Vol 7 (2010) - Issue 2

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Secondary Insolvency Proceedings against a Solvent Debtor: A Polish Case Highlights Weak Points of the European Insolvency Regulation

1. Introduction and factual overview

Following Poland’s EU accession in 2004 initially only a few Poland-related cross-border insolvency cases were brought before the courts, including some foreign insolvency proceedings against companies incorporated in Poland. None of them posed any new difficult legal issues reaching beyond the range of problems identified in the Eurofood decision and the following discussions. This situation dramatically changed with a series of decisions by the French Commercial Court (Tribunal de Commerce) of Beaune taken on 16 July 2008, to place a French liquor manufacturer Belvedere SA, together with several of its subsidiaries incorporated in Poland under procédure de sauvegarde, listed in Annex A to the Regulation No 1346/2000 on insolvency proceedings (hereinafter 'EIR').
The Polish subsidiaries of Belvedere, which included i.a. Sobieski sp. z o.o., Domain Menada sp. z o.o., Destylarnia Polmos w Krakowie SA and Fabryka Wódek Polmos Łan´cut SA, were all functioning and solvent at the time of the French court’s decision. Placing them under sauvegarde was justified by a threat resulting from guarantees given by them to secure bonds issued by Belvedere. It is to be noted that under French law (Article L620-1 of the Code de Commerce) sauvegarde is a restructuring procedure available against a debtor who, without being insolvent, is subject to difficulties that he is not able to overcome. Nevertheless, as sauvegarde is listed in Annex A to the EIR, opening of those proceedings by the French court constituted opening of main insolvency proceedings in the meaning of Article 3(1) of the EIR. The jurisdiction of the French court over the Polish subsidiaries was apparently justified by the control exercised over them by Belvedere SA, despite the fact that all (or almost all) their assets and most of their business, including employees, were and still are located in Poland. In any case, under Articles 16 and 17 of the EIR and given the ECJ’s Eurofood decision, Polish courts had no choice but to recognise the Polish subsidiaries of Belvedere as being subject to main insolvency proceedings commenced in France.
In April 2009 the case took a further twist when a creditor, a bank incorporated in the United States, filed in several Polish bankruptcy courts for opening of secondary insolvency proceedings against Belvedere’s subsidiaries. Under Articles 3(3) and 27 of the EIR, secondary proceedings have to be winding-up proceedings listed in Annex B. As Annex B lists only liquidation-oriented form of Polish bankruptcy proceedings (upadłos´c´ obejmuja˛ca likwidacje˛, see below), the Polish courts were understandably reluctant to open those proceedings in relation to solvent, operating entities, in a situation where secondary proceedings would encompass the major part of or even all of their assets. In result, in most cases the creditor’s petitions were dismissed at various points in time during summer 2009. Only in one case of Domain Menada sp. z o.o. has the Polish court opened secondary proceedings, in early November 2009. Appeals against those decisions were filed and at least two decisions refusing to open secondary proceedings have already been upheld by second instance courts. In the meantime the restructuring plans (plans de sauvegarde) have been approved by the French court in main proceedings on 10 November 2009, which may result in the opening of secondary proceedings against Domain Menada sp. z o.o. being yet overturned in appeal.