Property of the debtor to be excluded from insolvency and restructuring proceedings

On the date of the bankruptcy, the assets of the bankrupt become a mass bankruptcy that serves to satisfy its creditors. This mass constitutes a conglomerate of rights conferred on the fallen and is the subject, not the subject of legal relations[1].

The bankruptcy mass consists of assets belonging to the bankruptcy which fell on the date of the bankruptcy and acquired by the bankruptcy in the course of the insolvency proceedings, with exceptions specified under Article 63-67a Act on 28 February 2003 Insolvency law 2 (Next: p.u.).

The legislator thus protects the debtor in order to ensure a minimum of the means of existence for him and his dependants, as well as the interests of persons third, to whom the debtor held certain functions (e.g. mortgage administrator).

However, the insolvency burden does not include rights and claims of a non-material nature, including protection claims, in the event of a breach of absolute personal rights 3 and non-negotiable rights, e.g. the service of the apartment as a personal service. The fallen one owns property not forming part of the bankruptcy.

1. What's not in bankruptcy?

The legislator adopted the principle of double-tracking the exclusion of assets from bankruptcy: mandatory by law and optionally – by means of a resolution of the creditors' meeting or a decision of the judge of the commissioner[4].

Given the principle of uniformity of law, the legislator has accepted that the exclusion from bankruptcy is subject to property which is excluded from enforcement under other laws – i.e.

Code of Civil Procedure with 17 November 1964 5 (further: (k.p.c.) and the Work Code with 26 June 1974 6 (hereafter: (k) in the case of remuneration for work in the non-occupational part.

Therefore, Article 63 p.u. does not enter bankruptcy:

• 1) property which is excluded from execution in accordance with the provisions of the Code;
• 2) remuneration for the work that has fallen into a part which is not occupied;
• 3) the amount obtained from the execution of a registered lien or mortgage, if it has failed to serve as the administrator of a lien or mortgage, in part falling under the agreement appointing the administrator to the other creditors;
• 4) the cash on the account that is blocked by the account of the eligible entity;
• 5) other components of fallen property, exempted by a resolution of the creditors' meeting.
• 2. Property excluded from execution according to the regulations of the Supreme Court.

The exclusion of assets on this basis is governed primarily by the provisions Article 829(831-833) k.p.c., but also issued under the authorisation contained under Article 831(1)(5) Council Regulations of Ministers of Finance and Justice 4 July 1986 determining the limits within which benefits from personal insurance and property insurance compensation are not subject to judicial enforcement 7 , Article 139-142 Act on 17 December 1998 on pensions from the Social Insurance Fund 8 and laws of 20 April 2004 promoting employment and labour market institutions[9].

1. Exemptions arising directly from the provisions of the act.

Article 829 k.p.c. contains a directory of assets (real estates) not subject to execution, which are not legally part of the bankruptcy.

first group 10 are household appliances necessary for the debtor and his household, in particular the fridge, washing machine, vacuum cleaner, oven or microwave, a hob for heating and preparing meals, beds, table and chairs in the number necessary for the debtor and his household, and one lighting source per room, unless these are items whose value is well above the average value of new items of a given type, as well as clothing – sheets, underwear and daily clothing, in the amount necessary for the debtor and his household, as well as the clothes necessary for the service or profession.

The legislator also excludes from execution the food and fuel stocks necessary for the debtor and his dependent family members for the period one months and livestock — number of: one cow or two goats or three the sheep needed to feed the debtor and depend on his family members with a supply of feed and litter for the next harvest; however, in today's realities, this provision seems anachronistic.

second group 11 relates to the means necessary to earn and covers the tools and other items necessary for the personal earnings of the debtor and the raw materials necessary for his production for the period one but not motor vehicles.

third group 12 the exemptions apply to a debtor who collects a periodical fixed payment and includes money in an amount which corresponds to the non-executive execution of part of the remuneration for the time up to the nearest due date, and to a debtor who does not receive a fixed salary or to a debtor who is a natural person performing an economic activity, the money necessary for him and his family to be maintained by two weeks.

fourth group 13 relates to personal items and covers items necessary for science, personal papers, decorations and objects used to perform religious practices and everyday use, which can only be sold well below their value, and for the debtor are of considerable utility value.

fifth group of property components 14 includes the items necessary to the debtor in view of his health, i.e.

medicinal products 15 necessary for the functioning of the medicinal product within the meaning of the medical activity provisions for a period of time three months and medical devices necessary for its operation 16 and the items necessary for the benefit of the debtor or his family members.

