Poland's parliament recently adopted a new
restructuring law (the "Bill") which
will substantially change the country's economic
environment.
After lengthy works, the draft of new restructuring law was finally
adopted by the Polish parliament on 9 April 2015. The Bill now
requires only the signature of the President.
The Bill provides for its entering into force on 1 June 2015,
except for certain regulations that are to enter into force on 1
September 2015.
Current Polish bankruptcy and insolvency environment
For bankruptcy proceedings, Poland is currently in 32nd place in
the World Bank's Doing Business rankings1. The main
drawbacks of the Polish bankruptcy procedures are their length,
their high costs, and the relatively low level of creditors'
claims satisfaction. The Bill might substantially change the
situation, as it not only provides for new restructuring
regulations, but also amends the existing bankruptcy law.
Proposed changes – restructuring first, but if
failed, fast liquidation
The Polish Vice Minister of Economy clearly stated the reasoning
behind the new regulation: "Difficulties are not a reason to
shut down the business. The point is to change the
business".
The ultimate goal
Polish lawmakers emphasise that international experience seems to
suggest that improving conditions for the effective restructuring
of companies and, if required, allowing for their rapid liquidation
are essential for economic growth.
How to achieve that
The goal of effective restructuring and rapid liquidation is to be
achieved by, amongst other measures:
- providing debtors and creditors with new legal tools facilitating restructuring procedures and incentives to start the procedures at an early stage;
- introducing new types of restructuring procedures, autonomous from the stigmatising bankruptcy procedures;
- emphasising the rule that states that, in general, liquidation should be preceded by restructuring attempts;
- strengthening the position of active creditors;
- simplifying the legal procedure and providing new electronic platforms for information distribution and court filings;
- introducing so-called new or second chance policies for entrepreneurs who failed as a result of an adverse change in economic conditions;
- increasing the liability of unreliable debtors and bankrupt entities.
Amendments to the bankruptcy law
The Bill not only provides for new restructuring regulations, but
also amends the existing bankruptcy law. Among many others changes,
its new definition of insolvency, which constitutes a prerequisite
for the declaration of bankruptcy, seems to be one of the most
important in practice.
Liquidity
An enterprise will be considered insolvent primarily when it loses
the ability to fulfil its financial obligations (liquidity test).
Therefore, the new regulation connects the state of insolvency with
lack of economic ability to pay off the liabilities rather than
with the fact of making the actual payments, as was the case before
the new regulation.
Technical test
The assets vs. liabilities test remains in place, but its wording
has been amended and supplemented. Contrary to current regulation,
any future and contingent liabilities, as well as certain
shareholders' liabilities, will not be taken into account. In
addition, the state of excessive indebtedness could be a ground to
declare bankruptcy only when it lasts longer than 24 months.
Summary
The Bill will bring relief to distressed businesses by introducing
new restructuring mechanisms and also by introducing a clear
distinction between restructuring proceedings and (negatively
perceived) bankruptcy proceedings. The rarely-used restructuring
procedures stipulated in the Polish Bankruptcy Law are to be
substituted with completely new regulation, inspired by various
European and US examples that have proven to be most effective,
e.g. US Chapter 11, the English scheme of arrangements, or the
French sauvegarde.
The Bill will bring benefit to debtors and hopefully to the entire
economy; however, it should be kept in mind that at the end of the
day, it is the creditors who will have to give a helping hand to
their debtors to let them restructure. The new regulation will
require concessions on their side, creating additional risks that
entrepreneurs will have to consider at every stage of their
business activity.
1 http://www.doingbusiness.org/rankings
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