Insolvency 2024 Comparisons

In Poland, a wide range of restructuring and insolvency possibilities are available, not only for businesses, but also for bankrupt consumers.

Consumers can use bankruptcy proceedings, and the proceedings to approve the arrangement at the creditors’ meeting. They are not entitled to resort to restructuring proceedings.

Entrepreneurs, operating in different legal forms – like sole proprietorships, partnerships or companies – have a wide array of legal tools at their disposal, ranging from four restructuring proceedings regulated in the Restructuring Law to simplified restructuring, judicial liquidation, out-of-court restructurings (using, among other things, standstill agreements), pre-pack sales and corporate bankruptcy proceedings.

Apart from formal insolvency proceedings, the following voluntary proceedings are available in Poland for insolvent entities or those at risk (threat) of insolvency:

• simplified restructuring proceedings;
• arrangement approval proceedings;
• accelerated arrangement proceedings;
• arrangement proceedings;
• remedial proceedings;
• pre-pack sale after declaring bankruptcy; and
• partial arrangement (limited only to receivables that have significant meaning for the debtor’s business) – possible within simplified restructuring proceedings, proceedings to approve the arrangement and accelerated arrangement proceedings, and also as additional proceedings within remedial proceedings.

Hence, there are plenty of options and choices relating to possible restructuring proceedings in Poland, especially after the reform of 2016.

Under Polish law, specific statutory regimes apply to:

• banks and credit unions;
• real-estate developers;
• investment firms or entities engaged in payment systems and securities settlement;
• insurance companies; and
• bond issuers.

These specific regimes are based on the need to differentiate between traditional insolvency or restructuring law provisions, and the situation with regard to the stakeholders of the above-mentioned entities.

A bank’s insolvency is regulated under a separate regime since the implementation of the EU BRRD Directive (in the Act on the Banking Guarantee Fund, deposit guarantees and resolution). This special regime is known as the bank resolution.

Insolvency Practitioners

Poland has a system of insolvency practitioners, who can be appointed as:

• an interim court supervisor;
• a court supervisor;
• an arrangement supervisor;
• a receiver (administrator);
• a trustee; and
• an arrangement performance supervisor.

Appointment of Trustees – Common Issues

The trustees (insolvency office holders, administrators) are among the most important players in bankruptcy proceedings. For sound and efficient insolvency proceedings, it is very important to have qualified, trained and experienced professionals as the trustees. There is therefore public awareness and discussion around the appointment of trustees.

There have also been discussions in Poland with regard to the reform of the self-governance of insolvency practitioners.

An interim court supervisor as well as a trustee are appointed within proceedings to declare bankruptcy, whereas the other above-indicated functions are performed within restructuring proceedings.

In Poland, creditors differ with regard to their position and role in the proceedings.

The most popular are:

• secured creditors;
• public entities;
• preferential claims creditors; and
• non-preferential claims creditors (regular one).

Secured claims enjoy preferential treatment both in insolvency and restructuring, but this is regulated based on the value of the security.

Public entity claims can be divided into social security claims and fiscal authority claims. While the first are favoured in an insolvency, the others have the same rank as the claims of regular creditors.

In restructuring proceedings, public entities can vote in favour of the arrangement only if it is compliant with EU state aid rules and regulations, and the proceedings meet the private creditor test.

Preferential claims are mainly employee and pension claims.

Under Polish law, the cost of the proceedings, employee claims and pension claims enjoy preferred treatment.

With regard to secured creditors, their receivables are subject to satisfaction from the sum obtained in the liquidation of the encumbered object, less the costs of liquidation of said object and other costs related to the bankruptcy proceedings in an amount not higher than one-tenth of the sum obtained in the liquidation, and no more than such part of the costs of the bankruptcy proceedings that result from the ratio of the value of the encumbered object to the value of the whole bankruptcy estate.

The issue of new – also known as “fresh” – money within restructuring proceedings is important, yet financial institutions are very careful with regard to granting it.

Although there is preference in the ranks of claims under the Bankruptcy Law, new money is unfortunately not very popular. The problem may possibly lie with Banking Law requirements for the assessment of solvency (creditworthiness) and a strict approach to non-obvious situations.

Some security granted and established with new money may, in some circumstances, be deemed ineffective with regard to the remedial or bankruptcy estate.

According to Article 129 of the Restructuring Law, new money (a receivable debt which is not covered by the arrangement) may be secured on the components of the arrangement estate or remedial estate with a mortgage, pledge, registered pledge or maritime mortgage – subject to the consent of the creditors’ committee.

In Poland, there are several possibilities with regard to securities.