The legislature also provided for a special regulation on the farmer keeping the holding, allowing the exclusion from the execution of parts of the components of that holding, including livestock[17]. On the basis of Article 831 k.p.c. is not subject to enforcement of claims and cash:

• 1) sums and benefits in kind intended to cover expenses or missions in business matters, as well as 50% the amount of allowances for missions,
• 2) the amounts granted by the State Treasury for special purposes (in particular grants, support), unless the enforceable debt has been created by the realisation of those objectives or by the maintenance obligation;

1. appropriations from programmes financed by the measures in question under Article 5(1)(2) and 3 Act on 27 August 2009 on public finances 18 , paid in the form of an advance, unless the enforceable claim arises in connection with the implementation of the project for which the funds were intended;
2. non-negotiable rights, unless the ability to dispose of them has been excluded from the contract and the subject-matter of the benefit is suitable for enforcement or enforcement of the right may be entrusted to anyone else;
3. benefits from personal insurance and compensation from property insurance, within the limits set by the Finance and Justice Ministers of the Regulation;
4. social assistance benefits 19 ;
5. claims due to the debtor from the state budget or from the National Health Fund for the provision of healthcare services 20 before the completion of the provision of these benefits, 75% any payment, unless it relates to the claims of the debtor's employees or the service providers in question under Article 5(41) point (a) and b u.s.o.z;
6. the sums awarded to the judgment of the European Court of Human Rights if the enforceable claim is held by the State Treasury;
7. integration provision 21 ;
8. claims by the housing cooperative on members of the cooperative and non-members of the cooperative, who have a cooperative right to the premises or ownership of the premises, on the basis of the fees to be paid. 4 Act on 15 December 2000 about housing cooperatives 22 , as well as the funds at the disposal of the cooperative in connection with the payment of those fees, unless the enforceable debt has been incurred by the creditor in the performance of the obligations to be met by the fees in question under Article 4 This bill.
9. Remuneration of the bankrupt not forming part of the bankruptcy

Remuneration for a job that has failed in a part that is not busy does not fall into bankruptcy. The remuneration of the employment relationship is subject to special protection resulting from Article 87(3) k.p.

And so only half of the remuneration may be deducted (and in the case of the execution of maintenance benefits, the deductions shall be increased to 3/5 remuneration).

On the other hand, the minimum wage for work is free of deduction (Article 871(1)(1) k.p.), established on the basis of separate provisions, applicable to full-time employees, after deduction of social security contributions, advances on income tax on individuals and payments made to the staff capital plan if the employee has not given up on the deduction of sums enforced under implementing titles to cover claims other than maintenance benefits, but only if maintenance benefits are not enforced[23].

If a part-time worker is employed, the amount available shall be reduced in proportion to the working time. Those provisions are applicable in enforcement proceedings under the Article 833 K.p.c. and in bankruptcy, respectively, on the basis of Article 63(1)(1) P.U. in conjunction with Article 833 k.p.c.

5. Reduced wages due to virus outbreak SARS-CoV-2

In order to protect workers exposed to the effects of a reduction in pay due to coronavirus epidemic, the legislator provided for protective measures under Article 52 Act on 14 May 2020 amending certain laws on shielding activities in connection with the spread of the virus SARS-CoV-2 24 .

If, due to action taken in the territory of the Republic of Poland to prevent the infection of this virus, the employee's salary has been reduced or the employee's family member has lost the source of income, the amounts specified under Article 871(1) ed increase by 25% for any incomeless family member whose dependant worker is.

Consequently, in the event of the circumstances described above, the amount of pay free of occupation will increase during the period of the epidemic and, therefore, the part of the wages which has failed will also remain outside the mass of bankruptcy.

6. Special arrangements for fallen natural persons

From 1 January 2019 both the deduction limit provisions (1/2 and 3/5), as well as the amount free of deductions of minimum remuneration, shall also apply to recurring benefits intended to ensure the maintenance or sole source of income of the debtor who is a natural person, in most cases a contract-like service contract, concluded on the basis of Article 750 k.c.

In this respect, however, the definition of the benefit categories to be excluded has changed. Previously, all recurring benefits intended to ensure maintenance have been protected, and at present repeat benefits intended to ensure the maintenance or the sole source of income of the debtor being a natural person.

