Procedure for System Approval (PZU) — restructuring of liabilities under the supervision of the restructuring advisor

Entry into force 1 January 2016 Amendment of the Restructuring Law 1 ((b) introduce the possibility of restructuring debt through the conclusion of an agreement between the debtor and creditors with the participation of the court. In Space 5 years of application of the law v. restr. developed the need to modify the existing procedures.

It is particularly burning due to the economic situation, which should be regulated on an ongoing basis, with good legal quality.

The source of the changes is to seek to create an increased scale of effectively implemented restructuring procedures with minimal participation of the court, while maintaining an appropriate time frame corresponding to business realities.

These assumptions are intended to serve a new version of the procedure for approving the agreement in the revised law, which is implemented in a slightly modified form of solutions from the simplified restructuring procedure introduced Shield 4.0 2 , to prevent the negative economic effects of pandemics COVID-19. The planned regulations aim to intensify the results of the previous proceedings, but also to effectively implemented restructuring of companies. This article describes the proposed solutions.

Introduction

Business turnover generates a number of organisational phenomena affecting the need to continuously optimise business activity. A factor requiring particular attention is the financial situation which deviates from the correct model in which liquidity is maintained.

This issue has also been seen in the context of the assessment of the application of the law on debt restructuring under the supervision of the general courts.

The new view of equipping the debtor with legal instruments allowing for rapid debt relief has led to the loosening of mechanisms intended to provide enhanced protection to creditors in such a process.

The activity of the parties to economic relations will translate into the efficiency of the debt reduction process and the development of further business relations.

genesis of amendments to the system approval procedure

The procedure for approving the arrangement as a legal institution was provided for debtors who are able to reach agreement with most of their creditors without the participation of the court. On the other hand, the elements to safeguard the proceedings are the participation of the licensed restructuring advisor, the detailed regulation of the content of the written vote governing its validity, the possibility for creditors to obtain information on the economic situation of the debtor, the possibility for creditors to raise objections about the conduct of the voting procedure, and the establishment of a detailed requirement to obtain an adequate majority for the conclusion of the agreement.[3].

In the current state of the law, this type of proceeding is the statistically least used legal instrument aimed at restructuring the debtor's liabilities. This is due to the inability to obtain the privileges attributed to the other types of restructuring procedure, in particular by obtaining protection from bailouts or the possibility to terminate key contracts or their protection where the interests of the company so require.

Economic lockdown introduced in the country In March 2020 It has resulted in an accelerated process of implementing Polish legislation as a result of the EU directive, which is intended to introduce revised legal instruments in national regulations, which will define the preventive restructuring framework, will also allow for the rapid cessation of enforcement activities and will ensure a real impact on the development of key contractual relations of the restructured company related to the prohibition of the execution or termination of any mutual agreements[4].

The transitional solution is valid from the date 24 June 2020 the simplified restructuring procedure procedure, which accumulates the effects of the Directive.

On the basis of the experience of applying this specific procedure for the restructuring of commitments, the new model for the procedure for approving the arrangement was established, with the aim of rapid and effective restructuring.

The direction of the changes chosen by the legislator accumulates to a large extent the existing assumptions as well third other restructuring procedures. Such a design will probably be subject to rapid verification, given the high need to use legal tools to create and implement a strategy that meets the current needs of debt companies.

This appears to be a targeted restructuring model that will fulfil its role.

Amendment to the system approval procedure

Under the amendment of the law, a number of solutions were introduced to gain access to tangible effects for a restructuring company in the form of effective debt relief.[5].

The initiation of the procedure for the approval of the Agreement will take place by making a notice of the determination of the contractual date in the National Debt Register, which is preceded by the drawing up of a list of claims, a list of claims in dispute and a preliminary restructuring plan[6]. On the other hand, the transfer of the obligation to draw up the initial restructuring plan to the stage prior to the start of the procedure is intended to systematise measures to prepare contractual proposals in the course of the procedure that correspond to the firm’s actual capacity, rather than to modify them so far, depending on the situation in which the extension is taking place.