Registered Pledge

A registered pledge can be established on movable property and transferable property rights. It is governed by the Act on Registered Pledge and Registry of Pledges. Signing the pledge agreement and subsequently entering the pledge into the Register of Pledges are required in order to successfully establish a registered pledge. The pledge agreement should be made in writing.

Mortgage

A mortgage may be established on immovable property. It is governed by the Act on Land and Mortgage Registers and Mortgage. There are two main types of mortgages regulated under the Act on Land and Mortgage Registers and Mortgage: a contractual mortgage and compulsory mortgage. The mortgage will be established provided that the relevant entry has been made in the Land and Mortgage Register. It is also necessary to comply with requirements regarding the document that constitutes the basis for entering a mortgage into the Land and Mortgage Register (eg, a notarial deed or court’s decision in the case of a compulsory mortgage), as well as requirements regarding the form of the document (drawn up in writing with a signature certified by a notary, or in the form of a notarial deed).

A mortgage and registered pledge become effective provided that a competent court makes a relevant entry in the Land and Mortgage Register or the Register of Pledges, respectively.

If the application for entering a mortgage or registered pledge into the respective register does not comply with the formal requirements set out in Polish law, depending on the degree and type of defect (in particular errors and omissions), the court will request the applicant to rectify the errors or omissions, by returning the application to the party concerned, or it will dismiss the application if the defect cannot be rectified.

There are also less popular securities in the Polish legal system, such as, an ordinary pledge, a treasury pledge or a maritime mortgage.

A security will most often be enforced in judicial proceedings, hence the biggest practical issue related thereto is the necessity to involve the court. This means that enforcing a security may take a long time.

Moreover, after obtaining the enforcement title in judicial proceedings, it is also usually necessary to initiate enforcement proceedings with the involvement of a court bailiff (enforcement officer). In most situations, enforcing a security requires the creditor to take a number of actions, which extends the duration of the proceedings. Furthermore, the initiation of legal proceedings also entails the payment of court fees.

In some cases, it is possible to reduce the number of actions that need to be taken in judicial proceedings (eg, in the case of a notarial deed in which the debtors submit themselves to enforcement), as well as within extrajudicial proceedings, such as, in the case of taking over ownership of the pledged property or by sale of an asset encumbered with a registered pledge in a public tender conducted by a notary or court bailiff (enforcement officer).

The above-mentioned rights can also be exercised in restructuring situations, but they cannot legally block or disrupt restructuring proceedings. Of course, the enforcement of a security may practically make restructuring impossible, therefore it is important to communicate with the secured creditors.

Under Polish law, secured creditors enjoy special treatment, because their secured receivables are subject to satisfaction from the sum obtained by liquidation of the encumbered object.

The general rule regarding different classes of creditors is that secured creditors are satisfied from the sale of an encumbered object, while other creditors in an insolvency are treated globally, according to the rank of their claims.

The rank of claims is regulated under Bankruptcy Law. The main rule is to satisfy claims with the highest priority (satisfy in the first place), that is, the costs of proceedings and other liabilities of the bankruptcy estate. The latest amendments to the Bankruptcy Law introduced the priority of the amounts received from the liquidation of the living accommodation of the bankrupt who is a natural person. It stipulates that it is necessary to satisfy the housing needs of the bankrupt and the persons dependent on the bankrupt with an amount corresponding to the average lease rent of living accommodation for a period from 12–24 months, awarded to the bankrupt from the amount earned from the sale of such accommodation or house.

The remaining claims are satisfied in the order specified in Article 342 of the Bankruptcy Law, depending on the category into which they fall (claims falling into the lower category may be satisfied only if claims falling into the higher categories have already been fully satisfied). The first category of claims covers, among others: employees’ claims, maintenance claims and workers’ compensation, social security contributions defined in the Social Security System, certain amounts resulting from the restructuring proceedings of the debtor, etc.

Under Polish law, unsecured creditors have the right to take part in the proceedings, file petitions and motions. They are also entitled to be satisfied. They cannot, however, legally block or disrupt the proceedings.

Pre-judgment attachments are not used in Poland, as neither the restructuring nor bankruptcy law provide for regulation thereof. However, the transfer of ownership prior to a court judgement is practically possible, especially with regard to a registered pledge with the possibility to attach ownership (taking over the subject of the pledge).

Consensual restructuring is becoming increasingly popular in Poland, mainly because of the uncertainty and duration of formal court proceedings.

The banks and other financial institutions are usually willing to be engaged in consensual restructuring proceedings and they frequently use standstill agreements. However, it must be noted that such consensual and out-of-court restructuring proceedings must be initiated at an early stage of financial difficulties. Only banks will be able to establish that the debtor is trustworthy and has a good chance of efficiently restructuring.

