The Insolvency Review: Poland
Insolvency law, policy and procedure
i Statutory framework and substantive law
Polish bankruptcy law is regulated by the Bankruptcy Law of 28 February 2003 (Journal of Laws No. 60, item 535) and consolidated text of 22 February 2019 (Journal of Laws of 2019, item 498). In 2015, bankruptcy procedures were significantly modified by the Act of 15 May 2015 (Journal of Laws of 2015, item 978), the Restructuring Law. This Act introduced new restructuring proceedings that may be conducted against an insolvent debtor or a debtor threatened by insolvency, and are intended to prevent a debtor from being declared bankrupt. Also, recently the insolvency and restructuring framework has been amended by introducing simplified restructuring proceedings.
However, the Restructuring Law does not constitute a legal premise or condition to open insolvency proceedings, which are regulated by the Bankruptcy Act. In the explanatory memorandum to the Act, it states that the more than 10-year period of application of the Bankruptcy Law and the Restructuring Law provides a solid foundation for the verification of operation of the Bankruptcy Law and the Restructuring Law's institutions and for identification of a number of areas of dysfunction.2
After almost five years of application of the new Act, a major amendment to the bankruptcy proceedings in Polish legislation entered into force on 24 March 2020. This amendment introduced new provisions speeding up the bankruptcy procedures of natural persons carrying out no economic activity, and providing the possibility to enter into an arrangement between creditors and bankrupt natural persons carrying out no economic activity. The explanatory memorandum to the Act states:
The basic instrument to enable more efficient resolution of the problem of excessive debt is to introduce the possibility of declaring the bankruptcy of a non-business entity in a simplified procedure without appointing a judge-commissioner. This solution is intended to significantly relieve the court administration of the burden of handling the simplest consumer bankruptcy cases, which effectively block the efficiency of bankruptcy and restructuring courts in usually complex cases of restructuring and bankruptcy of entrepreneurs.3
The above-mentioned provisions were introduced because of the growing number of consumer bankruptcies; for example, in 2016, 4,434 consumer bankruptcies were declared (with a total of 15,265 bankruptcies) while, in 2019, it was already 7,944 (with a total of 35,777 bankruptcies).4 The regulations have also changed the negative prerequisites for going bankrupt of natural persons carrying out no economic activity. The culpability or 'fairness' of the debtor is no longer examined by the Bankruptcy Court at the stage preceding declaration of bankruptcy.5 The culpability, however, is important in determining the repayment plan and the period after which the debtor is released from the rest of his or her debt.6 In 2020, total consumer bankruptcies in the amount of 13,092 were declared; however, due to pandemic regulations, the entrepreneurs did not have the duty to file for bankruptcy if the insolvency resulted from the covid-19 pandemic and economic crisis thereof.
The new provisions also clarified the procedure in the course of a prepared liquidation, complementing the existing provisions with a quasi-tendering procedure. This quasi-tendering procedure is intended to protect the participants of proceedings from the sale of assets at a negative price, without proper examination of other market players' interest in acquiring the business or the business' components (Articles 56ab and 56cc).7
After the above-mentioned changes, pre-pack application may be filed by any participant in the proceedings for declaration of bankruptcy; that is, anyone who has filed for bankruptcy and the debtor (including a natural person carrying out no economic activity). For example, in response to a creditor's bankruptcy petition, a debtor may file a pre-pack application. A novelty, however, is the obligation to pay a deposit in the amount of 10 per cent of the offered price, which purpose is to make the potential buyer more credible.8 The doctrine criticises the solutions of amendments that, while introducing the tender-like proceedings, do not introduce the planned auction to external entities. According to current regulations, only participants of proceedings potential buyers indicated by them may enter an auction.9 Therefore, if, after the announcement, a creditor is interested in the acquisition, that creditor should either file separate bankruptcy petition concerning the debtor together with a pre-pack application and an indication of the buyer, or be attached to an already existing petition of another participant in proceedings (which should then be modified accordingly).
The amendment was also intended to speed up proceedings.10 According to the World Bank's Doing Business 2019 report, in 2019, the average duration of bankruptcy proceedings in Poland was three years.11 Practice will show whether the amendments have achieved their goal.
