Corporate Restructurings Gaining Ground in Poland
Before Polish insolvency law was significantly amended in January 2016, restructurings were extremely rare, with corporate insolvencies ending in liquidation in more than 90% of all cases. At that point, the number of insolvencies ending in the liquidation of the debtor’s assets significantly exceeded successful restructurings – the focus had been mainly on satisfying the creditors – and allowing the debtor to continue his business was not a major priority for the legislator and the courts. The reasoning behind the reform, therefore, was to revive the largely dormant restructuring regulations and encourage a more debtor-friendly application.
As part of this major reform, the whole area of corporate restructuring was moved to a separate statute, leaving the existing law focusing exclusively on insolvency issues. The new Restructuring Law now offers a debtor four different ways of coming to an arrangement with creditors, with the purpose of giving his business a chance to survive the insolvency. Depending on his situation the debtor can choose the most appropriate restructuring procedure best suiting his situation.
Briefly put, the purpose of the restructuring proceedings is to avoid the debtor becoming bankrupt by enabling him to restructure his debts through an arrangement with creditors and, in certain cases, by carrying out remedial actions. All the while creditors’ legitimate rights also remain in focus.
Corporate debt restructuring may now be carried out as one of the following types of proceedings (listed in increasing order of complexity and court involvement):
- approved arrangement proceedings;
- accelerated arrangement proceedings;
- arrangement proceedings;
- remedial proceedings.
Approved Arrangement Proceedings (AAP)
The AAP is the simplest and most informal restructuring method. They enable the creditors and the debtor to conclude an arrangement without resorting to court proceedings. Restructuring of the debtor’s business is carried out under the supervision of a licensed “restructuring advisor” appointed by the debtor himself. The insolvency court is not involved in the process other than by formally approving the concluded arrangement between the parties. The debtor is required to collect creditors’ votes regarding the acceptance or rejection of the proposed arrangement. However, an AAP may take place only if the value of disputed claims (i.e. claims which the debtor denies, whether in principle or as to their value) does not exceed 15% of the total value of claims. This type of restructuring proceeding helps the debtor avoid his non-creditor business partners and/or contractors becoming aware and alarmed about his potential insolvency. It’s therefore the most painless restructuring procedure, available in cases where the debts are few and for the most part undisputed.
Accelerated Arrangement Proceedings (ACAP)
Right from the start of the process, the ACAP involve the insolvency court which needs to approve the initial motion for the opening of this procedure. The procedure includes two stages:
- opening of the arrangement procedure, and
- the relevant restructuring proceedings.
As of the date of the formal start of the ACAP (approved by the court), an automatic stay prevents creditor action against the debtor’s assets for as long as the restructuring continues – the court notifies the relevant enforcement bodies of the above. The court, at debtor’s request, may also revoke a seizure of assets made prior to the start of the ACAP if the seizure would prevent continued operation of the business.
Arrangement under the ACAP requires the approval by the court of the list of debts. Once approved the list automatically enables the creditors to enforce their rights against the debtor. As is the case with AAP, an ACAP is only possible when the disputed debts do not exceed 15% of the total value of debts. The ACAP was designed as a fast-track procedure and should be completed within 2-3 months.
Arrangement Proceedings (AP)
The AP also involve the insolvency court from the beginning. As is the case with ACAP, the collection of debts falling under the arrangement are automatically stayed.
AP differs from ACAP in that it includes a special procedure for resolving disputes over claims if the undisputed debts exceed 15% of total value of debts. If this is the case, the creditors have the right to challenge the list. In short, AP is the preferred procedure when a significant part of the debts is expected to be disputed by the creditors.
Remedial Proceedings (RP)
The RP, which is also commence through an application filed with the court, enables the debtor to carry out a far-reaching restructuring of his business. Remedial actions include steps taken to improve the business situation of the debtor and to restore the debtor’s ability to perform his obligations, while protecting him against debt enforcement proceedings. Among these actions can be:
- the right to withdraw from unfavourable contracts;
- a transfer of property which generates excessive costs;
- staff reductions; or
- reversing the legal effects of activities which are detrimental to the creditors.
The court must first approve the list of debts, before any of these changes can be carried out. The main difference between RP and the other proceedings is that in the case of RP, the debtor is no longer involved in running the business. Instead the court appoints an administrator who takes over the company until the RP ends. Of the four types of proceedings, RP are directed at preserving the business.
In the 18 months since the changes were introduced, it is already apparent that the new regulations have resulted in an increase of corporate restructuring cases in Poland. In time, the new restructuring proceedings may even replace insolvency as the preferred solution in times of economic hardship.
Maciej Szwedowski also contributed to this article.