However, in general, consensual restructuring is used mainly by bigger companies, probably because of the banks’ involvement and the internal bank regulations on low-quality or lost receivables and the requirement to make write-downs.

There is also no requirement of previous, consensual restructuring before initiating formal court proceedings.

One of the reasons why consensual restructuring proceedings are still less popular than formal restructuring or insolvency proceedings is that out-of-court workouts and similar restructuring proceedings do not free the management board from legal liability towards the creditors should the restructuring process fail. This should lead to standard early reaction processes in debtor companies, especially when there is a threat of insolvency.

Consensual restructuring is usually commenced by a standstill agreement with all the important creditors, especially the banks, as its parties.

Later on, the restructuring agreement is negotiated, where typical undertakings include the sale of some of the debtor’ assets, the optimisation of the costs and an increase in revenues, sometimes opening to new markets or using different restructuring plans. On the other hand, a market standard provides for steering committees that supervise the restructuring process – the committee usually has the right to receive financial and other information on the current and ongoing business situation of the debtor, followed by inspection of the books.

Sometimes in restructuring agreements, new money and new security are granted.

The provisions for not meeting the standards described in the agreement and possible creditors’ rights in such cases apply.

Polish law does not provide for the possibility to conduct out-of-court financial restructuring proceedings with dissenting parties.

Mechanisms like cross-class cram-downs or division into groups of creditors are available under the Restructuring Law and are frequently used in formal restructuring proceedings.

Out-of-court restructuring is mainly binding between the parties involved.

In Poland, it is not mandatory to initiate statutory restructuring proceedings, however, the approval of an arrangement can release directors and officers (board members) from additional liability connected with the non-enforcement of claims against the company where they sit on the board.

For restructuring, the proceedings can be initiated by the debtor, with one exception – a remedial proceeding, which can be initiated by the creditor, when it is related to the insolvent legal person (limited liability company, simplified joint stock company or joint stock company).

Overview

Polish law offers a number of proceedings for businesses and individuals in distress. They span business insolvency proceedings, consumer bankruptcy as well as four restructuring proceedings.

These solutions aid debtors and also create opportunities or risks for creditors. As a rule, opportunities will arise for active creditors.

Restructuring proceedings are as follows:

• arrangement approval proceedings, including a version with an announcement in the National Debtors Register (Krajowy Rejestr Zadłużonych, KRZ) and a more private one, without an announcement);
• arrangement proceedings accelerated;
• arrangement proceedings; and
• remedial proceedings.

With regard to insolvency proceedings, in Poland there is a regular insolvency proceeding, regulated within the Bankruptcy Law, as well as a consumer bankruptcy, which can sometimes be a useful tool for over-indebted former entrepreneurs or members of management boards.

Within insolvency proceedings, an application for arrangement in bankruptcy may be filed and in this case, some relevant provisions of the Restructuring Law apply.

Corporate insolvency proceedings may be accompanied by a pre-pack sale application.

Legal Grounds for Opening Proceedings

Legal grounds for opening restructuring proceedings are insolvency or the threat of insolvency. Insolvency is defined within the Bankruptcy Law, as a situation where the debtor has lost the ability to satisfy their mature pecuniary liabilities.

Another basis (legal ground – specified in the Bankruptcy Law) for insolvency is over-indebtedness – a situation where an entity’s liabilities are greater than their assets and this has been the case for more than 24 months.

Statistics

In Poland, the statistics for insolvency and restructuring have risen significantly.

In 2023, 408 companies were declared insolvent, 611 bankruptcy petitions were dismissed, mainly because of insufficient funds to conduct the proceedings; and restructuring proceedings numbered as follows:

• 3,919 arrangement approval proceedings;
• 158 arrangement proceedings accelerated;
• 54 arrangement proceedings; and
• 101 remedial proceedings.

Most Popular Types of Proceedings

In Poland, the most popular proceeding is arrangement approval proceedings, counting up to over 92% of all restructuring proceedings.

This popularity is mainly because of the out-of-court nature of arrangement approval proceedings (AAP).

AAP is opened based upon the decision of the debtor in co-operation with an arrangement supervisor, who should hold an insolvency practitioner’s licence (proclaiming they are qualified to supervise complex restructurings and insolvencies).

The course of the AAP is described below:

• agreement with the arrangement supervisor;
• drawing up key documents;
• setting the arrangement day;
• submission and updating of the files in the National Debtors Register (KRZ);
• drawing up the list of receivable claims, the list of disputed claims and the initial restructuring plan (optional);
• announcement in the National Debtors Register upon setting the arrangement day (four months of protection period) (optional);
• collection of votes/holding of the creditors’ meeting;
• filing an application for approval of the arrangement;
• announcement in the National Debtors Register upon filing the application;
• the court issues a decision regarding approval of the arrangement;
• announcement in the National Debtors Register upon approval of the arrangement; and
• the arrangement comes into force.