Recent events related to the covid-19 pandemic resulted in the introduction of solutions in the area of restructuring law, of which a significant innovation is the introduction of a simplified restructuring procedure. This is a type of arrangement approval proceeding that is held in principle without participation of the court, and provides regulations protecting the debtor's assets from enforcement proceedings while collecting creditors' votes. There is more on this subject in Section II of this chapter.
The general principles of the Bankruptcy Law and the Restructuring Law can be reduced to the wording of Article 2(1) of the Bankruptcy Law:
Any proceeding governed by this Act shall be conducted in a manner enabling the claims of the creditors to be satisfied to the greatest extent and, where reasonably practicable, the existing enterprise of the debtor to be preserved.12
The Polish Bankruptcy Law regime intertwines with the Restructuring Law regime. These Acts are interrelated; in particular, simultaneous submission of a bankruptcy motion and restructuring motion, as a rule, orders the court to examine the restructuring motion first. In turn, the objective of the Restructuring Law, according to Article 3 of the Restructuring Law Act, is to:
avoid declaration of bankruptcy of a debtor through enabling him to undergo restructuring by making an arrangement with creditors and, in the case of remedial proceedings, also through conducting remedial actions, while securing legitimate rights of creditors.
The doctrine argues that the purpose of proceedings as expressed in Article 2(1) of the Bankruptcy Law – 'creditors to be satisfied to the greatest extent' – should be read not only from the prism of the amounts obtained from liquidation of the debtors' assets, but also in terms of efficiency and speed of creditors' satisfaction.13
Regarding natural persons, Article 2(2) of the Bankruptcy Law adds another objective of the proceedings, which is to enable discharge of the bankrupt's debts and to allow a 'fresh start'.
Once the bankruptcy is declared, the trustee may continue to operate the debtor's business on condition that it is possible to enter into an arrangement with the creditors or to sell the bankrupt's business as a whole or its organised parts (Article 312 of the Bankruptcy Law). Proceedings themselves should be conducted effectively. Efficiency should be understood as both the time for completion of proceedings and degree of satisfaction of creditors' claims. The trustee should therefore aim to make a profit in the shortest possible time.14
The above objectives are strengthened by other provisions in the Act. In particular, the objective of proceedings – the continuation of the debtor's enterprise – may be achieved, inter alia, through an extensive pre-pack procedure. In addition, pursuant to Article 316 of the Bankruptcy Law Act, placed in Title VII of the Act, concerning liquidation of the bankruptcy estate: 'The bankrupt's enterprise shall be sold as a whole unless this proves impracticable'.
In addition, restructuring proceedings, which by their very nature seek to preserve not only the debtor's business but also the debtor itself as a legal entity, are given priority over bankruptcy proceedings. Pursuant to Article 9b of the Bankruptcy Law: 'Where a bankruptcy petition and a restructuring petition have been filed, the restructuring petition shall be examined first.' In addition: 'The bankruptcy court shall stay the examination of a bankruptcy petition, pending the issuance of final and non-appealable decision in respect of the restructuring petition. The stay of examination shall not preclude assets from being secured'. Also, in order to secure the legitimate rights of creditors, pursuant to Article 8 of the Restructuring Law Act: 'The court shall refuse to open restructuring proceedings if the effect of such proceedings would be detrimental to creditors.'
To sum up, the main objective of insolvency proceedings remains the satisfaction of creditors. Only then the debtor's existing enterprise is to be preserved, if possible. The above-mentioned logic is also confirmed by the intention of the legislator.15 Also, there is a difference in restructuring proceedings, where the objectives are to avoid declaring the debtor's bankruptcy and to secure the legitimate rights of creditors. However, the doctrine is inconsistent as to which objective is more important. It is assumed, however, that the overriding objective of restructuring proceedings is to avoid declaring the debtor's bankruptcy on condition that no damage occurs towards the creditors.16
The tendency to give the debtor a 'second chance', regardless of whether he or she is a natural person or a legal entity, is clearly visible in the Bankruptcy Law.
iii Insolvency procedures
According to the Doing Business Report 2019, the average duration of bankruptcy proceedings in Poland is three years, costs consume 15 per cent of the debtor's assets and the average satisfaction ratio of creditors is 60.8 per cent.17
The Polish bankruptcy law, broadly understood, is divided into procedures aimed at liquidation of a debtor's assets, regulated by the Bankruptcy Law, and restructuring proceedings, regulated by the Restructuring Law. The Bankruptcy Law provides for proceedings aimed at liquidation of a debtor's assets. At the same time, liquidation of assets may take the form of prepared liquidation, in which the debtor's enterprise is sold in its entirety (or in a significant part) already at the stage of declaring bankruptcy.
