Current information on bankruptcy and restructuring law

At present, many companies are facing the risk of bankruptcy. We therefore provide you with practical advice on bankruptcy and restructuring law:

I. Limitation of liability of the entrepreneur and the enterprise’s Management Board

As of today, the Polish legislator has not foreseen an extension of the period in which an entrepreneur or an enterprise should file a petition for bankruptcy (although according to media reports, work is currently underway to extend this period). However, at the moment, there is still an obligation to submit such a petition within 30 days (from the "debtor's insolvency").

Theoreticians and practitioners argue about the right moment to file for bankruptcy. The Act emphasises that such a moment has occurred, for example, "if the delay in the payment of (matured) pecuniary obligations exceeds three months." However, this presumption can also be rebutted. In the current situation, the grounds for declaring bankruptcy should be approached in a very restrictive way, and therefore such a petition should be filed at a very early stage. Should you have any doubts here, we offer advice and assistance.

The 30-day deadline runs inexorably. Said deadline is of great importance, because Article 299 of the Code of Commercial Companies and Partnerships and the Bankruptcy Law establish joint and several liability of the Management Boards of limited liability companies and joint stock companies for the obligations of the company in the event that no petition for bankruptcy has been filed in due time or restructuring proceedings have not been initiated. Moreover, Article 116 of the General Tax Regulations Act stipulates that the Management Boards shall also be liable for tax arrears.

II. Practical options for the entrepreneur and the Management Board

In the current situation, the best solution is to apply for the opening of the restructuring proceedings as early as possible. In addition (since one cannot be certain that the Restructuring Court will open the above-mentioned restructuring proceedings, and it is only then that the entrepreneur or the company can "free themselves" from liability) a petition for bankruptcy should be filed (whose examination is suspended for the time of the examination of the restructuring petition).

The answer to the question which restructuring proceedings (out of 4 possible) to choose should always be consulted beforehand, because once having opened the given proceedings, the "repair" of such proceedings is almost impossible. However, in the current situation "remedial proceedings" (due to the deepest protection against enforcement) seem most optimal. In addition, there are also the "accelerated arrangement proceedings” and the "arrangement proceedings". And the "proceedings for the approval of an agreement", due to the lack of any protection against enforcement, seem completely ill-suited in the current situation. However, all four types of proceedings have their pros and cons. One should discuss them each and every time, and select the most optimal solution.

III. Recommendation of the most ad-hoc solution

A number of Restructuring and Bankruptcy Courts have suspended the service of their clients and some of their employees are on a leave. Many judges of the above-mentioned courts are already conducting several hundred cases. Therefore, we estimate that for the next few weeks, the courts will open only a few––larger––restructurings.

This is a dangerous situation, because the protection against enforcement comes only along with the opening of the restructuring proceedings. On the other hand, this situation allows for a certain manoeuvre, consisting in submitting (for the time being) an incomplete petition for the opening of the restructuring proceedings and an incomplete petition for the announcement of bankruptcy. This is the easiest way to meet the 30-day deadline, which protects against liability for the company's obligations.

Pursuant to Article 130 § 1 of the Code of Civil Procedure, if a pleading cannot be duly processed due to the party’s failure to comply with the formal requirements or to pay the applicable fee, the judge shall request the party to remedy the failure. Such a request (normally to be met within one week) should in the current situation not be made too quickly. For this solution to apply, absolutely all petitions must be signed by the entrepreneur themselves. Under no circumstances may the petitions be signed by an attorney or a legal counsel, as they will be returned without the request to complete them or pay the application fee under Article 28 of the Bankruptcy Law. What is more, this solution allows for a rapid withdrawal of the petitions should the situation of the company improve unexpectedly.

In addition, there is also the possibility to change the company's registered office beforehand, in order to be able to file the above-mentioned petitions with a different court (e.g. the one with a bigger processing capacity or the one which is more favourable when it comes to restructuring proceedings). We also provide assistance and in-depth knowledge in this area.

IV. What to do before and after the submission of the petitions?

In the period before and after the submission of the petitions, the remaining funds of the company should be spent very prudently. Here, among other things, there is the risk of criminal liability under Article 302 § 1 of the Penal Code, related to the satisfaction of some creditors at the expense of other creditors. We offer advice on how not to harm the creditors and maintain the value of the company while waiting for the opening of the restructuring proceedings.

And what happens in the event that the court has already opened the restructuring proceedings in question and the creditors do not agree to the arrangement at the end, or in the event that the court discontinues such proceedings? Then there is the possibility to carry out the restructuring proceedings again. Here, the restructuring proceedings of URSUS S.A. can serve as an example (after the discontinuation of the first proceedings, the restructuring proceedings were repeated––yet in a different court, i.e. in Olsztyn instead of Lublin).

Should you have any doubts or further questions, we remain at your disposal. For more information, please contact attorney Katarzyna Domańska-Mołdawa (katarzyna.domanska-moldawa@bsjp.pl) or restructuring advisor Jan Hambura (jan@hambura.pl).