Electronic Proceedings

The National Debtors Register (KRZ) has operated in Poland since December 2021 and all kinds of proceedings have been conducted and carried out within the system – at least with regard to companies.

Unfortunately, the KRZ system is only available in Polish. It is currently being expanded to include other elements, with the aim of enhancing and facilitating the method of conducting proceedings.

Future Developments

Poland is ahead of important changes in the restructuring and insolvency framework.

The EU Restructuring Directive (also known as the “Second Chance Directive”) is still planned to be implemented.

Issues that need to be addressed in this regard include automatic stay of enforcement, cross-class cram-down issues, as well as treating secured creditors.

EU Proposal on insolvency law

Moreover, in December 2022, the European Commission published the Proposal for a Directive of the European Parliament and of the Council harmonising certain aspects of insolvency law, opening discussions on some of the potential changes into national laws, together with the remarks and positions towards the Proposal. In all, 49 entities issued their positions within this legislative process, and the European Commission is now analysing these documents, aiming to propose a Directive soon.

According to Article 1.1, the Proposal covers the following areas:

• avoidance actions;
• the tracing of assets belonging to an insolvency estate;
• pre-pack proceedings;
• the duty of directors to submit a request for the opening of insolvency proceedings;
• simplified winding-up proceedings for micro-enterprises;
• creditors’ committees; and
• the drawing-up of a key information fact sheet by member states on certain elements of their national law on insolvency proceedings.

Within the whole European Union the level of coherence of the above-mentioned issues is relatively low, thus many member states are now facing the need to assess what changes are required and what amendments to the law are necessary.

Test of best satisfaction of creditors

The proposal of the Directive also provides for the preparation of a test of the best satisfaction of creditors, as a basis for evaluating the price proposed by the investor.

Such a test is also postulated in the EU Restructuring Directive, and could be standardised, for example, in the practice of drafters, so as to serve the broadest and most reliable knowledge for creditors – parties in bankruptcy proceedings.

Possible auction

The Directive provides for the auction procedure, either with or without the involvement of an insolvency practitioner (IP). Where the court decides to appoint an IP, a public auction is not required. Where the court refuses to appoint an IP, however, the public auction procedure is obligatory.

Pre-pack proceedings

The proposed amendments regarding prepared liquidation (pre-pack) proceedings merit special attention.

In the section on pre-pack proceedings, the Proposal provides, among other things, for the appointment of a special, independent body (the so-called monitor) to evaluate the pre-pack procedure and the benefits to creditors. It is envisaged that this body may be a bankruptcy trustee and at the same time a party to the pre-pack transaction concluded with the investor. In Poland, such a person could successfully be the temporary court supervisor, who would then become the trustee of the bankruptcy estate.

Polish insolvency law creates certain risks for an investor who decides to invest in the preparation of the pre-pack procedure, however. Should the investor make a substantial financial effort to carry out the required audits and due diligence reports, and then lose the bid, their financial investment will be wasted and the investor stands to recover nothing. Whereas the other participant, who may have offered EUR1 more in the bidding process and then won the auction, not only collects the assets (free from any collateral, with the execution sale effect) but also without any financial effort whatsoever on their part connected with the preparation of the pre-pack procedure.

This is why the popularity of the pre-pack procedure in Poland collapsed after this rule was introduced in March 2020.

The solution to this is included in the proposed EU Directive as it envisages the possibility to get the investor’s ancillary costs of preparing the pre-pack reimbursed.

This is an excellent example of how EU law can enormously improve national law.

The proposal of the Directive emphasises the efficiency of the procedure, but also mentions the need to ensure its transparency. These values must always be properly balanced, as must the often-conflicting interests of different participants in the proceedings. 

Preserving value for creditors

It is expedient to emphasise that the pre-pack procedure significantly improves the preservation of the value of the debtor’s enterprise from the point of view of its creditors. It is also of considerable importance from the point of view of preserving the enterprise itself, as well as jobs and the principle of a smooth transition between ownership entities.

Protection from enforcement

Interestingly, Article 23 of the Proposal also explicitly provides for the suspension of enforcement proceedings, including in the case of preliminary proceedings, in the pre-bankruptcy phase.

Changes to contracts and pre-emptive rights

The Proposal provides for changes to contracts entered into by the debtor, by allowing these to pass to a new buyer even without the consent of the other party, and it would also be desirable to clarify what happens to the right of first refusal in the case of a sale in a pre-pack liquidation.