Existing from 24 March 2020 Amendment of bankruptcy law, introduced by law with 30 August 2019 amending the Act – Bankruptcy Law increased protection of fallen natural persons[25]. In the event of the declaration of bankruptcy of a natural person whose dependencies are not other persons, the bankruptcy shall not include part of the income of the bankruptcy, which, together with income excluded from the bankruptcy on the basis of section 1 corresponds to the amount 150% amount specified under Article 8(1)(1) U.P.S.

In the event of the declaration of bankruptcy of a natural person whose dependencies are other persons, the bankruptcy shall not include part of the fallen income, which, together with income excluded from the bankruptcy on the basis of section 1 corresponds to the product of the number of dependants of the fallen and fallen and 150% amount specified under Article 8(1)(2) U.P.S.

The legislature also provided for a special support instrument for the fallen in difficult health or family circumstances – the judge-commissioner at the request of the fallen or the syndicate may otherwise determine part of the fallen income which does not enter the bankruptcy order according to section 1a and 1b, taking into account the particular needs of the fallen and dependants, including their health, housing needs and their ability to meet them.

7. Receipt or mortgage income

It shall not be part of the insolvency weight of the amount obtained from the execution of a registered lien or mortgage if it has failed to act as the administrator of the lien or mortgage, in part falling under the agreement appointing the administrator to the other creditors. The purpose of such a solution is to protect those entitled for a lien or mortgage that should not suffer the adverse consequences of a failed action.

As far as the account of the eligible entity is concerned, it is also not part of the insolvency of the cash on the account that is the subject of the blocking of the account of the eligible entity.

1. Exclusion of the components by the meeting of creditors or the Commissioner-judge

The resolution of the meeting of creditors may exclude other components of fallen property from bankruptcy. This instrument is useful in the case of difficult to dispose of from the market point of view of movable and property shares expressed in a small fraction.

The exclusion of such assets will be decided by a resolution of creditors who, as participants in proceedings whose rights should be particularly respected, will be able to comment on the appropriateness of continuing attempts to dispose of assets which are difficult to dispose of.

The resolution of the creditors' meeting on this issue shall be by majority of creditors having at least two third total amount of eligible claims[26]. However, the resolution of the creditors' meeting is not the only way to exclude the property from bankruptcy. According to Article 315 p.u.

the judge-commissioner may exclude certain assets from bankruptcy, including the property or its fraction, if they cannot be disposed of in compliance with the provisions of the Act, and the continuation of those assets in bankruptcy will be detrimental to creditors due to the burden on the bankruptcy burden associated with the costs.

This solution is intended to prevent the excessive extension of insolvency proceedings and to enable them to be terminated, which, for fallen consumers, will mean establishing a repayment plan and the possibility of prolongation.

This regulation replaced the existing solution, consisting in the transfer of difficult-marketable properties to the municipality or the State Treasury, which did not work in practice and led to an extension of proceedings due to the bankruptcy of potentially valuable assets. As applicable to 7 October 2019 The judge-commissioner may have authorised the syndic, under certain circumstances, to conclude a contract to transfer the property to the municipality or the State Treasury.

In the event of consumer bankruptcy, often the complex situation of property and family makes it more advantageous for both the fallen and creditors to refrain from liquidating certain assets, to complete the procedure and to move to the stage of implementation of the repayment plan.

Subject to the mechanism envisaged under Article 315 p.u.

it will be stated that a particular component of the fallen property cannot be disposed of in compliance with the provisions of the Act (there are no candidates for its acquisition, although attempts have been made to sell it), and that the extension of proceedings will be detrimental to creditors (due to the need to bear the costs of handling bankruptcy).

After the judge-commissioner has issued a decision to exclude certain assets from bankruptcy, the bankrupt recovers immediately the management right and the possibility to use and dispose of these items without having to wait for the redemption or completion of the insolvency proceedings.

All property and rights excluded from bankruptcy should therefore be issued to the fallen owner.

It should be remembered that, exceptionally, after unsuccessful attempts to sell the goods and after an unsuccessful call to receive them, together with instruction on the consequences of the delay in their reception, it is permissible to permit the destruction of moving items[27].

In practice, doubts arise from understanding the concept of things that cannot be disposed of. In this case, it appears that a selective interpretation leads to the conclusion that it is about things that cannot be found by the buyer, despite re-sumption of attempts to dispose of them, rather than things excluded from the general market (e.g. weapons and ammunition), subject to specific regulations[28].