Effects of the Agreement Day Notice

The notice of the determination of the contractual date to be made in the National Debt Register, and carried out by the arrangement supervisor, will result in the consequences of the opening of the restructuring procedure[7]. The pre-emptive nature of the measures to initiate the procedure for the extension of the company, by means of the notice under the procedure in question, remains closely linked, inter alia, to the possibility of reducing the risk of bankruptcy of the company and the liability of representatives for debts or even the charge of damage to creditors. According to the amendment, “no bankruptcy can be declared between the opening of the restructuring procedure and its completion or final redemption. In that case, the application shall be rejected’ 8 . On the other hand, the effects of the Agreement Day Notice on the restructuring process itself imply in particular the possibility of obtaining:

• • protection from execution,
• • protection against termination of contracts relevant to the business.

Enforcement proceedings against the debtor relating to assets forming part of the undertaking shall be suspended by law as a result of a notice indicating the contractual date.

On the other hand, after the date of the notice, it is unacceptable to refer the debtor to his assets and to execute the order to secure the claim or order to secure the claim on that property. If the proceedings are still initiated, they will be released.

This means that the execution of claims both covered and not covered by the arrangement, including claims secured on the debtor's property by a limited right of property (including a mortgage, a lien), is prohibited by law.

It will also be possible to cancel the classes in enforcement or safeguard proceedings directed at the debtor's assets.

The protection is also subject to legal relations between the debtor and the counterparties by limiting the possibility of such contracts being terminated without the consent of the creditor board or, in the absence of such agreements, the consent of the judge of the Commissioner.

New is the extension of the catalogue of contracts subject to the prohibition of termination of legal relations of fundamental importance for the operation of the company, i.e. no longer indicated exhaustively types of contracts.

The purpose of the amendment is to strengthen the effectiveness of restructuring operations, which is to shape the situation of the debtor with counterparties according to individual needs.[9].

Reliability of contractual claims

In the pre-amendment approval procedure, there are no restrictions on the debtor's settlement of the contractual claims.

Maintaining this solution under the new rules will mean granting far-reaching concessions to payments to selected creditors, which may be crucial for the continuation of business-relevant contracts.

This is a solution distinguishing itself from other restructuring proceedings, in which the prohibition of compliance with the claims covered by the arrangement is offset by protection against enforcement.

Therefore, one of the parties leaving the possibility to settle any claims in combination with the protection against enforcement will be subject to a possible complaint against creditors whose claims have not been met at the expense of others.

Repeal and termination of the notice

Where the creditor is found injured, the court may revoke the effects of the notice at the request of the creditor, debtor or arrangement supervisor.

The same entitlement may be exercised if it is found that the debtor in the last ten for years he has conducted a procedure for approval of the arrangement or if the restructuring proceedings against him have been terminated during the same period.

However, if within time 4 months after the date of posting of the notice, the debtor shall not apply to the court for approval of the arrangement, the effects of the notice shall expire by law[10].

The assumptions of the revised procedure therefore allow the possibility to benefit from the privileges associated with the initiation of the procedure for the approval of the arrangement in order to effectively complete the restructuring process and not for the mere fact of obtaining the benefits of temporary protection from creditors.

Principles of voting on the agreement

A fundamental change in the voting process over the arrangement requires the arrangement supervisor to collect the votes of creditors, following the arrangement date. It will also be possible to vote through the ICT system. The creditor shall be informed to the address indicated in the register of the manner of voting via the electronic system operating the court proceedings, with instructions on how to authenticate and how to complete the ballot card.[11].

In turn, repeal Article 217(1-3) p. restr. means the possibility of voting on the general principles envisaged under Article 119 p. restr.

12 Under this regulation, the adoption of the arrangement shall take place when the majority of the creditors voting for it having at least the total two third the sum of the claims owed to the voting creditors.

This is a significant facilitation of the way in which the agreement is approved, since, in the current regulation, the majority of voters, as well as the amount of claims required, is calculated on the basis of the number of creditors entitled to vote on the agreement and not just the voters.

National Debt Register – digitisation of restructuring proceedings

On 1 December 2021 another EU regulation will be implemented into the national legal order 13 , having a fundamental impact on the process of approving the arrangement with creditors, according to which the main objective is to streamline and shorten the current restructuring proceedings.

