Consumer bankruptcy – new solutions under the law - bankruptcy law[1]

At the end of May 2019 the bill amending the law on bankruptcy and certain other laws was submitted to the Sejm 2 , amending once again existing from 2009 provisions on the grounds for declaring bankruptcy and the conduct of appropriate insolvency proceedings against non-business operators, so-called consumers.

With regard to the recent major changes from 31 December 2014 To date, consumer insolvency proceedings have increased dramatically, which has generated additional issues and problems requiring the intervention of the legislator.

Given the number of cases to be examined In 2014 number 300 Conclusions (decreased in 32 ) in comparison with the year 2018, when accepted for diagnosis 12,719 Applications (declaration of bankruptcy 6,552 consumers), the fundamental question arises – whether the existing regulations fully serve the basic objectives of bankruptcy law, i.e.

Longer consumers?

1. Introduction

The problems encountered in the practical application of the existing legal regulations fall down to both the issue of divergent jurisprudence as regards the interpretation of the conditions allowing consumers to become bankrupt and the noticeable organisational failure of the various judicial departments dedicated to the recognition of debtors' claims for bankruptcy and subsequent insolvency proceedings.

A key change with regard to the current consumer insolvency model is to allow a wider group of customers to benefit from the possibility of debt relief in default and to distinguish the procedures applied to fallen consumers depending on the degree of complexity of the assets of the individual debtors, mainly in terms of the size of the assets and the number of creditors.

The legislator also intends to introduce additional ways out of insolvency beyond the classical insolvency proceedings and solutions to streamline and accelerate the insolvency procedure itself.

The formulated assumptions of the change interfere in a thorough manner in the current legal order governing the matter related to the consumer bankruptcy process.

Thus, the legislator sees issues related to the chronicity of insolvency proceedings, but foresee a significant increase in further cases to be examined, which in turn may negatively affect the work of already greatly overloaded bankruptcy courts.

However, in this situation, it is proposed to liberalise the rules that are currently preventing a wide range of people from getting an extension.

2. New legislative solutions

The objectives of the amendments to existing legislation are aimed at the following solutions:

1. simplifying insolvency proceedings without the need to appoint a judge of the commissioner – deformalising insolvency proceedings in the event of bankruptcy poverty;
2. the possibility of entering into an arrangement between the debtor and the creditor with the participation of the restructuring advisor; everything will be under the minimum control of the court – limiting the increase in insolvency proceedings involving the syndicate;
3. the sale of the debtor’s assets in a pre-pack mode prepared for liquidation – expanding the catalogue of the possibility of the debtor’s early exit from insolvency;
4. establishing a repayment plan for creditors by examining by the court the degree of fault (intention or gross negligence) in bringing the debtor to insolvency — moving away from the model of dismissing the bankruptcy application at the stage of the bankruptcy application to extend the repayment plan for creditors until 84 months in the event of insolvency or deterioration;
5. conditional write-off of liabilities without a repayment plan — applicable by the court in the absence of the ability to make any repayments to creditors due to a personal situation of a temporary failure;
6. decommitment without establishing a repayment plan for creditors, in case of permanent incapacity to make any repayments under the repayment plan for creditors;
7. the absence of the possibility of a natural person to delay — the court’s refusal to waive its obligations in the event of a finding, in the course of insolvency proceedings, of a deliberate action which has failed in bringing it into insolvency or significantly increasing it;
8. the introduction of the principle of filing claims directly to the restructuring advisor, acting as a syndicate, instead of to the insolvency court, of speeding up the procedure for drawing up the list of claims.
9. 1. Simplified insolvency proceedings against consumers

The legislator, in order to reduce the burden on insolvency courts on the conduct of the simplest insolvency cases, resigns from the solution attributing the stage of proceedings following the declaration of bankruptcy to the judge.

The current state of the law, shaped on the basis of experience in business proceedings, introduces a control system by assigning specific activities within the framework one proceedings involving both the role of court and a judge of the Commissioner.

In the further part, the direction of the changes gives a greater value to the speed of action in the absence of significant fallen assets to satisfy creditors, which in turn should entail limited activity in the course of insolvency proceedings in respect of the liquidation of the mass and a list of claims and a distribution plan.

The insolvency proceedings will be less formalised at the time of the possible liquidation of the assets by the syndicate and when drawing up a draft repayment plan for creditors, which will contain the data currently assigned to the third documents: 1) the list of claims, 2) the distribution plan, 3) a repayment plan for creditors. Such a document will be subject to complaint and, depending on the extent of the complaint, will be verified, as in the case of the current counterpart of the opposition to the list of claims or charges for the allocation plan.

Such a design of the appeal against the repayment plan of creditors prejudges the application of the current rules when drawing up third those documents to create a draft repayment plan for creditors in a new form. It is also proposed that only the final report should be submitted in such cases.

