceedings and accelerated arrangement proceedings, and a decrease in the number of bankruptcy proceedings.
1 Bartłomiej Niewczas is a counsel and Dominik Hincz is an associate at Bird & Bird Szepietowski i wspólnicy sp k. The authors would like to thank Patrycja Piotrowska, a former associate at the firm, for her contribution to this chapter.
2 Published in the Journal of Laws dated 14 July 2015, Item 978.
3 Restructuring Law, Articles 210 to 323.
4 Bankruptcy Law, Article 11.
5 ibid., at Articles 11 to 13.
6 ibid., at Article 56, paras. a to h.
7 ibid., at Articles 201 to 213.
8 ibid., at Articles 239 to 245a and 342.
9 ibid., at Articles 230 and 343.
10 Restructuring Law, Article 5.
11 Bankruptcy Law, Articles 379 and 382.
12 Within the meaning of the Act of 23 April 1964 – The Civil Code (Journal of Laws of 2018 items 1025, 1104, 1629, 2073 and 2244, and of 2019 item 80).
14 General Provisions, Article 21.
15 Article 586.
16 Referred to in Article 2(14) of the Act on the Bank Guarantee Fund of 10 June 2016, the Deposit Guarantee Scheme and Mandatory Restructuring (J L item 996).
17 Under Article 4(1)(26) of the Regulation of the European Parliament and of the Council (EU) No. 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms, amending Regulation (EU) No. 648/2012 (O J of EU L 176 of 27 June 2013, p. 1) with the registered office in a Member State of the European Union, if they are subsidiary undertakings within the meaning of Article 4(1)(16) of Regulation No. 575/2013 in relation to the credit institution referred to in Article 4(1)(16) of Regulation No. 575/2013, the entity referred to in subsections 3 to 9, and/or investment firm are supervised on a consolidated basis in accordance with Articles 6 to 17 of Regulation No. 575/2013.
18 Under Regulation No. 575/2013 with the registered office in a Member State of the European Union, Article 4(1)(20).
19 ibid., at Article 4(1)(21).
20 ibid., at Article 4(1)(22).
21 Under Regulation No. 575/2013, Article 4(1)(30).
22 ibid., at Article 4(1)(31).
23 ibid., at Article 4(1)(32).
24 ibid., at Article 4(1)(33).
25 Unless otherwise provided for in that act, and established by execution of an obligation imposed by an act of law.
26 Title III – Provisions on international restructuring proceedings, Articles 338 to 348.
27 Second Part – Provisions within the scope of international bankruptcy proceedings, Articles 378 to 417.