Simplified restructuring proceeding
So-called simplified restructuring proceeding has been introduced into Polish law in June 2020. It is quite quick, deformalized and highly beneficial to firms facing bankruptcy. It provides protection against creditor enforcement and termination of contracts, as well as an opportunity to reduce debt (if agreed to by creditors).
This protection is activated through actions of a debtor and without the need to obtain a court judgment. This is the primary advantage of this procedure (at least from a debtor’s standpoint). Notably, debtors may apply this procedure regardless of whether insolvency arose during the epidemic or in connection with COVID-19.
The procedure starts when a company facing bankruptcy prepares a list of liabilities (also disputed) and a so-called arrangement proposal. Usually, it provides for minor creditors to be paid off in full in order to eliminate them swiftly. In turn, major company creditors whose receivables are the main reason for insolvency are usually offered re-payment in instalments and a debt reduction by a specified percentage.
Then, a company hires a licensed restructuring adviser with whom it consults on arrangement proposals and who will supervise company operations during simplified restructuring.
The next step - vital in this procedure - is publication in the Court and Business Monitor of a company announcement about the commencement of proceedings to approve an arrangement. The date of announcement is the date of commencement of such proceedings. Therefore, proceedings commence automatically through such announcement. As is evident, no court judgment is necessary to commence such proceedings. In an announcement the company indicates a so-called arrangement date. It cannot fall earlier than 7 days prior to a submitted application for an announcement or later than 7 days after its submission. Status on the arrangement date applies to creditor rights to vote on an arrangement and the outcome of an adopted arrangement.
Significantly, an arrangement covers liabilities arising prior to the arrangement date. Liabilities arising after the arrangement date are not subject to an arrangement and should be met by the company on an ongoing basis.
After the date of announcement the enforcement with regard to unsecured creditors as well as creditors secured with debtor assets (for example, by a mortgage, pledge or registered pledge) is suspended by law. Protection of a debtor against enforcement is thereby automatic from the time of announcement. The initiation of new enforcement or execution of a judgment to secure claims on company property is prohibited. The debtor’s fulfilment of obligations from receivables that are by law subject to an arrangement, namely those that arose prior to the announcement date is prohibited as well.
Furthermore, without permission from the arrangement supervisor a landlord cannot terminate an agreement on lease of premises or property where a debtor’s enterprise operates. The same applies to loan agreements, leasing agreements, property insurance, surety agreements and agreements dealing with licenses granted to a debtor.
It is worth underlining that from the announcement date a company management board can only engage in ordinary management (for example, purchase office supplies or pay rent). Actions exceeding the scope of ordinary management require arrangement supervisor consent. Such actions performed without required consent are invalid. This serves to ensure protection of creditors against a dilution of debtor assets.
Upon setting of the arrangement date, a debtor collects votes in writing by offering creditors a voting ballot. A creditors’ meeting resolution accepting an arrangement is adopted with a majority of creditors jointly holding at least two thirds of total receivables of all voting creditors casting a valid ballot.
Then, an arrangement supervisor officially declares acceptance of an arrangement and the company files an application for arrangement approval in court. If such application is not filed in court within 4 months from the announcement date, proceedings are discontinued by law. It means that a company has 4 months to conclude an arrangement. A court issues a decision on approval of an arrangement within 2 weeks from the date of filed application. This decision may be appealed by creditors not concurring with its substance. The deadline to file a complaint is 2 weeks.
If a court, as a result of such complaints, refuses to approve an arrangement, a debtor may submit a simplified application to commence a remedial proceeding (it is a type of restructuring that also provides protection against enforcement) or a simplified application to declare bankruptcy.
Simplified restructuring is presently the most popular type of restructuring proceeding. Debtors have concluded an arrangement with creditors in the vast majority of such proceedings.
Konrad Grotowski, attorney-at-law, Restructuring & Bankruptcy practice, Wardyński & Partners
The content of this article is a part of Episode 2 of the programme News from Poland – Business & Law. You can watch the episode here >>>