Where insolvency proceedings against a natural person who does not carry on business will require more complex activities, as with the bankruptcy of entrepreneurs, the bill provides for the possibility of declaring bankruptcy ordinary, i.e. as before.

2.2. Conclusion of an arrangement between the debtor and the creditor

According to the direction of the changes, an additional possibility of exiting the debt is envisaged by concluding an agreement between the debtor and creditors with the participation of a professional body, which is a judicial supervisor, with appropriate application of the provisions of the Act from 15 May 2015 - Restructuring law[3].

The court will also be able to refer to this procedure a debtor who has filed for bankruptcy and who does not reserve that he does not wish to take advantage of the possibility of concluding the agreement.

The condition necessary for the court to take account of the debtor's request or to refer the debtor to such proceedings will be to demonstrate that the debtor has commercial opportunities which indicate the ability to cover the costs of the contract proceedings and the performance of the arrangement with creditors.

The arrangement shall be concluded for a period not exceeding 5 years, unless it relates to claims excluded from the arrangement in accordance with p.r., i.e. In-kind secured liabilities[4] (in particular mortgages), on which the restructuring must be authorised by the creditor.

In this case, it is possible to extend the repayment period above 5 years. The conclusion of the arrangement will allow the debtor to retain the assets of his assets, unless the arrangement proposals provide for the sale of individual assets.

Such a solution is a way of carrying out the extension process with simultaneous protection against execution both individual and bankruptcy.

2.3. Sales of consumer assets in the form of pre-pack liquidation 5

After a simplified insolvency procedure and the possibility of entering into a contract on the debtor - creditors line, the prepared liquidation of the “pre-pack” is another proposal for a rapid exit from insolvency and a new start.

The draft law explicitly provides that in insolvency proceedings, the debtor may apply for approval of the conditions for the sale of assets of significant value, while the provisions Article 56a-56h p.u. shall apply mutatis mutandis[6].

The present interpretation attributed the possibility of applying the procedure for the final winding-up, but in order to remove the doubts expressed by the case-law of the various courts as to the application of this possibility of extension, the legislator regulated the reference directly to the provisions on the final winding-up.

The planned liquidation is a new legal structure in Polish law (from 1 January 2016), which aims to accelerate and simplify the insolvency proceedings. In this case, the liquidation phase of the bankruptcy (as regards the prepared liquidation) will not start separately after the bankruptcy has been declared. An application for bankruptcy may be accompanied by an application for approval of the conditions for the sale of the debtor's assets.

The purpose of this structure is to accelerate insolvency proceedings. This reduces the scope of future responsibilities of the syndicate in connection with the preparation of the liquidation even before the bankruptcy is declared.[7]. This solution is therefore also dedicated to consumers who, as part of assets, have property or movable property.

2.4. Failure of the court to examine the debtor at the bankruptcy stage

The legislator introduces a solution to the application of the conditions allowing consumers to declare bankruptcy in the same way as in the event of business insolvency.

Insolvency should be decided by the debtor (the debtor is insolvent if he has lost his ability to comply with his due cash liabilities) 8 , not so far, an assessment of the debtor's behaviour in bringing it to this state.

The current regulation on the assessment of the conditions for declaring bankruptcy has divided the districts of the case into more or less liberal as to whether bankruptcy should be declared to the debtor[9]. This practice leads to bankruptcy tourism in the country.

According to the assumptions of the proposed amendments, the debtor’s insolvency proceedings will be assessed by the court at the stage of establishing the creditor’s repayment plan.

At this stage, both creditors and the syndicate will be able to take the position, whose active participation will contribute to the full and actual disclosure of the case.

The court will then assess on the basis of all the information obtained whether the repayment plan is to continue until 3 years for a fair debtor or to 7 years for the person who led to the debt in a guilty way.

Such a solution can be critical of removing the barriers that are now set for unreliable debtors.

According to the negative position ‘(...) Article 1(56) the project involves repealing Article 4914(1) the law whereby the court dismisses the application for bankruptcy if the debtor has led to his insolvency or significantly increased his degree of insolvency intentionally or as a result of gross negligence should be assessed negatively.

The proposed solution does not deserve approval. This amendment will enable all debtors, including those who have failed to exercise primary diligence in debt-taking, to be extended.

This development of the conditions for the possibility of consumer bankruptcy may undermine the rights of creditors on which the risk of unrepentant, and sometimes of intentional commitment, will be transferred“ 10 .

1. 5. Conditional waiver of liabilities without establishing a repayment plan for creditors

As a result of a personal fallen situation preventing any repayment under a repayment plan to creditors who are not of a permanent nature, the court will conditionally waive the fallen obligation.

The redemption shall be final if within the time limit 5 years from the date on which the conditional waiver of liabilities was approved without the establishment of a repayment plan for creditors, the court will not revoke such a provision as a result of the finding that the failure to comply with the repayment plan has ceased.

