Simplified restructuring procedure in Poland – risks for foreign creditors

Ph.D. Paweł Chmieliński, advocate, restructuring advisor

Przemysław Wierzbicki, advocate, restructuring advisor, managing partner

Lawyers from KKLW Legal law firm, team responsible for litigation, restructuring and bankruptcy practice (www.kklw.pl/en/)

As a result of COVID-19 outbreak, a new type of restructuring procedure was introduced in Poland - simplified restructuring procedure ("SRP") which, in principle, corresponds to the „scheme of arrangement” – a legal institution present in the English law. There are, however, material nuances of new regulations which may have negative impact on rights of the foreign creditors. In this article, we provide also the most important solutions which the foreign creditors can use to defend their interests.

A special feature of the new regulation is its temporary nature - related to the estimated duration of the impact of SARS-CoV-2 virus. The simplified restructuring procedure can be opened starting from June 24, 2020 (date of the entry of the new regulation into force) until June 30, 2021.

SRP – what does it mean?

The simplified restructuring procedure assumes that the restructuring is carried out with limited participation of the court, but under supervision of a restructuring advisor chosen by the debtor. On the basis of an agreement concluded, the arrangement administrator controls activities of the debtor and ensures an efficient and compliant course of proceedings. The debtor together with the arrangement administrator prepares arrangement proposals and conducts the procedure of collecting creditors’ votes. The commencement of simplified restructuring proceedings requires placing an announcement in the Polish nation-wide official journal - Monitor Sądowy i Gospodarczy (MSiG).

The course of the SRP involves, step by step:

1. conclusion of an agreement with a restructuring advisor acting as an administrator of the arrangement,
2. appointment of an arrangement day (only claims arising prior to the arrangement day are subject to restructuring),
3. a publication in the MSiG on the initiation of restructuring - the date of publication of the announcement is the date of commencing the proceedings,
4. preparation of the arrangement proposals, conducting creditors' voting procedure and (in the case of acceptance of the arrangement) filing a motion for approval of the arrangement - if no motion for approval of the arrangement is filed within 4 months from the date of the announcement, the proceeding is discontinued by virtue of law,
5. approval of the arrangement by the court - the court’s decision is subject to an appeal,
6. effective performance of the arrangement after approval by the court.

A condition for effective carrying out of the simplified restructuring procedure is approval of the arrangement by the restructuring court. Refusal to approve the arrangement means failure of the simplified restructuring procedure.

The most important effects of opening the SRP:

- protection from enforcement proceedings and of court-ordered injunction proceedings

As of the date of publication of the announcement, it is inadmissible to initiate enforcement proceedings and to execute a decision to grant an injunction. The protection of the debtor lasts until the completion of the restructuring proceedings or its discontinuance, which takes place if no application for approval of the arrangement is filed within 4 months from the date of publication.

- significance of the arrangement day

The arrangement day may not fall earlier than 7 days before the filing of the application for making the announcement in MSiG and no later than 7 days after the date of filing thereof. The arrangement day determines the extent of claims to be restructured. Claims arising after the composition date should be paid by the debtor in a timely manner.

- limitations in termination of certain agreements

As of the date of publication of the announcement, the debtor is protected (with certain limitations) against termination of, among other, tenancy, loan, lease, property insurance or bank account agreements, sureties, guarantees or letters of credit.

- limitations in debtor’s actions

In the course of simplified restructuring proceedings, the debtor is restricted in the right to manage its assets. From the date of publication of the announcement, the debtor may only perform ordinary management actions, while for actions exceeding the scope of ordinary management a consent of the arrangement administrator is required.

- the possibility of including claims secured on property in the arrangement

It is not necessary to grant consent for claims secured on property to be included in the arrangement if the arrangement proposals provide for full satisfaction of the claims (principal and ancillary claims) or satisfaction to a degree not lower than what the creditor could obtain from the collateral. The in rem creditors do not have to vote "in favor" of the arrangement, but they may be outvoted by other creditors (what does not happen in a "standard" scenario).

- rules on adoption of the SRP arrangement 

Pursuant to the general rules of procedure for adoption of the arrangement, the debtor may collect votes by correspondence on ballot papers, the draft of which is set by the virtue of law. The new regulations also allow for voting on the arrangement at a creditors' meeting (instead of or in addition to collecting votes by correspondence). Voting at a creditors' meeting may be carried out using electronic means of communication, in particular a real-time transmission. A personal majority (more than half of the creditors) and a capital majority (at least 2/3 of all claims) are required to adopt the arrangement. The adoption of the arrangement is stated by the administrator in the report.

The most notable potential risks for foreign creditors

Although this is our subjective list, the SRP conducted by a debtor based in Poland may give rise to the following problems for foreign creditors:

• the risk of ineffective termination of the agreement by the landlord, lender, lessor, insurer or licensor, who are based abroad, when the other party to the agreement has in the meantime made a publication in the MSiG about the opening of the SRP (a permission of the administrator of the arrangement is required for the termination in such a case) - even if it concerns, for example, real estate outside Poland, which is rented by a Polish company (which undergoes the process of SRP) ,
• the reduced capabilities for foreign creditors to obey the effects of announcements in the MSiG - problems for creditors without continuous access to the database of announcements in MSiG,
• the automatic suspension of enforcement and execution of court-ordered injunction orders - the law provides for suspension of such proceedings by the virtue of law, also when they involve a foreign judgment or a court decision on injunction,
• the possibility of inclusion of claims secured on the debtor’s property in the arrangement agreement without the knowledge of a foreign creditor – foreign in rem creditors may be surprised (having received ballot papers) that they are included in the arrangement and may be voted out of it,
• the possibility of a collusion between some of local creditors and the debtor,
• the right of the debtor to freely choose the date of arrangement, which determines the extent of claims to be restructured,
• the limited liability of the debtor for opening the SRP in bad faith,
• the limited responsibility of the arrangement administrator for the failure of the SPR proceedings – as a result of improper supervision of the debtor’s activity.