Bankruptcy law in terms of the solutions which are available to insolvent individuals who do not carry out economic activities (consumers) is continuously liberalised. Legislative changes that occurred on the date 31 December 2014 have caused a sharp increase in the number of requests for consumer bankruptcy.
To illustrate the scale of the increase in insolvency proceedings in relation to the last year of application of the previous consumer bankruptcy model, i.e. year 2014 – 300 identified requests for consumer bankruptcy were announced 31 bankruptcy.
However, after the change in 2015 to 5616 The conclusion was already 2220 declared consumer bankruptcy, in 2016 8694 applications submitted; 4447 Consumer bankruptcy 2017 for record 11120 applications submitted; 5470 bankruptcy.
The revised rules have triggered the expected results of the return of debt holders to pre-economic bankruptcy situations.
Abnormal negligence closes the gate for lengthening
As the current judicial practice has shown, however, not every debtor in insolvency deserves the benefits of the revised rules. In particular , a lack of due diligence in the development of its own financial position is at the heart of decisions rejecting claims for consumer bankruptcy .
one for the more common reasons which form the basis for the courts to apply the negative condition (remote of the application) is that the debtor has fallen into a ‘debt spill’, i.e. according to the case law of the courts, his grossly negligent conduct has been blamed.
According to the interpretation adopted by the insolvency courts, the concept of gross negligence is, inter alia, to increase debt by borrowing new loans to cover its own expenses as well as previous claims. Thus , the current legal situation does not give any insolvent debtor the opportunity to be extended .
The latest draft bankruptcy law shifts the threshold for bankruptcy announcement in favour of the debtor. The court has resigned its investigation of the debtor's fault in bringing or deepening insolvency – whether it is a fault of intent or gross negligence – at the stage of recognition of the bankruptcy application.
On the other hand, such inappropriate conduct of the debtor, which is not a criminal offence or actions aimed at harming creditors, will be examined when establishing a repayment plan for creditors, which may consequently extend the repayment period even to 84 months.
This is a further step towards widening the range of addressees of the revised legislation, implemented by defining as precisely as possible the grounds for bankruptcy. This aims to reduce differences in judicial jurisprudence in this respect.
Establishment of a temporary judicial overseer
Another important noveum governing the legal situation of an insolvent person who does not have the assets to be executed is to establish a temporary judicial supervisor at the stage of insolvency proceedings (before the bankruptcy is declared) and to issue a decision terminating the proceedings without establishing a repayment plan with the exception of the relevant insolvency proceedings which take place with the participation of the syndicate. Such a solution is intended to respond to the improvement of the procedure and the lengthening of the fallen in relatively short time.
Agreement with creditors
An instrument to enable debt restructuring is the introduction of the possibility for the debtor to enter into an arrangement with creditors, which will then be approved by the insolvency court. The conclusion of the agreement and its implementation will be led by a qualified restructuring advisor. The project also provides for a further solution to avoid proper insolvency proceedings, according to which it will be possible to sell all of the assets to be executed under the pre-pack liquidation procedure.
Of course, the annual increase in the impact of bankruptcy cases on insolvency courts, which are still not staff adapted to such a large number of cases, is not without bearing on the design of the solutions.
Author: Michał Zawiła.
Partner in RB Restructuring. Licensed Restructuring Advisor, entry No 1050. Lawyer entered on the list at the District Bar Council in Katowice.