Issues in Poland’s judicial system

Changes to the judicial system in Poland are urgently required. For example, an appropriate organisational structure is required for the insolvency-related judicial system, which is currently inefficient, despite the fact that reform of this system has been discussed for at least 20 years. Secondly, important changes need to be introduced to insolvency practitioners’ formal self-government structures, endowing them with the possibility to enforce disciplinary responsibility.

With regard to the organisation of the judicial system, first instance bankruptcy and restructuring cases are currently processed in the district courts (sądy rejonowe), which are the lowest level of Polish courts, irrespective of the value of the case and its complexity. Therefore, a first-instance judge has to deal with complex restructuring cases valued at billions of Polish zloty as well as simple consumer bankruptcy cases of relatively small value. The workload is overwhelming. First-instance judges are dealing with approximately 200 consumer bankruptcy cases and ten corporate restructuring cases at the same time – an untenable workload.

A better system would leave consumer bankruptcy cases at the district court level, so that individuals would have easy access to justice, while complex restructuring cases could be moved to the regional courts (sąd okręgowy). Such a reform has been discussed for over 20 years, and has lately been emphasised by the INSO Section of the Allerhand Institute.

The regional courts could also become specialised second-instance courts for cases from the district courts. Moreover, cases heard in the regional courts could be appealed to the appellate courts (sądy apelacyjne), which would help to make judgments in restructuring cases more consistent. Currently, Poland struggles with differing judgments in similar cases, which is a pitfall that needs to be addressed.

There is also a need to create a special chamber or unit within the Supreme Court (Sąd Najwyższy) in Poland, which would be responsible for restructuring and insolvency cases. This reform would comply with the requirements set forth in the Restructuring Directive, which emphasises efficient judicial systems and also the proper training of insolvency practitioners.

Restructuring proceedings in Poland either end in discontinuation, or final approval of the arrangement, which is followed by enforcement of the arrangement.

During restructuring in Poland, the debtor can operate a business, provided that for acts exceeding the scope of ordinary management, the consent of a court supervisor is obtained. The consent may also be granted after the performance of the act in question, although the debtor risks nullity if consent is refused.

In remedial proceedings, the debtor is superseded by the receiver (administrator) who manages the estate and operations. However, with the court’s consent, the debtor may act on their own, within the scope of ordinary management.

Office holders in restructuring comprise:

• a court supervisor;
• an arrangement supervisor;
• a receiver (administrator);
• a trustee; and
• an arrangement performance supervisor.

These office holders differ with regard to particular proceedings, but they mainly supervise the acts of the debtor, or administer the remedial estate – within remedial proceedings – where the debtor is limited in their acts and actions.

Creditors’ committees are much more popular in restructuring proceedings than in insolvency proceedings.

The members are selected and the committee is established by the judge-commissioner acting either ex officio where he finds this advisable, or in response to a petition filed by the bankrupt, no less than three creditors, or a creditor or creditors holding jointly no less than one fifth of the sum of the receivable debts (with exclusions for affiliated entities and the acquirers of the receivable debts). The judge-commissioner can also change the members of the committee.

The creditors’ committee consists of five members and two deputies, appointed from among those creditors of the debtor who are participants in the proceedings. In rare and smaller cases (less than seven creditors), the number of members may be three (and one deputy).

The creditors’ committee assists the court supervisor, authorises acts which may not be performed other than with the committee’s consent, and gives its opinion on other matters if required to do so by the judge-commissioner or the trustee. When discharging its duties, the committee of creditors may be guided by the interest of all the creditors.

The list of acts requiring consent of the creditors’ committee include:

• encumbering components of the arrangement estate or remedial estate with a mortgage, pledge, registered pledge or ship’s mortgage to secure a receivable debt which is not covered by the arrangement;
• transfer of ownership of things or rights to secure a receivable debt which is not covered by the arrangement;
• encumbering components of the arrangement estate or remedial estate with other rights;
• taking out credits and loans; and
• concluding a contract of tenancy of a debtor’s enterprise or an organised part thereof, or any other similar contract.

The sale by the debtor of immovable properties or other component assets over the value of PLN500,000 will also require the permission of the creditors’ committee under pain of nullity.

The creditors’ committee may grant permission to conclude a credit or loan contract, or establish the securities referred to above, if this is necessary to maintain the ability to cover, on a current basis, the costs of restructuring proceedings and liabilities that have arisen since the opening of proceedings, or to make and perform the arrangement, and if it is guaranteed that the funds will be transferred to the debtor and used in the manner provided for in the resolution of the committee of creditors, and the established security is sufficient to cover the credit or loan granted.