A judge-commissioner's decision to exclude or allow the bankruptcy of non-negotiable movable items from the mass or to destroy them, is entitled to a complaint which currently serves to exclude any component of that mass from the mass.

9. Protection of special purpose measures

Special protection by excluding bankruptcy is also subject to social assistance measures for fallen workers and their families, which are the funds collected on a separate bank account of the share benefit fund created under the provisions on the share welfare fund, together with the amounts resulting from the reimbursement of loans granted for housing purposes, the bank interest on the fund's funds and the fees charged on the beneficiaries of the services and social benefits financed by that fund, organised by the fallen[29]. In principle, they are managed by a bankruptcy unless a liquidator, a curator or a representative or a representative of a fallen person has been established under the rules on state enterprises, spending on a separate bank account of the fund funds for purposes and according to the rules laid down in the rules on an occupational social benefit fund.

10. Subparticipation agreement

Consistent with the bankruptcy of the bankrupt party to the sub-participation agreement in question under Article 183(4) Act on 27 May 2004 on investment funds and alternative investment fund management 30 , the claims covered by that contract are not entered into.

The securitisation fund shall enter into the law of default in respect of outstanding claims in accordance with section 1 and the security features of these claims.

The Syndication shall provide the securitisation fund with the benefits received from the debtors in respect of the claims in question Under section 1, and debtors for the collateralisation of those claims[31].

11. Owning a participant in the payment system

The bankruptcy of a participant in a payment system or securities settlement system shall not consist of fallen assets listed under Article 80 p.u., as well as other assets necessary for the performance of the obligations arising from participation in the system which arose before the bankruptcy was declared, provided that the property remaining after the performance of the obligations resulting from participation in the system enters the bankruptcy of the[32].

The subject matter of a security established in connection with participation in a payment or securities settlement system to or to a participant of that system shall not fall into the insolvency of a participant of that system or of a participant of a cooperating interoperable system which has established that collateral, not a participant of an operator of an interoperable system that cooperates with that system, of any other entity that has set it up, in the event of the bankruptcy of any of them[33]. The subject matter of the security established for the benefit of the National Bank of Poland, the central bank of another Member State or the European Central Bank, by the entity carrying out operations with those banks or by any other entity, shall not enter into bankruptcy if any of them is declared bankrupt.

12. Resolution of doubts as to the composition of bankruptcy

The primary task of the insolvency administrator is to determine the composition of the bankruptcy mass by drawing up an inventory and an inventory. In the inventory, the syndication shall include the rights covered by the movable property and the cash collected in the cash register and in the bank accounts.

The list of claims shall be drawn up on the basis of the books of the fallen and uncontested documents. It is presumed that the property held by the bankrupt on the date of the bankruptcy was declared to belong to the estate of the bankrupt.

Doubts as to which of the items belonging to the fallen are part of the bankruptcy weight shall be settled by the Judge-Commissioner at the request of the syndicate, the fallen or the creditor. A complaint shall be lodged by the applicant, the fallen and the creditors.

As a rule, assets that do not belong to fallen assets are excluded from bankruptcy. The syndication of the inventory and inventory is based on the books of the fallen and uncontested documents[34].

If the documents show that a specific component of the property is the property of a person third, since it is the subject of lease, lease or lease by a fallen person, it should not be subject to listing.

Such a component of property should be issued to the rightholder according to the content of the legal relationship between the person who has fallen bankrupt with the rightholder or according to the law of claims arising on the basis of a particular fact.

On the other hand, if the syndication has placed an asset in the inventory or the legal title to that asset is disputed, then the person claiming the legal title to that asset of bankruptcy should apply for exclusion from the weight of the asset of bankruptcy.

Decline law constitutes lex specialis in relation to the provisions of the Civil Code 35 of debt collection claims of a non-holder holder[36]. The provisions on exclusion from bankruptcy shall not apply to the items, claims and other property rights transferred by the fallen to the creditor in order to secure the claim. For these items and for claims thus secured, the provisions of the Law on pledges and claims secured by pledges shall apply mutatis mutandis.[37].

The principle expressed in content Article 70 p.u. complements the principle of surrogacy. It is that, in the event of disposal by fallen property which is excluded, the benefit received for disposal appears to be to the person to whom the property belonged, if the benefit is isolated by bankruptcy[38].

