A new simplified restructuring procedure for times of crisis – more opportunities for debtors or more threats to creditors?

In view of the sudden economic dismissal, which is an inevitable consequence of the persistent epidemic situation, there is an increasing number of companies facing the need to seek effective measures to improve the economic situation.

Ad hoc solutions, used in current operations, sometimes turn out to be insufficient, particularly when the amount of liabilities due increases and creditors are increasingly demanding repayment of debts.

Under such conditions, the phenomenon of bankruptcy becomes quite real, but before reaching the final solution it is worth noting the options available under restructuring law.

The problem is that not so long ago, relatively new types of proceedings have not proved to be either fast enough or as effective as expected and therefore after first their popularity has clearly declined.

In the current package of specific solutions, known as "crisis shields", the legislator therefore proposed another novelty – a simplified restructuring procedure, which is the subject of this study.

1. Introduction

The current provisions of the Act of 15 May 2015 Restructuring law 1 (Next: p.r.) from the beginning 2016 offer debtors the opportunity to carry out restructuring operations in four separate restructuring procedures:

• • approval procedures;
• • accelerated systemic procedures;
• • systemic proceedings;
• • sanction proceedings[2].

The easiest way to carry out restructuring on the basis of the existing rules is to seek approval of the agreement.

In this procedure, its key part is completely without the participation of the court, as the debtor (with the assistance of a restructuring advisor) talks with creditors and tries to obtain their approval for the arrangement proposals being drawn up.

The debtor shall ask the court after voting on the proposals for approval of the agreement already drawn up. This procedure gives the debtor considerable freedom to act and can also prove to be the least costly.

After four However, the years of the provisions of the restructuring law, contrary to the intention of the legislators, turned out that interest in this procedure was negligible. The reason for this can be seen two the characteristics of this solution.

After first, at the stage of the start of the restructuring, the debtor shall not submit any application to the court and shall therefore not have the effect of excluding the personal responsibility of the management for the company's obligations, as is the case in the case of a request for insolvency proceedings or a request for the opening of restructuring proceedings.

After second, the conduct of proceedings in this option requires considerable involvement by the debtor, his restructuring advisor, in relations with creditors.

At the stage of considering restructuring (sometimes in parallel) these accounts are often quite difficult, and creditors reluctant to continue discussions or discussions on contractual proposals, which in many cases entail a reduction in the amount that the debtor may receive.

Probably these factors have decided that throughout 2019 to Polish courts only 7 applications for approval of the system (similar to the year 2018)[3].

2. Ad hoc idea for faster restructuring

Seeing the great need from one party to put in place an effective tool to stop avalanche enforcement and prevent the company from irreparably deepening the crisis, while giving creditors a chance to meet their claims and with second Having regard to the slight use of the current simple restructuring procedures, the legislator proposes an innovative approach to the restructuring procedure, introducing a "simplified restructuring procedure". The new procedure is defined in Chapter 6 Government draft law introducing solutions referred to as ‘Tarcza 4.0” 4 .

This Chapter 6 provides for a procedure which appears to combine the key elements of the agreement approval procedure with the simplified arrangement procedure, while giving the debtor a great deal of freedom to decide on the ‘declaration’ of the start of the restructuring procedure, which is practically immediate to produce effects characteristic of the company in the course of the restructuring.

The opening of this procedure is to be the result of the debtor’s posting of a notice in the Judicial and Economic Monitor to open a procedure for the approval of the arrangement under the provisions of p.r. 5 .

The condition for the opening of proceedings in this way is to conclude a contract with the restructuring advisor to supervise the conduct of proceedings, as in the case of standard procedure for approval of the arrangement[6].

The restructuring advisor is to serve as the Supervisor of the Agreement, but it is new to notify the court responsible for examining the request for approval of the agreement to be made by the debtor within the time limit indicated above. 3 the days after its completion.

The day of the opening of proceedings is to be the day of the notice. This means that the initiation of proceedings is practically entirely due to the unilateral action of the debtor without prior contact with creditors or preliminary review by the court.

This is by far the most simplistic way in which the debtor could find himself at the stage of the restructuring procedure.

According to the assumptions of the project authors, this procedure is intended to respond to the needs that have arisen in relation to the epidemic situation – therefore it is of a unique nature, which will be limited in time.

After first, Such notice will only be possible 31 June 2021, a second, a notice of such a debtor may be made once. As indicated above, the reference system on which the new solution is built is the functioning procedure for system approval.