The National Debt Register Act (hereinafter referred to as the National Debt Register Act) introduces the obligation to submit letters and documents through the electronic system[14]. In addition, another law amending the law adds to the law. 15.

As added Article 196a v. Restr. in restructuring proceedings, procedural letters and documents shall be lodged only by means of an electronic system serving judicial proceedings using the electronic forms provided in the system as defined by the Minister of Justice 16.

The current form of writing and documents has only been preserved for the purposes of the activities and categories of creditors listed in the Act . This shall not be subject to procedural letters and documents containing specified provisions of classified information and tenders submitted in the course of a tender or auction[17].

On the other hand, creditors who have not been subject to the obligation to submit letters via the IT system are creditors with claims on employment relationship, maintenance claims, pensions on compensation for sickness, incapacity for work, disability or death, as well as pensions on the conversion of rights covered by the right to life for life.

This category of creditors has the possibility to submit letters in a traditional manner i.e. in traditional form, and thus protected against barriers posed by the digitisation of proceedings.

Therefore, it is still possible to submit applications and oral statements at the regional court's post office and then to introduce them to the electronic system by the court staff.

Failure to comply with the requirement to submit letters and documents through the electronic system serving the court proceedings causes the lack of any legal effect that the law entails on the submission of a letter or document to the court.

The filing of a paper-based document will result in a instruction by a court or a judge of the Commissioner, either a letter or a document having the effect of not submitting procedural documents and documents through the electronic system, except for persons exercising the profession of restructuring adviser.

Both procedural letters and the documents attached to them shall bear a qualified electronic signature, a trusted signature, a personal signature or be authenticated in such a way that the origin and integrity of the data verified can be confirmed in such a way that the origin and integrity of the electronic data verified can be confirmed, available in the information system handling the judicial proceedings.

This means in practice generating a document in any format that facilitates its reading (e.g. PDF or JPG – the Act does not impose a format), which should then be signed in a legally assigned form.

Unlike in the certification of paper documents which can only be certified for conformity by a legal adviser or lawyer, the electronic form of the document shall be certified for conformity by the author of the letter i.e. the participant in the proceedings.

In the event that the original document needs to be lodged (a letter certified electronically does not constitute the equivalent of the original or the corresponding value) it is from the electronic copy to the electronic system within the time limit 3 the days must be submitted to the restructuring court to the original of the document or a copy thereof certified as being in conformity with the original in accordance with the provisions of the Civil Procedure Code Act.[18].

New rules to apply from 1 December 2021, they will also regulate the publication of judgments of the court, the judge of the Commissioner, the referee and the chairman. Decisions issued in the course of the restructuring procedure will be included in the electronic system and will bear a qualified electronic signature.

The provisions and orders issued in the restructuring procedure shall be entered in the electronic register together with information on the date and manner of bringing the appeal.

Among the main objectives of the National Debt Register Act are: 19

• providing creditors with ongoing access to the restructuring and bankruptcy proceedings through the IT system,
• disclosure in the Register of a wide range of data on ongoing restructuring and bankruptcy proceedings in order to increase the transparency of these proceedings,
• increasing the security of economic trade,
• improving the supervision of creditors and the committee judge over the judicial supervisor, the administrator, the syndicate,
• accelerate and improve restructuring and bankruptcy procedures and increase their effectiveness,
• increasing the satisfaction of creditors in insolvency proceedings,
• introduction and use of new technologies in restructuring and bankruptcy proceedings,
• ensuring that at least one register in which information on insolvency proceedings is published

Summary

In view of the practice so far covering the effects of the restructuring process of companies in comparison with the proposed amendments to the Act, the restructuring law is expected to have a significant interest in such legal solutions which confer a wide range of restructuring measures.

Both the issue of protection against enforcement and the control of key contracts in an adequate manner to the facts in the company will achieve the effect of stabilising the business while at the same time determining the entire process of exiting the difficult financial situation.

In contrast, the introduction of IT solutions to act as a link between the debtor and creditors, while at the same time providing communication with the supervising court of proceedings, will certainly improve the process of concluding an arrangement that is a specific agreement on repayment of liabilities.

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