Vol 9 (2012) - Issue 2

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Controversies on Solvent Debtors Continue: More Cross-Border Problems Related to French sauvegarde

1. Background
In 2009–2010, several cases occurred with French sauvegarde proceedings, applicable to distressed but solvent debtors and listed in Annex A to the Regulation (EC) No. 1346/2000 on insolvency proceedings ('EIR'), opened against Polish subsidiaries of a French company. The opening of secondary proceedings in Poland was then requested by a foreign creditor. In most cases, Polish courts dismissed such requests, obviously preferring to choose an economically sensible option of not opening winding-up proceedings (as required under Articles 3(3) and 27 of the EIR) over the literal application of the EIR. However, such dismissals were based on a highly dubious application of Article 407(1) of the Polish Act on Bankruptcy and Rehabilitation2 in fact denying foreign creditors the right to request the opening of secondary proceedings under the EIR in Poland. As discussed in a previous article in this journal, application of Article 407(1) of the Act was erroneous and resulted only from confusion between various language versions of Article 29(b) of the EIR,3 causing unjustified disadvantage to foreign creditors. A correct approach, in line with generally accepted interpretation of Article 29(b) of the EIR, would be to apply Article 20 of the Act on Bankruptcy and Rehabilitation and acknowledge the right of every creditor to apply for secondary proceedings. It needs to be noted however that application of Article 407(1) of the Act on Bankruptcy and Rehabilitation has been subsequently upheld by the Polish Supreme Court (SN).
Even if application of Article 407(1) of the Act on Bankruptcy and Rehabilitation were to be accepted in EU cases, it provides grounds for dismissal of a request for secondary proceedings only if lodged by a foreign creditor. A domestic creditor would be entitled to apply for secondary proceedings against a debtor subject to French sauvegarde (as main proceedings) under both Article 20 and Article 407(1) of the Act. Consequently, in case of a request by domestic creditor, if all other requirements are met, a Polish court would find itself compelled to open such secondary proceedings as winding-up bankruptcy, with all resulting damage for the continued activity of the debtor and restructuring efforts in the main proceedings. Such situation occurred in case