The acts referred to above, if performed with the permission of the committee of creditors, may not be deemed ineffective as regards the bankruptcy estate.

Members of creditors’ committees can act with advisers, but should secure the funding themselves. A creditors’ committee member is entitled to reimbursement of the necessary expenses involved in their participation in a meeting of the committee. The judge-commissioner may grant a member appropriate remuneration  for attending a meeting if this is justified by the type and degree of complexity of the case and the extent of the work performed.

Shareholders’ rights are taken into account only in a situation where they are also creditors of the debtor.

Insolvency Proceedings

Under Polish law, there is one insolvency procedure – liquidation bankruptcy. The Bankruptcy Law stipulates that as a result of declaring bankruptcy the debtor loses the right to manage and operate their business. The trustee appointed by the bankruptcy court is the person who temporarily (for the duration of the bankruptcy proceedings) takes over the duty to manage and operate the debtor’s business. The court and the appointed judge-commissioner supervise the trustee and issue several decisions within the course of the proceedings. The creditors’ committee may be established and receive several competences of the judge-commissioner. Individual creditors may also receive information and play an active role in the proceedings.

The recent amendments to the Bankruptcy Law introduced a new solution for debtors who are natural persons other than sole traders (consumer debtors) by implementing a possibility to conclude an arrangement between the debtor and the creditors. Moreover, consumer bankruptcy proceedings provide for the institution of residual debt release. Once a part of the debtor’s obligations is fulfilled in accordance with the creditors’ repayment plan, the debtor may be released from the rest of their liabilities.

Liquidation

In Poland, it is possible to liquidate a company or partnership by way of liquidation proceedings regulated under the Commercial Companies Code.

Stay of enforcement

Under the Bankruptcy Law, declaring bankruptcy results in a stay of enforcement proceedings, and the issuance of a moratorium to commence such proceedings. Regarding other legal proceedings – if bankruptcy is declared by the court, administrative proceedings in respect of the bankruptcy estate may be initiated and continued by none other than the trustee, who conducts proceedings on behalf of the bankrupt, but in the trustee’s name.

Enforcement proceedings initiated prior to the declaration of bankruptcy should, by operation of law, be stayed on the date of declaration of bankruptcy. Once the decision on declaring bankruptcy becomes final and non-appealable, such proceedings should, by operation of law, be discontinued. Declaring bankruptcy is not an obstacle to awarding immovable property ownership if the bid for the property was validly knocked down prior to the declaration of bankruptcy and the execution acquirer pays the acquisition price on time.

Milestones of Insolvency Proceedings

Insolvency proceedings take place over a period of time, but many actions may be taken simultaneously. The following milestones can be observed.

First of all, the date and deadline for submitting claims by the creditors. Delayed filing is acceptable, but a mandatory fee is then required and, regardless of the reason for the delay, acts already transacted under the bankruptcy proceedings have effect against this creditor. Submission of claims has no bearing on the distribution plans already submitted and the creditor’s recognised receivable debt is taken into account only in the plans made after the recognition thereof.

Later on, the list of receivable debts is submitted and made available in the bankruptcy court for examination. The creditor (and also, under certain circumstances, the debtor) has the right to file an objection, and appeal if the objection is unsuccessful.

In the meantime, the liquidation is processed by the trustee. The distribution plans are drafted and approved, as they constitute a legal basis for the disbursement towards the creditors. Distribution plans may also be appealed.

In addition, ineffectiveness and claw-back legal actions may be issued by the trustee independently during the course of proceedings.

However, when the proceedings do not satisfy the cost of the proceedings (and creditors have not made advance payments for these), the court may decide to discontinue such proceedings.

The sale of assets is managed by the trustee, who should report the current status to the judge-commissioner.

The trustee should also have the consent of the creditors’ committee for:

• the trustee continuing to run the enterprise, if it is to be continued for more than three months from the date of declaration of bankruptcy;
• forgoing the sale of the enterprise as a whole;
• the unrestricted sale of property included in the bankruptcy estate;
• taking out loans or credits, and encumbering the bankrupt’s assets with limited rights in rem; and
• recognising, waiving or making a settlement in respect of disputed claims and submitting a dispute to a conciliatory court for determination.

No consent of the creditors’ committee is required for the sale of movable property where the estimated value, as shown in the inventory stock count, of all movable properties included in the bankruptcy estate is equal to or less than the equivalent of PLN50,000, as well as the sale of receivable debts and other rights within such value.

A bankruptcy sale enjoys an execution-sale effect, which means that the purchaser acquires assets free of claims and liabilities asserted against the debtor.