The Polish Restructuring Law provides for the following restructuring procedures:
- arrangement approval proceedings;
- accelerated arrangement proceedings;
- arrangement proceedings; and
- remedial proceedings.
Restructuring proceedings differ from each other significantly, the key differences are: degree of the court involvement within proceedings, conditions for application of certain proceeding, available instruments within proceedings and average duration of each type of proceedings. Recently, also the simplified restructuring proceeding has been introduced, which is a variant of arrangement approval proceeding, as mentioned below.
Arrangement approval proceeding is the quickest one, where the debtor on his or her own collects creditors' votes on the arrangement and – once it is stated that the arrangement has been adopted – files motion to approve the arrangement with the court. However, there is no stay of enforcement in arrangement approval proceedings (i.e., creditors may proceed with enforcement) at the out-of-court stage of proceedings.
However, during the covid-19 pandemic, new simplified restructuring proceedings have been introduced, allowing debtors to open proceedings with stay of enforcement provided that an announcement on opening of simplified restructuring proceedings is made in the Court Gazette. This proceeding is limited regarding the date of opening possibility, that is, until 30 November 2021.
In turn, the remedial proceeding is characterised by the strongest restructuring instruments. Available legal tools (including reduction of employment, ineffectiveness of debtor's activities and acts performed potentially to the detriment of creditors) are similar to legal instruments under the Bankruptcy Law. Furthermore, the principle is that (pursuant to Article 288(2) of the Restructuring Law) the court deprives the debtor of self-administration and appoints an administrator.
In the case of the other three proceedings, the debtor remains in possession of its business, as a rule, and is entitled to perform ordinary management activities, under the supervision of the supervisor.
The Restructuring Law also provides for the conclusion of partial agreement. According to Article 180 of the Restructuring Law: 'The debtor may submit arrangement proposals concerning only certain liabilities the restructuring of which has significant influence on further operation of the debtor's enterprise.' Often, the company is able to fulfil its trade liabilities but faces difficulties in repayment of financial debts (loans, borrowings, bonds and other forms of debt financing). In such situations, there is no need to initiate proceedings to reach an agreement between all the creditors.18 The partial arrangement may be adopted within arrangement approval proceedings or accelerated arrangement proceedings.
Regarding proceedings opened abroad, Polish law regulates the subject of secondary bankruptcy proceedings. According to Article 405 of the Bankruptcy Law:
The recognition of a decision to open foreign bankruptcy proceedings shall not be a bar for the Polish court to opening bankruptcy proceedings. However, if a decision to open main foreign bankruptcy proceedings has been recognised, bankruptcy proceedings commenced in the Republic of Poland shall be secondary bankruptcy proceedings.
iv Starting proceedings
The debtor (or persons authorised to act on his or her behalf) and the debtor's personal creditor are entitled to file a bankruptcy petition. The creditor's application is characterised by a simplified procedure. When submitting the motion, the creditor should only substantiate the existence of his or her claim against the debtor (Article 24 of the Bankruptcy Law) and outline the circumstances justifying the declaration of bankruptcy against the debtor. The debtor's application, in turn, should contain, among other things, a current list of assets with estimated value, the balance sheet of the debtor's enterprise, a list of creditors, a statement of payments of claims, a list of debtors, a list of enforcement titles, information on pending proceedings to encumber the debtor's assets, information on the place of residence of the debtor's representatives and information on the size of the enterprise.
Once the bankruptcy petition is filed with the court, proceedings for declaration of bankruptcy are commenced. The end of these proceedings is a declaration of bankruptcy or dismissal of the bankruptcy petition.
With the declaration of bankruptcy, proper bankruptcy proceedings begin. The decision on declaration of bankruptcy (declaring bankruptcy or refusing to declare bankruptcy) is subject to a complaint, which may be filed by both the applicant and the bankrupt, being participants of the proceeding.