This will be the case in the absence of an application for a repayment plan within the time limit specified above by any of the creditors.

Moreover, the legislator provides that during the period 5 years from the date on which the conditional write-off of liabilities without the establishment of a repayment plan for creditors has been approved, the fallen shall be subject to similar restrictions on the formation of their property situation as the fallen one implementing the repayment plan.

2.6. Decommitment without a repayment plan

The draft law provides for a fundamental change in the decommitment rules without a repayment plan, dedicating the application of such a solution only in exceptional cases.

The condition for debt relief without the obligation to repay creditors is the personal situation of the bankrupt, which clearly indicates that it is permanently unable to make any repayments under the creditor's repayment plan.

It does not matter whether the fallen led to its insolvency or significantly increased its degree intentionally or through gross negligence.

Use of the term ‘permanently unfit’ 11 indicates that the personal situation of the fallen does not anticipate improvement (e.g. the fallen is permanently unable to do any gainful work). They do not justify the application of this transitional condition of difficulties, in particular difficulties in finding a job, temporary health problems, even if they have persisted for a long time but are not of a lasting nature.

2.7. Non-relationship of a natural person

Refusal by the court to grant an extension despite insolvency proceedings will be possible if:

1. the deliberate action of the fallen destitution of assets and the non-regulation of due cash liabilities as an act of ill-will of the debtor leading to the injury to creditors, resulting in the insolvency of the fallen person or significantly increased its degree;
2. the redemption of all or part of the liabilities to the bankrupt in earlier insolvency proceedings in respect of the bankrupt during the period ten years before the date on which the next bankruptcy application was filed.

The planned amendment has a much narrower scope than the current negative condition of debt, either by deliberately insolvency or by gross negligence.

The purpose of bringing about insolvency implies an intentional action aimed at bringing about its insolvency, which should be the basis for dismissing the request for a repayment plan. What is noteworthy, contrary to the current legal situation, is that the court will be able to take into account the exceptional circumstances in which it has fallen and to take into account its request for renewal, if justified by reasons of fairness or humanitarian considerations.

2.8. New rules for filing claims

New Sound Article 236(1) P.U.[12] states that ‘1.

A personal creditor of a fallen person who wishes to participate in insolvency proceedings, if it is necessary to establish his claim, should, at the time specified in the bankruptcy order, declare his claim to the syndic.” The proposed solution reduces the procedure for submitting claims to the syndicate.

In the current state of the law, the creditor sends such a request to the Judge of the Commissioner, who, after checking the formal requirements, returns the claim or transmits it to the Syndic for substantive verification.

The amendment to the legal framework in this respect by directing the submission of claims to the administrator, who will carry out the formal notification and the substantive analysis, aims to reduce the circulation of documentation.

This amendment will improve and speed up insolvency proceedings as it will significantly reduce the scope of the insolvency proceedings and, above all, reduce the number of activities carried out by the administrative staff of the insolvency departments.

The further part of the changes to the submission of claims introduces the regulation indicated in the amended Article 235(1) P.U. 13 , according to which: ‘1.

The creditor who has filed the claim after the deadline shall bear the flat-rate costs of the insolvency proceedings resulting from the application of the claim after the expiry of the time limit prescribed for filing the claim, even if the delay was incurred without fault, at an equivalent amount 15% average monthly remuneration in enterprise sector without payment of prizes from profit In the third the quarter of the previous year, announced by the President of the Central Statistical Office, unless the filing of claims after the deadline is the result of a declaration correction or other such document covering the settlement.” The justification for such a solution is to simplify the procedure for bearing the costs of late filing a claim, specifying the percentage of the amount which the creditor should each time pay in case of late payment.

It is important that the creditor disciplinary factor is introduced by such a procedure and thus the delay associated with the submission of applications after the deadline in the ongoing proceedings is minimised.

In order to deal with the legal implications of debt reporting, the project promoter added Article 240b P.U. 14 , which expressly prejudges the interruption of the limitation period in the event of the submission of claims. What has so far been clear in the case-law has been clearly indicated in order to eliminate the doubts that may arise as a result of the change in the rules of such notifications.

Summary

If the bill of amendment passes the legislative path and without major changes enters into force, further popularisation of the possibility of the application of the law of insolvency as regards the efforts to be extended by court is expected.

In line with the planned assumptions to strengthen the principle of overriding debt reduction over the interests of creditors, bankruptcy will be possible in relation to virtually every insolvent debtor, while debt relief will take place against the vast majority of them.

Such solutions are part of the trend to allow for the re-starting of debt-free operations, rather than leaving people in debt with the stigma of unpaid liabilities, which negatively affects many areas of both professional and personal life.

In turn, the consequence of more insolvency proceedings will be an additional burden which already has a lot of bankruptcy courts. Without increased spending on extending the judicial and administrative staff, the bankruptcy process against individuals will still be lengthy and costly.

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