Netting

Where a framework contract to which the bankrupt is a party stipulates that individual detailed contracts in financial futures, financial instrument lending or repurchase of financial instruments (netting) are to be entered into in fulfilment of the framework contract and that the termination of the framework contract has the effect of causing the termination of all the detailed contracts entered into in fulfilment thereof, then:

• receivable debts arising under individual detailed contracts entered into in fulfilment of the framework contract must not be included in an arrangement concluded in bankruptcy proceedings; and
• the trustee is not vested with the powers of rescission of the framework contract.

Set-Off

With reference to set-offs, setting of a receivable debt of the bankrupt against a receivable debt of a creditor is permitted where both receivable debts existed on the date of the declaration of bankruptcy, even if the maturity date of one of them has not yet arrived.

The bankrupt’s receivable debt is presented for set-off in the full amount, and that of the creditor only in an amount equal to the principal receivable debt and interest accrued until the date of the declaration of bankruptcy.

Where an interest-free debt of the bankrupt is not due on the date of the declaration of bankruptcy, an amount taken into account for set-off purposes is that of the amount receivable less statutory interest, which in no case may exceed 6%, from the date of the declaration of bankruptcy to the maturity date and for no more than a period of two years.

No set-off is permissible where a debtor of the bankrupt acquired the receivable debt by means of assignment or endorsement subsequent to the declaration of bankruptcy, or acquired it during the last year before the date of the declaration of bankruptcy while being aware of the existence of a ground for the declaration of bankruptcy.

However, as an exception, set-off is permitted where the acquirer has become a creditor of the bankrupt through repaying the bankrupt’s debt for which the acquirer was liable, either personally or with specific property items, and if at the time of assuming liability for the bankrupt’s debt the acquirer was not aware of the existence of grounds for the declaration of bankruptcy. A set-off is permitted at all times where the assumption of liability occurred one year before the declaration of bankruptcy.

Additionally, no set-off is permitted where the creditor has become a debtor of the bankrupt after the date of the declaration of bankruptcy.

The proceedings may end in discontinuation or final completion, where the creditors are paid and satisfied.

Creditors

Creditors’ committees are much more popular in restructuring proceedings than in insolvency proceedings.

The members are selected and the committee is established by the judge-commissioner acting either ex officio where this is advisable, or in response to a petition filed by the bankrupt, no less than three creditors, or a creditor or creditors holding jointly no less than one fifth of the sum of receivable debts (with exclusions for affiliated entities and the acquirers of the receivable debts). The judge-commissioner can also change the members of the committee.

The creditors’ committee consists of five members and two deputies, appointed from among the creditors of the debtor, who are participants in the proceedings. In rare and smaller proceedings (less than seven creditors), the number of members may be three (and one deputy).

The creditors’ committee assists the trustee, inspects the trustee’s acts, examines the status of bankruptcy estate funds, authorises acts which may not be performed other than with the committee’s consent, and gives opinion on other matters if required to do so by the judge-commissioner or the trustee. When discharging its duties, the committee of creditors is guided by the interest of all the creditors.

The sale of assets is managed by the trustee who should report the current status to the judge-commissioner.

The trustee should have the consent of the creditors’ committee for:

• the trustee continuing to run the enterprise, if it is to be continued for more than three months from the date of the declaration of bankruptcy;
• forgoing the sale of the enterprise as a whole;
• the unrestricted sale of property included in the bankruptcy estate;
• taking out loans or credits, and encumbering the bankrupt’s assets with limited rights in rem; and
• recognising, waiving or making a settlement in respect of disputed claims and submitting a dispute to a conciliatory court for determination.

No consent of the creditors’ committee is required for the sale of movable property where the estimated value, as shown in the inventory stock count, of all movable properties included in the bankruptcy estate is equal to or less than the equivalent of PLN50,000, as well as the sale of receivable debts and other rights within such value.

A bankruptcy sale has an execution-sale effect, which means that the purchaser acquires assets free of claims and liabilities asserted against the debtor.

Members of creditors’ committees can act with advisers, but should secure the funding themselves. A creditors’ committee member is entitled to the reimbursement of necessary expenses involved in their participation in a meeting of a creditors’ committee. The judge-commissioner may grant a member an appropriate meeting attendance remuneration if it is justified by the type and degree of complexity of the case and the extent of the work performed.

Shareholders

Shareholders’ rights are taken into account only in a situation where they are also creditors of the bankrupt, although their claims are at a lower level than those of other creditors.

Since the Republic of Poland is an EU member, the EU Regulation 2015/848 applies to the recognition of the proceedings.

Poland also has numerous bilateral agreements with other countries recognising insolvency and restructuring proceedings.

