Vol 12 (2015) - Issue 6

Article preview

About Time Too: The New Polish Restructuring Law

Poland has been a member of the EU since 1 May 2004. Shortly after joining the EU, Polish legal practitioners and courts were faced with the practicality of having to apply EU laws, including EC Regulation 1346/2000 on insolvency proceedings. This proved a difficult task for many, as shown by rulings of courts of first instance, which would not 'automatically' recognise foreign judgments. Although justice eventually prevailed and practice caught up with the law, lack of liquidity and costs of judicial proceedings remained as factors seriously affecting the results of judicial restructurings. The common perception that out of court solutions are better than in court restructuring remains to be true until today.
Going back to 2003, when the hitherto Bankruptcy and Recovery Act was enacted, the 'rescue culture' in mind was reflected in its provisions by introducing a recovery proceeding. This procedure was targeted at businesses at risk of insolvency but which were not yet in that state. The procedure did not prove itself in practice. Instead of preventing bankruptcy, as the law allowed, companies’ directors and other businesses, allowed their businesses to run on till they became insolvent, which made them ineligible for recovery proceedings. Following the economic crisis and the rethinking of existing preventive 'rescue culture' regulations, the Polish government prepared a new draft law in late 2011. The final text of the restructuring law was accepted by Parliament on the 15 May 2015 and is awaiting the President’s signature. It is expected to enter into force on 1 January 2016.
The new Restructuring Law Act and the amended Bankruptcy Law are intended to address and solve a number of problems which practitioners have wrestled
with. The measures are to assist in:
– separation of Restructuring Law from Bankruptcy Law, so that restructuring proceedings are not associated in the business community with liquidation
and the associated stigma and negative consequences
– introduction of new types of restructuring proceedings (there will be four) for solvent and insolvent debtors, to enable the restructuring of enterprises with prospects of returning to solvency and avoiding insolvent liquidation; departure from the current obligation of adopting the procedure that would satisfy creditors to the greatest degree;
– simplifying regulations to make it easier to file cases with court and shorten duration of proceedings;
– granting new rights to creditors reflecting the approach that the deeper the difficulties threatening the debtor, the less influence the debtor should have on the operation of its business, while in three out of four restructuring procedures (excluding reorganisation proceedings) the debtor in possession would continue to manage its business;
– extending the entitlements of the creditors’ committee.

However, it appears that insufficient action has been taken on the large influence that judge-commissioners and bankruptcy courts will continue to exert over insolvency proceedings: particularly in more complicated arrangement and reorganisation proceedings. Further, concerns may be raised as to the ability of debtors to select the appropriate proceedings which would suit their economic and financial situation. In addition the ability to transform one restructuring proceeding into another may be an abuse of law where the main objective – that is to effectively conclude proceedings within a short period of time will be totally lost.
Hopefully the new Restructuring procedures – as opposed to the current recovery proceedings – will also be added to Annex A of the amended EC Regulation 1346/2000 on insolvency proceedings, the text of which has been recently accepted. This will allow the testing of new procedures also in a cross-border context.