Vol 3 (2006) - Issue 4

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The Enactment of the UNCITRAL Model Law into Polish Bankruptcy and Recovery Law

Introduction
The Polish Bankruptcy and Recovery Law of 2003 (the ‘Insolvency Law’) contains a chapter which enacts the UNCITRAL Model Law of 1997 on cross-border insolvencies (the ‘ML’). With the introduction of chapter 15 into the US Bankruptcy Code in October 2005 and the advanced stages of implementation on UNCITRAL Model Law into the UK legal system,1 as well as reform of a number of other states’ jurisdictions, including Canada, Japan, Mexico, Romania, South Africa, Serbia, and Montenegro which also enacted the ML, it is worth reviewing how the Insolvency Law has implemented the ML.
The principle of territoriality
Until recently, with minor exceptions, Polish regulations contained nothing that would account for insolvency proceedings having a multinational, or multi-jurisdictional effect. The assumptions were quite simple – namely, that a Polish insolvency court would always have jurisdiction over a subject who has a seat Poland (every company statute defines a seat of a company as being the name of a town in Poland). The presumption was that a Polish company would have assets in Poland, and would conduct business (mostly) locally and, therefore, would have local creditors. As a consequence of this, any foreign creditors who were to have claims to the Polish business would have to comply with the Polish rules, and, furthermore, any assets located outside of Poland would not be subject to the jurisdiction of the Polish court. This of course invited pre-insolvency transfers of assets outside of Poland, to conceal them from being covered by the insolvency regime. At the same time, in line with the theory of territoriality, no foreign insolvency had any effect in Poland, as only a Polish court had sole and exclusive jurisdiction over an insolvent entity registered in Poland.
In actual practice, at the time, there were few cases of recognition of foreign court decisions, as any foreign court judgments could be recognised in accordance with the Polish Civil Procedure Code (the ‘CPC’) which regulated the process of formal recognition.
The principle of territoriality stands at the opposite end to the principle of universality, where a declaration of insolvency in one state is automatically recognised in the other states where assets of the insolvent are located, and where the insolvency law of the state of declaration of insolvency regulates only the insolvency process.
As in other states, rules limited to only local jurisdiction were clearly not sufficient for the modern world, and in October 2003 the Insolvency Law came into force, which contained a chapter incorporating most of the regulations of the ML of 1997 on cross-border insolvency under the heading ‘Regulations covering international bankruptcy proceedings’.