According to EU regulation, the court where the centre of main interest (COMI) is situated can open an insolvency or restructuring procedure.

The COMI criteria set a standard to determine applicable law.

Under the EU Regulation 2015/848, the key factor is the COMI, which is the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties.

The main insolvency proceedings will take place in the COMI country, while secondary insolvency proceedings will take place in other countries where the debtor has assets.

The law applicable to insolvency proceedings and their effect is that of the member state where such proceedings are opened, with the following exceptions:

• rights in rem;
• set-off;
• reservation of title;
• contracts relating to immovable property;
• payment systems and financial markets;
• employment;
• patents and trade marks; and
• detrimental acts.

With regard to the recognition and enforcement of foreign judgments within EU countries, the EU Regulation 2015/848 applies.

With regard to other countries, recognition is granted when proceedings concern a case which does not exclusively belong to the jurisdiction of Polish courts, and when such recognition is not contrary to the basic rules of the legal order in the Republic of Poland (ordre public clause).

Judicial co-operation and co-ordination with foreign courts exist under the EU Regulation 2015/848, which is in full force in Poland.

With regard to non-EU countries, neither the Bankruptcy Law nor the Restructuring Law provide for such co-ordination, as there are rules on communication but no formal procedure of statutory-based co-operation.

In Poland, foreign creditors differ practically only in one aspect with regard to insolvency and restructuring proceedings – they have longer time limits and deadlines for some legal actions, and they need to appoint a service agent in the Republic of Poland, unless they hire an attorney-at-law admitted to practise in Poland.

In Poland, the directors of the debtor company also have duties towards the company’s creditors. Most of these duties concern filing the bankruptcy petition.

Directors perform their duties for the benefit of all creditors, yet some of these duties may have a different legal basis. Directors may be held liable for pre-insolvency debts, and sometimes, according to Polish Supreme Court judgments, also for post-commencement debts if the bankruptcy petition was delayed.

Under Polish law, creditors are entitled to assert fiduciary breach claims directly against directors.

Officers, especially shadow directors, can be held liable for the banning of business activity. The prerequisite for such liability is having a decisive effect over the company in distress. Although such officers do not sit on the board, they in fact manage the company and thus can be held liable as so-called shadow directors.

Under Polish law, creditors are entitled to assert fiduciary breach claims directly against directors and officers.

In addition, directors and officers may face criminal liability.

Under Polish law, particular transactions (or broadly, acts in law) are, by operation of the law, ineffective with respect to a bankruptcy estate or may be held ineffective with respect to a bankruptcy estate by a judge-commissioner’s decision. As a result, such transactions or acts in law are deemed never to have occurred within insolvency proceedings.

The judge-commissioner may challenge, according to Articles 127 and others of the Bankruptcy Law, transactions with related parties and/or family members performed by the debtor within six months preceding the date of filing the bankruptcy petition (also see 11.2 Look-Back Period in the Bankruptcy Law), as well as an encumbrance of the bankrupt person’s assets with (among others) a mortgage or registered pledge, if the bankrupt person was not a personal debtor of the secured creditor and if the encumbrance was established within one year prior to the filing of the bankruptcy petition, and the bankrupt person did not receive any consideration for the establishment of such encumbrance.

The other party to such an ineffective transaction or act in law is obliged to contribute to the bankruptcy estate anything that has been transferred, or not contributed, as a result of such ineffective act.

In certain cases, reciprocal consideration provided by the other party may be returned. If consideration cannot be returned, that party may assert its claims in bankruptcy proceedings on a par with other creditors.

On the other hand, the party who received the payment or the security may, by bringing an action, seek the recognition of such acts as effective if at the time when the same were performed, the party was unaware of the existence of the grounds for declaring bankruptcy.

Under Polish law, acts in law that may be challenged include, among others, those performed gratuitously (or that are significantly undervalued) within one year before filing the bankruptcy petition, whereby the debtor disposed of their assets. The same applies respectively to court settlements, admission of an action, and a waiver of a claim.

Moreover, securities and payments of an unenforceable debt, given or made by the debtor within the six months before filing the bankruptcy petition, are ineffective with respect to the bankruptcy estate.

In this regard, Polish law appears to be compliant with EU regulations.

Under Polish law, most claims may be set aside or deemed ineffective by operation of the law.

In some circumstances, however, a trustee is entitled to demand that certain acts in law or transactions be held ineffective. The judge-commissioner has the power to decide this issue.

Setting aside or annulling a transaction may take place both in insolvency proceedings and in remedial proceedings – one of the restructuring options.

The trustee may also raise actio pauliana claims. Such proceedings are free from court fees.