Each of creditors, regardless of whether he or she was a party to the proceeding, is entitled to file a complaint against the ruling in the part concerning the jurisdiction of Polish courts.
According to EU Regulation 2015/848 of 20 May 2015, on insolvency proceedings, trustees appointed within the main insolvency proceedings, or other body (natural person or corporate entity) entitled to file insolvency petition, may request for opening of secondary insolvency proceedings, according to law of the Member State within the territory of which the secondary insolvency proceeding is requested to be opened by the trustee appointed within the main insolvency proceedings, or other body (natural person or corporate entity) entitled to file an insolvency petition, may request for opening of secondary insolvency proceedings, according to law of the Member State within the territory of which the secondary insolvency proceeding is requested to be opened.
v Control of insolvency proceedings
As a rule, control over bankruptcy proceedings is exercised by the court having jurisdiction according to the centre of main interest, which is determined by the place of registered office, habitual residence or place of business (Article 19 of the Bankruptcy Law). The main centre of the main business activity is the place where the debtor regularly manages his or her economic activity and that as such is recognisable to third parties. Upon the declaration of bankruptcy, bankruptcy proceedings shall be conducted in the bankruptcy court that issued the declaration of bankruptcy (Article 149 of the Bankruptcy Law).
The debtor is obliged to file for bankruptcy once the prerequisites appear. In the case of legal persons, representatives of the debtor are obliged (most often persons who are members of the management board) to file a bankruptcy petition within 30 days after the state of insolvency occurred. In the case of establishing a successive administration, described obligation rests with the successive administrator.
For culpable failure to submit the application in time, board members are liable for the debtor's liabilities with all their assets. This responsibility is defined in the Commercial Companies Code (Article 299) and in the Bankruptcy Law (Article 21(3)) but also in the tax law and in the social security law. Persons are liable for damage caused by failure to submit the application within 30 days of the date the debtor's insolvency occurred. These persons may release themselves from liability, in particular if they prove that, within this period, restructuring proceedings were opened or the arrangement was approved in arrangement approval proceedings (Article 21(3) of the Bankruptcy Law).
At the same time, the other bodies of the debtor – for example, supervisory board of the capital company – retain the competence to control the acts of managing bodies. However, supervisory bodies (supervisory board, audit committee, etc.) do not have control over the trustee's activities in bankruptcy proceedings.19 In the absence of authorities, where necessary, the court shall appoint a curator in accordance with Article 261 of the Bankruptcy Law.
With the declaration of bankruptcy, the debtor's governing body (the management board) loses the ability to manage the debtor's assets, with respect to the assets that enter the bankruptcy estate. For example, after declaring bankruptcy, it is the trustee who exercises the rights of the debtor resulting from holding shares in other companies instead of the debtor.20
vi Special regimes
The Bankruptcy Law defines a catalogue of entities for which specific regulations are provided. These are as follows.
Bankruptcy proceedings initiated after insolvent debtor's death
The condition is that the bankruptcy petition is filed after the date of the debtor's death, and the heir or curator takes part in proceedings instead of the debtor. If the inheritance is disposed of before the declaration of bankruptcy, the acquirer of the inheritance shall also participate in proceedings. According to Article 425 of the Bankruptcy Law:
Upon termination or discontinuance of bankruptcy proceedings, an excerpt of an approved list of claims identifying the respective claims and the amounts that the creditor has received on account of such claims shall serve as an enforcement order against the heir.
Bankruptcy proceedings in respect of developers
In the case of the developer's bankruptcy, proceedings are also conducted, as far as possible, to satisfy purchasers by transferring ownership of premises to them, if reasonable grounds permit (Article 425b of the Bankruptcy Law). In the case of the bankruptcy of the developer, the trustee may continue the development project. The purchasers' claims are satisfied by transferring the ownership of premises.
There is also a possibility to sell the real estate, on which the development project is carried out, to an entrepreneur who will undertake to continue the project. The buyer is jointly and severally liable with the bankrupt for its obligations under development contracts concluded in connection with a development project, unlike the buyer of assets sold, for example, under a pre-pack procedure or as part of a sale of assets by a trustee. Therefore, the sale of the real estate does not have the effect of an enforcement sale (Article 425l of the Bankruptcy Law). Purchasers under the development project implemented by the bankrupt may submit arrangement proposals, including making additional payments needed to complete the development project (Article 425o of the Bankruptcy Law).