In this procedure, the collection of votes shall take place by means of the individual relationship of the debtor and the arrangement supervisor with the creditor.

In the case of a simplified procedure, this element is to be retained with this modification that the collection of votes may take place entirely in the standard formula 7 , but the provisions of Chapter 6 The government draft bill provides for the arrangement supervisor to have the power to convene the Assembly of Creditors in order to vote on the arrangement proposals at that meeting.

Moreover, in order to improve the conduct of this assembly as much as possible, it may take place with electronic means of communication under certain conditions: electronic communication must take place in real time, it is necessary to ensure an adequate level of security for such communication and for recording the conduct of the assembly.

The chairman of the assembly is to be the arrangement overseer, and a record of the convention will be attached to the minutes. The assembly is to be carried out in such a way that participants can speak "lively" during it.

According to the provisions of the Government's draft law, each form of such a meeting is allowed:

• - in full in a traditional form involving creditors;
• - fully electronically when all creditors merge by electronic means of communication;
• - hybrid – when part of participants meet at the designated meeting place and part joins by electronic means of communication.

General rules are to be applied to the adoption of the arrangement, which means that the resolution of the meeting of creditors on the adoption of the arrangement shall be adopted if the majority of the creditors voting for it, who have given a valid vote, having a total of at least two third the sum of claims owed to the voting creditors[8]. The simplified restructuring procedure is to be limited in time, both as far as it is initiated, as well as as as in the course of the entire procedure.

The legislator provides that the procedure in question should be completed within the time limit 4 months. According to Article 19 Government draft law if within 4 no application for approval of the arrangement shall be received from the date of the notice, the proceedings shall be released from the law.

The arrangement day is strictly defined with a certain little freedom to designate it to the debtor – it must not fall earlier than 7 days before the submission of an application for a notice and no later than 7 days after the date of its submission[9].

The simplified restructuring procedure ends with the order of the court to approve the agreement. If the agreement is approved, the debtor shall implement the agreement on a general basis.

If the court decides not to approve the arrangement, the debtor may lodge a complaint against the order within the time limit 7 the days or within the same time limit, submit a simplified application for the opening of a sanitisation procedure or a simplified application for bankruptcy.

3. Benefits for the debtor

The basic need of a company, which sees a sharp fall in revenues in the short term (and this situation must be faced by many entrepreneurs during the epidemic period), is to be able to take rapid action, which will stop the spiral of rising debt almost immediately. It is justified to introduce such a solution because, in the framework of the measures introduced by the previous ‘crisis shields’, the obligation to apply for bankruptcy of a debtor has been conditionally excluded if the basis for that notice was established during the period of the epidemic or the outbreaks declared due to COVID-19, and insolvency arose due to COVID-19, However, the provisions of the existing shield do not in any way protect debtors from the enforcement of claims by creditors[10].

In this respect, the main advantage for the debtor, which already arises at the very beginning of this procedure, is to obtain a stay of execution, with the date on which the notice was made, the enforcement proceedings concerning claims covered by the agreement being suspended.

Furthermore, from that point on, it is unacceptable to initiate enforcement proceedings and to comply with the order to secure the claim or order to secure the claim resulting from the claim covered by the law of the arrangement. second a very beneficial aspect for the debtor is the possibility of having the effect of limiting the responsibility of the persons managing the company on a reasonable basis to the effects of a bankruptcy application or a request for restructuring proceedings.

According to Article 24 Government project liability for:

• 1) damage caused by failure to file an application for bankruptcy at a specified time under Article 21(1) or (2a) Act on 28 February 2003 - Insolvency law 11 (Further: p.u.),
• 2) obligations of the company in question under Article 299(1) Act on 15 September 2000 - Commercial Companies Code (hereinafter: k.s.h.) 12 ,
• 3) tax arrears in question under Article 116(1) Act on 29 August 1997 Tax Ordinance (Further: (p) 13

• to be excluded if the persons responsible for the management of the undertaking have in due course led to a notice initiating the simplified restructuring procedure. However, the fact that such a notice is carried out alone will not be sufficient to achieve effective protection against liability – the effect that such notice has led to is also important. First of all, the exclusion of liability will be effective if the simplified restructuring procedure results in the agreement being approved.

