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Review of Some of Anticipated Changes in the Polish Insolvency Law
Michal Barlowski, Partner, Wardynski & Partners, Warsaw, PolandIntroduction
Over two and a half years have passed since the date of entry into force of the new Polish Bankruptcy and Recovery Law (the ‘BRL’). After this period the legislator has decided to introduce changes, which are currently covered in a draft amendment to the BRL.2 The proposed
draft law covers both material amendments, which change the meaning of some of the existing provisions of law, and also amendments which have their source in either obvious mistakes of the current provisions or which are to improve the understanding of the intentions and the legal concepts that stood behind the original provisions of the BRL. The purpose of this article is to describe some of the most important amendments to the BRL and to cover some practical aspects related to the proposed changes.
Changes to the definition of insolvency
Current provisions of the BRL as stipulated by article 11 define the state of insolvency by referring to two situations.3 The first situation as covered by section 1 of article 11 is quite clear, namely that an entity is declared insolvent whenever it fails to satisfy its current due liabilities.
The second situation as covered by section 2 of article 11 defines insolvency as occurring when the total liabilities of the entity exceed the value of its assets, even if such an entity covers all of its current liabilities. The amendment to the BRL proposes to delete the provision that regulates this second situation from article 11. This is clearly a change of regulations that has been very much welcomed and was anticipated by practitioners.
Although this provision might have been very rarely applied in practice, article 11 section 2 currently in force creates a number of practical problems. Should one be very strict in the interpretation and application of law – and there are no legal reasons why this should not be the case – one will find numerous entities that should have been declared insolvent a long time ago if conformity with the provision was to be maintained. Its application in relation to some types of entities basing activity on third-party debt financing would essentially not have allowed them to function. A breach of article 11 section 2 results in an obligation being imposed on the executive board of directors of such an entity to submit an application to the local Insolvency Court for declaration of insolvency. This application needs to be lodged within fourteen days from the date when the state of insolvency occurred (in this case from the date when the value of liabilities exceeded that of the entity’s assets). A breach of this obligation on the part of the directors may end in personal financial liability for the directors and other sanctions imposed on the directors in breach.
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