Bankruptcy proceedings in respect of banks and cooperative savings and credit funds
In the case of bank bankruptcy, an additional – more strict – condition for insolvency has been introduced, according to which the bank is insolvent if, at the end of the reporting period, according to the balance sheet, the bank's assets are not sufficient to meet its liabilities. A motion to declare a bank bankrupt can only be filed by the Financial Supervision Commission or the Banking Guarantee Fund and, before declaring bankruptcy, the court should hear members of the bank's management board, a representative of the Polish Financial Supervision Commission and a representative of the Banking Guarantee Fund. Another bank may also be a trustee in the bank's bankruptcy proceedings. Arrangement proposals may also be submitted by the bank's shareholders and, during proceedings, the court cooperates with the Financial Supervision Commission and the Banking Guarantee Fund.
In the case of bank bankruptcy, bank's receivables are also specifically divided into 10 categories of satisfaction (Article 440 of the Bankruptcy Law).
Specific provisions also regulate bankruptcy proceedings in the case of bankruptcy of mortgage banks. The Act introduces, among other things, a separate bankruptcy estate in order to protect the claims of creditors from mortgage bonds.21 The provisions largely relate to obligations concerning mortgage bonds, inter alia, they require the trustee to carry out a coverage balance test and liquidity tests (Article 446a of the Bankruptcy Law).
Other separate proceedings
Separate proceedings are also foreseen for credit institutions, investment firms, foreign banks and domestic banks operating abroad (Chapter III of Part III of the Bankruptcy Law). These provisions provide for the obligation to notify the competent authorities of a Member State (Article 456 of the Bankruptcy Law). Separate bankruptcy proceedings are also conducted against insurance and reinsurance undertakings, where proceedings are conducted in cooperation with the Polish Financial Supervision Commission, as well as against bond issuers. According to Article 488 of the Bankruptcy Law: 'The object of security for rights in bonds shall constitute a separate bankruptcy estate allocated for satisfying bondholders' rights.'
A separate bankruptcy procedure is 'consumer bankruptcy' (of natural persons carrying out no economic activity).
There are currently no specific regulations for the bankruptcy of corporate groups. In the case of several bankrupt companies belonging to a corporate group, each entity is treated separately in terms of its ability to fulfil its maturing monetary obligations.
According to Polish law, however, it is not possible to declare the bankruptcy of natural persons running an agricultural holding and not conducting any other economic or professional activity – under provisions of the Bankruptcy Law regulating bankruptcy of entrepreneurs. Those bodies may be declared bankrupt under provisions of the Bankruptcy Law regulating consumer bankruptcy. At present, it may seem to be an outdated solution that does not correspond to reality, in which some farmers are very big entrepreneurs, standing outside the bankruptcy law regime. This leads to de lege ferenda postulate for the comprehensive regulation of bankruptcy of large agricultural entities.22
vii Cross-border issues
The rules on international insolvency proceedings will apply to insolvency proceedings against entities outside the European Union. Poland has concluded many international agreements and is a member of many international organisations, although these agreements and international organisations do not regulate the subject of insolvency law.23
Recognition of a decision to open foreign insolvency proceedings does not limit the rights of creditors to demand the opening of insolvency proceedings in Poland and does not prevent the Polish courts from opening insolvency proceedings. However, if a ruling on opening of the main foreign insolvency proceedings is recognised, insolvency proceedings opened in the Republic of Poland are secondary insolvency proceedings to which the provisions of Title IV of Part Two of the Bankruptcy Law apply.