Also, if the agreement is not approved, but the result of the simplified restructuring procedure will be the opening of a sanitisation procedure or the submission of a simplified bankruptcy application, the effect of the exemption of liability will take place. In case of discontinuance of proceedings the effect of exclusion of liability can still be maintained if within 7 days discontinuance of proceedings the debtor submits an application for bankruptcy or an application for restructuring proceedings which will lead to the opening of such proceedings[14].

According to the intention of the legislator, the protective effect is to be maintained for those debtors who act in good faith, regardless of the final effect of conducting proceedings[15]. In the author's opinion this second an aspect may be a factor that may decide on the degree of use of this new formula.

On the basis of the observation of the practice, it is clear that in many cases restructuring proceedings are initiated primarily because of the intention to obtain a guarantee of non-responsibility of the management for the company's obligations.

The absence of such a guarantee in the case of the current approval procedure is the main reason for the low popularity of this option.

A slightly different principle of the company’s management during the restructuring procedure is also to be constructed – the debtor is to retain the possibility to act as a normal board, while in the case of activities exceeding the normal board, the agreement of the arrangement supervisor will be necessary, with the agreement being given post fact no later than the deadline 30 days from the date of the activity[16]. In the case of activities relating to the financing of the activities of the undertaking which are necessary to preserve the possibility of carrying out restructuring proceedings, the performance of the arrangement, the consent of the supervisor will also be necessary, and information on these activities should be included in the application for approval of the arrangement addressed to the court.

4. Risks to creditors but also risks to the debtor

A characteristic of this new type of procedure is the fact that the initiation of the procedure, while obtaining the effect of ceasing enforcement, puts creditors in a situation where, on a daily basis, the possibility of effective recovery of their claims is significantly lost.

one the basic principles of bankruptcy and restructuring law are to be such that their effects are least detrimental to creditors.

For the proposed simplified arrangement procedure for first The plan is the interest of the debtor – the procedure is intended to enable the firm to survive a difficult time and implement restructuring measures quickly.

The proposed solution includes provisions which are also intended to protect creditors from too rapid action, or possible abuse of this formula by debtors.

After first, the creditor is entitled to a claim for compensation in the event that the debtor has made the notice in question under Article 14(1), in bad faith.

Furthermore, the creditor may request that the effects of the notice be abrogated, such as the inadmissibility of the performance of the benefits from the claims covered by the agreement, the limitations on the possibility of deducting reciprocal claims or the inadmissibility of termination of the lease or lease agreement.

A request for repeal of these effects may be made by both the creditor and the debtor or the arrangement supervisor, the grounds for repealing it is that the application of these restrictions leads to the detriment of creditors[17].

In addition, the creditor is in principle guaranteed to participate in the discussion and voting on the arrangement proposals on the same level as in the case of the standard agreement approval procedure.

The suspension of enforcement shall also apply to claims secured by the forfeiture, but in this case a guarantee to the creditor is a condition that, if the debtor wishes to place such secured claims under the arrangement, he must demonstrate that the arrangement provides either for the full satisfaction of those claims or for their satisfaction to a degree not less than that which can be expected in the event of the recovery of the claim, together with the collateral's side claims.[18].

Doubtless, for both parties (the debtor and the creditor), certain risks relate to the limited time allowed for the whole procedure. Maximum period 4 the months that may elapse between the opening of proceedings and the submission to court of an application for approval of the arrangement may be quite short for the necessary exchange of information between the debtor and creditors, particularly at a time when the possibility of communication is limited due to an epidemic risk.

This is indeed an equal condition for both parties to the procedure, but it seems that the effects of such a time limit may be more severe for the debtor, who may not have sufficient time to negotiate a favourable arrangement with creditors. However, this temporary restriction shall be a manifestation of the protection of the interests of the creditor, who during the course of the proceedings has ‘suspended’ the possibility of executing the debtor.

5. Summary

The proposed simplified restructuring procedure is quite a decisive development of the currently existing simplified restructuring arrangements and allows for the immediate cessation of execution as a result of the debtor's decision to initiate such proceedings.

The solutions included in the government bill are to be limited in time to 30 June 2021, which is due to the fact that they correspond to the instruments referred to in Directive 2019/1023 19 , which should be transposed into national legal order to 17 July 2021.

Currently, when considering different options with entrepreneurs who are in the process of deciding to use one with restructuring procedures, the simplified restructuring procedure designed raises quite a lot of interest.

In the course of discussions with company boards, it is increasingly presented as an option alongside the accelerated arrangement procedure. At the time of submitting this text to print, the parliamentary work on the bill was completed, the passed bill was passed for further work in the Senate.

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