In addition, in the event of a disposal by a property administrator which has been excluded, the person to whom that right belonged may require the provision of a mutual benefit obtained in return for that property as well as compensation.

On the other hand, if the benefit was not fulfilled before the request for issue was made, the right to benefit shall be transferred to the right to excluded property.

13. Exclusion of the component from bankruptcy

A person entitled to the exempt property may require his or her issue or mutual benefit, at the same time reimbursement of expenses for the maintenance of that property or for the receipt of a mutual benefit incurred by a fallen or bankrupt person[39]. In the request for exclusion from bankruptcy, any claims, allegations and evidence of their support under the penalty of losing the right to appoint them in the course of further proceedings, unless it was impossible to appoint them in the application[40].

The judge-commissioner shall recognise the application for exclusion from bankruptcy within the time limit one one month from the date of its submission after hearing the syndicate, the judicial supervisor or the administrator.

The decision to exempt from bankruptcy requires justification. The decision to exclude bankruptcy is subject to a complaint from the fallen and creditors. In the event that an application for bankruptcy is rejected, the applicant may, by way of action, request the exclusion of property from bankruptcy. Such action shall be brought before the insolvency court within one month of the date of service of the decision of the court-commissioner to refuse exclusion from bankruptcy.

14. Application for exclusion

The action may only be based on claims and allegations raised in the application for exclusion from bankruptcy. Other claims and allegations may only be made if the plaintiff demonstrates that their prior application was impossible.

Regardless of the outcome of the case, the court shall charge the claimant the costs of the trial if he has established new evidence relevant to the resolution of a case which he has not requested to be excluded.

The Court of First Instance may secure the action by establishing a prohibition on the disposal or charge of property subject to a request for exemption from bankruptcy[41].

This provision relates to the situation where the person entitled to an exemption is to be granted the exclusive item itself or to be granted the mutual benefit received for such a thing by a fallen person or by a bankruptcy, but it must be considered to apply also where the claim due to the person entitled has been transferred to the purchaser of the goods[42].

15. Ius retentionis

This provision strengthens the right of detention for bankruptcy on the basis of Article 461(1) k.c. (ius retentionis), if the mass of bankruptcy can carry them out also if the obligation to issue the items is due to an illegal act, or when it comes to returning the rented, leased or lent items (lege non distinguente)[43]. The rationale for such a solution is to seek to obtain more quickly funds that can be used to satisfy creditors.

The exercise of the right of detention is not dependent on the prior finding of a court judgment of a claim for reimbursement of expenditure, since making the exercise of that right dependent on the insolvency of the administrator would render that provision redundant, as the administrator could execute the insolvency duty by executing a claim for reimbursement of expenses for the maintenance of the goods or for obtaining a mutual benefit[44].

Right of detention provided for under Article 72 p.u. covers both necessary and useful expenditure[45]. Reimbursement of expenses incurred to maintain the goods or to obtain a mutual benefit is to take place at the hands of the bankruptcy administrator, regardless of who incurred those expenses, i.e.

whether it was carried by the fallen or the syndicate from the mass funds. If he has suffered it, his claim for reimbursement constitutes a part of the mass, whether before or after the bankruptcy.

16. Summary

The Polish insolvency law adopts the principle of duality of exclusion of assets from bankruptcy: mandatory by law and optionally – by means of a resolution of the creditors' meeting or a decision of the judge-commissary.

Obligatory mechanisms are intended to protect the fallen in order to provide him and his dependants with a minimum of means of existence, as well as with regard to the interests of the persons third, to whom the debtor held certain functions, e.g. the mortgage administrator.

The optional mechanisms are intended to deal individually with a fallen situation, taking into account the interests of its creditors.

Regulations on the exclusion from bankruptcy of assets, in particular part of the remuneration for the work of individuals, are particularly important during the virus epidemic SARS-CoV-2 and the potential rapid increase in the number of people at risk of bankruptcy – both physical and legal.

As a general rule, property components which do not belong to fallen assets are excluded from bankruptcy, but when drawing up an inventory or inventory of receivables, they may include assets that are excluded. A person entitled to the exempt property may require his or her issue or mutual benefit.

Implementation of this mandate two instruments: an application for exclusion from bankruptcy and, if dismissed, an action for exclusion from bankruptcy.

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