An application for initiating such proceedings may be submitted by a creditor having a place of residence, registered office or main centre of basic activity in the Republic of Poland; a creditor whose claims result from the economic activity of the debtor conducted in the Republic of Poland; or a creditor who is entitled to claims secured on the debtor's assets located in Poland, for example, by a mortgage. This application may also be submitted by a foreign receiver (upon recognition of a foreign court's decision, it is entitled both to submit an application to declare bankruptcy and to participate in bankruptcy proceedings conducted by Polish courts, just like a creditor).24
The course and nature of secondary insolvency proceedings is essentially determined by the nature of the foreign proceedings. If an arrangement is to be made in secondary bankruptcy proceedings and the main foreign bankruptcy proceedings are to liquidate the assets of the bankrupt, the arrangement, pursuant to Article 411 of the Bankruptcy Law, may only be of a liquidation nature.25
In cross-border proceedings, the court and the judge-commissioner may communicate directly with the foreign court and the foreign insolvency administrator (Article 413 of the Bankruptcy Law). A court supervisor, administrator or receiver appointed in restructuring or bankruptcy proceedings communicates with a foreign court and a foreign administrator directly or through a judge-commissioner (Article 414 of the Bankruptcy Law).
It can be stated that this cooperation is mutual – the powers of the Polish authorities of bankruptcy proceedings are matched with the obligations of foreign authorities.26 An important role is played by Article 417 of the Bankruptcy Law, which aims to resolve conflicts between multiple insolvency proceedings opened against the same debtor. It seems that the rules to resolve these conflicts should be dealt with in a flexible manner. The recognition of the powers of an administrator (trustee, administrator, supervisor) established in Polish bankruptcy proceedings is dependent on the decisions taken by foreign insolvency authorities based on foreign law. In practice, the courts are guided by the criterion of control over a given component of the bankruptcy estate.27
In recent years, the Polish economy has been showing a trend of growth – owing to the level of employment, the level of wages, business development and the average monthly salaries. Compared to 15,949,700 in 2018, in 2019, there were 16,117,100 people employed. The increase in employment is accompanied by a decrease in unemployment, from 969,900 in 2018 to 866,400 people in 2019.28
Consumption is growing, as is debt. After the recent changes in the Bankruptcy Law, a significant increase in bankruptcy proceedings is expected, the trend of which has been observed continuously for some time.
In 2018, 6,570 consumer bankruptcies were declared, 615 companies were declared bankrupt and 465 restructuring proceedings were opened. In 2019, by 31 December, 7,944 consumer bankruptcies were announced, 586 companies were declared bankrupt, and 465 restructuring proceedings were opened. By 30 June 2020, 3,996 consumer bankruptcies were announced, 329 companies were declared bankrupt and 225 restructuring proceedings were opened. According to the research of the Central Economic Information Centre, by the end of June 2020, 3,996 consumer bankruptcies were declared. In June 2020 alone, there was a monthly record, as 1,116 people were declared bankrupt.29 Such a high increase in bankruptcy in June is not the result of the covid-19 pandemic but most likely of changes in regulations. From 2015 to 24 March 2020, half of the bankruptcy applications were dismissed. The requirement to declare bankruptcy was the premise that the bankruptcy was not the debtor's fault.
Surprisingly, in 2019, the number of declared bankruptcies was clearly lower than the number of companies that were denied formal bankruptcy by the courts (there were 759 such cases, and this means an increase of 35 per cent compared with 2018). As Puls Biznesu, a daily newspaper focused on business, indicates, such a situation is happening in Poland for the first time.30
In 2020, there was a total of 587 commercial bankruptcies and 13,092 consumer ones,31 but it is worth mentioning that pandemic regulations suspended the duty to file for a commercial bankruptcy, which could affected insolvency metrics.
As far as economic sectors are concerned, the largest number of proceedings concern entities that were involved in commercial activities (24.92 per cent) or in industrial processing (24.92 per cent). The freezing of the economy related to covid-19 has slowed down enforcement proceedings and the activity of courts, and thus limited bankruptcy proceedings. After the unfreezing of these activities, the number of bankruptcies naturally increases. The analysis of the industries that declare bankruptcy clearly confirms this, as the declared bankruptcies do not concern the industries that were hit the hardest by the pandemic.32
Increasing numbers of debtors are filing for bankruptcy, while the courts seem to be more careful in deciding on bankruptcy applications. One of the solutions introduced in response to the difficulties resulting from the covid-19 pandemic was the introduction of simplified restructuring proceedings. This procedure may significantly ease the burden on the bankruptcy courts, as the main role in the simplified procedure for the approval of the arrangement is played by the restructuring adviser.
Plenary insolvency proceedings
Recent bankruptcy cases show a number of challenges that courts in Poland have to face, mainly in the area of the effects of selling company's assets in bankruptcy proceedings.
The restructuring of Small Planet Airlines provides an interesting example from the aviation industry. The company tried to sell the company using the pre-pack procedure. The company was looking for an investor who would, among other things, take over the Air Operator Certificate (AOC), which the Civil Aviation Office (CAO) did not agree to. The CAO stated that it is impossible to transfer the AOC to a third party – having another tax identification number.33 This is an interesting decision in the case of the sale of an enterprise in the pre-pack procedure, pursuant to Article 317 of the Bankruptcy Law: 'The acquirer of the bankrupt's enterprise shall take over all concessions, permits, licences and reliefs which were granted to the bankrupt unless separate Acts provide otherwise.' It seems that the potential buyer should obtain such a licence separately. The largest Polish air carrier, LOT, faced a similar problem. LOT's subsidiary, LOT Polish Airlines SA, has applied for an AOC, which may be a step towards controlled bankruptcy. The problems caused by the stagnation of air carriers in connection with the covid-19 pandemic forced many companies to seek solutions – including the application of controlled bankruptcy and the sale of the company in a pre-package procedure.34
The sports industry is also characterised by its specificity. Problems arise in the context of, among others, the effects of bankruptcy and the club's licence to participate in the games. Article 83 of the Bankruptcy Law invalidates contractual clauses reserving the termination of the contract in the event of one of the parties declaring bankruptcy. The question is, does this principle also apply to the licence to participate in the games? The possibility of selling a football club in a procedure such as pre-pack seems to be the most rational concept in an industry where seasonality plays an important role, and in this respect the issue of licence transferability arises.35
An issue that may soon become more important is the behaviour of the public aid granted, which will then be described as unlawful. The practice has met the above-mentioned problem, first of all at the level of European law (Case Oltchim SA, EC Decision of 17 December 2018 in Case SA.36086, Case Fortischem AS, C-423/19). In particular, the Fortischem case may be relevant in the context of the sale of a debtor's enterprise by way of pre-pack. In certain cases, the obligation to repay the public aid may be passed on to the buyer even though the sale is an enforcement sale. As the Fortischem case shows, there is a risk of preserving the 'economic continuity', that is, some kind of identity of the bankrupt and the acquirer.36
Of note is the Włodarzewska case, held before Warsaw Bankruptcy Court, where partial arrangement was concluded within bankruptcy proceedings of the developer.
Even more important is that acquirers of apartments from real estate investment in the Włodarzewska case were divided into groups, which is an interesting legal concept, not frequently applied in Poland.
Ancillary insolvency proceedings
The secondary insolvency proceeding is not frequently applied. Only one such proceeding was identified during our research, which was not reported in the media or among practitioners of restructuring or insolvency law.
Given the facts, including the upcoming economic recession, an increase of bankruptcies and restructuring proceedings is inevitable. In order to reduce the risk of overwhelming the bankruptcy courts with an excess of cases, changes have been introduced in the bankruptcy of consumers, shifting part of the duties to the trustee. The second significant change is the introduction of simplified restructuring proceedings. The guaranteed protection against enforcement while collecting votes independently under the supervision of an interim supervisor appointed by the debtor is likely to enjoy great success among entities at risk of insolvency. However, the provisions governing the simplified restructuring procedure are limited in time until 30 November 2021. Some of the solutions provided in the simplified restructuring procedure are the implementation of the recommendations resulting from Directive 2019/1023 of the European Parliament and of the Council (EU) of 20 June 2019. It should be assumed that, taking advantage of the state of the epidemic, the legislator is testing new solutions, which may also be applied after the economic situation is restored to normal. It is yet to be seen whether the legislator will decide to leave the provisions concerning this procedure; however some of the regulations are to be introduced within modified arrangement approval proceedings because they have been observed in practice and positively assessed. The Restructuring Directive is still to be introduced to the Polish legal system, which should have an impact on bankruptcy proceedings as well.
1 Karol Tatara is chief executive officer, Adam Królik and Anna Czarnota are senior associates, Sandra Bartkowska-Michalska is an associate and Mateusz Kalinski is a manager at Tatara & Partners Restructuring & Insolvency Law Firm.
2 Uzasadnienie do projektu ustawy Prawo restrukturyzacyjne, Druk 2824, accessed on 7 July 2020: https://www.ms.gov.pl/pl/restrukturyzacja-i-upadlosc/download,2585,5.html.
3 Uzasadnienie do projektu ustawy o zmianie ustawy – Prawo upadlosciowe oraz niektórych innych ustaw, Druk nr 3480, s. 2.
5 Pilat W., Celowo, umyslnie czy wskutek razacego niedbalstwa…, in: Doradca Restrukturyzacyjny, nr 4/2019 (nr 18), s. 41.
6 Kozub G., Przeglad najwazniejszych zmian w zakresie upadlosci konsumenckiej, in: Doradca Restrukturyzacyjny, 4/2019 (nr 18), s. 21.
7 Uzasadnienie do projektu ustawy o zmianie ustawy - Prawo upadlosciowe oraz niektórych innych ustaw, Druk nr 3480, s. 9.
8 Kedzierski P., Przeglad i ocena zmian przepisów dotyczacych przygotowanej likwidacji (pre-pack), in: Doradca Restrukturyzacyjny nr 20 (2/2020), s. 43.
9 Kedzierski P., Przeglad i ocena zmian przepisów dotyczacych przygotowanej likwidacji (pre-pack), in: Doradca Restrukturyzacyjny nr 20 (2/2020), s. 49.
10 Uzasadnienie do projektu ustawy o zmianie ustawy - Prawo upadlosciowe oraz niektórych innych ustaw, Druk nr 3480, s. 9.
11 Doing Business Report 2019, Accessed on 7 July 2020: https://www.doingbusiness.org/content/dam/doingBusiness/media/Annual-Reports/English/DB2019-report_web-version.pdf, p. 204.
12 All the translations of the Polish Bankruptcy Law and Restructuring Law come from The Polish Law Collection database by Translegis 2020.
13 Hrycaj A., Prawo upadlosciowe. Komentarz (System Prawa Handlowego), wyd. 2020, Article 2 PU, No. 31.
14 Purgal M., Drabik Z., Prowadzenie przedsiebiorstwa upadlego przez syndyka – problemy praktyczne, in: Doradca Restrukturyzacyjny 2/2019 (nr 16), s.
15 Uzasadnienie do projektu ustawy Prawo restrukturyzacyjne . . . , s. 62.
16 Adamus R., Prawo restrukturyzacyjne. Komentarz, wyd. 2019, Legalis, Article 3 PR, nb. III.1. Kubiczek M., Sokól B., Przeslanki prowadzenia postepowania restrukturyzacyjnego w swietle jego celu, in: Doradca Restrukturyzacyjny, nr 2/2015, s. 23., Zimmerman P., Prawo Restrukturyzacyjne. Komentarz, wyd. 2018, Legalis, Article 3 PR, nb. 1.
17 Doing Business Report 2019, Accessed on 7 July 2020: https://www.doingbusiness.org/content/dam/doingBusiness/media/Annual-Reports/English/DB2019-report_web-version.pdf, p. 204.
18 Filipiak P. Art. 180. in: Prawo restrukturyzacyjne. Komentarz, wyd. II. System Informacji Prawnej LEX, 2020, No. 1.
19 Adamus R., Zaskarzanie uchwal walnego zgromadzenia spólki akcyjnej w upadlosci, in: Doradca Restrukturyzacyjny 2/2019 (nr 16), p. 65.
20 (Judgment of the Appeal Court in Szczecin) Wyrok Sadu Apelacyjnego w Szczecinie z 4 March 2011, I ACa 784/10.
21 Janda P. Article 442. in: Prawo upadlosciowe. Komentarz, wyd. II. Wolters Kluwer Polska, 2020.
22 Pietrzela J., Rudnik K., Wybrane aspekty praktyczne postepowan restrukturyzacyjnych i upadlosciowych prowadzonych wobec podmiotów prowadzacych gospodarstwa rolne, in: Doradca Restrukturyzacyjny, 2/2019 (nr 16), s. 75.
23 Janda P. Art. 378. in: Prawo upadlosciowe. Komentarz, wyd. II. Wolters Kluwer Polska, 2020.
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