More power to the creditors
With the Senate's introduction of 136 amendments on February 8 to the Law on Bankruptcy and Remedy Proceedings enacted by the Sejm, which is currently working its way through the parliament, creditors are one step closer to gaining the upper hand over bankrupt debtors. The new law will replace the two laws currently in force - the Bankruptcy Law and the Law on Arrangement Proceedings - which were adopted in 1934.
The proposed new law is intended to strengthen the position of a creditor during a company's bankruptcy proceedings, while at the same time extending an olive branch to businesses which come clean and seek assistance.
One big exception - no personal bankruptcy in Poland ... at least not yet. In general, only companies and other entities engaged in business activities may take advantage of the bankruptcy proceedings. Individuals still have to pay their bills. One more exception - farmers are specifically excluded from being able to file for bankruptcy. Go figure.
The bankruptcy proceedings may be initiated either by the company itself or by its creditors. If adopted in its current form, a debtor will be adjudged bankrupt if he is unable to pay his bills as they fall due (i.e., insolvency). A corporate entity may also be declared bankrupt if the sum of its debts exceeds the value of its assets, even if the company is able to meet its financial obligations.
Bankruptcy proceedings may focus on either liquidating the assets of the debtor or negotiating a settlement with the creditors in order to save the debtor from liquidation. However, the selection of which solution to undertake may be changed during the course of the bankruptcy proceedings, depending on the given circumstances of the debtor.
Another change will empower the court to act ex officio in securing and preserving the assets of a business that has filed for bankruptcy, if the bankruptcy motion is filed by the debtor. A bankruptcy motion filed by a creditor will not automatically lead to the seizure of the company's assets, unless the creditor is able to substantiate its claim.
In addition to bankruptcy proceedings, the new law will create a system of remedy proceedings designed to help businesses to renegotiate their debts. This option is restricted to only those entities recorded in the National Court Register, and which are threatened with insolvency. In this situation, the debtor can seek help in restructuring its debts if it reasonably believes that it will soon be unable to meet its financial obligations, even if at present it does not fit the criteria for declaring bankruptcy.
The current provisions of the proposed law are intended to make it more difficult for businesses to abuse the use of remedy proceedings. The Senate introduced several restrictions on the use of remedy proceedings by businesses to renegotiate their debt obligations. The current law includes restrictions as well, although not as strict as the changes introduced by the Senate. For instance, remedy proceedings may not be used by a debtor that has previously had its debt restructured during bankruptcy proceedings during the past five years or has been denied the right to use the remedy proceedings during the previous two years.
Another change introduced by the Senate will grant the bankruptcy court the power to determine up front if the debtor seeking remedy proceedings is in fact capable of paying its debts. The version submitted by the Sejm would not have granted the judge the power to verify whether the debtor satisfied the prerequisites for opening the remedy proceedings. Under the Senate's version, the judge will be able to verify whether the debtor even has the right to seek remedy proceedings.
The law has now been returned to the Sejm for final review following the Senate's amendments. If not rejected by the Sejm, the act will take effect on October 1, 2003, subject to being signed by the president.
For those of you interested in personal bankruptcy, you'll probably have to wait a few more years.
The proposed new law is intended to strengthen the position of a creditor during a company's bankruptcy proceedings, while at the same time extending an olive branch to businesses which come clean and seek assistance.
One big exception - no personal bankruptcy in Poland ... at least not yet. In general, only companies and other entities engaged in business activities may take advantage of the bankruptcy proceedings. Individuals still have to pay their bills. One more exception - farmers are specifically excluded from being able to file for bankruptcy. Go figure.
The bankruptcy proceedings may be initiated either by the company itself or by its creditors. If adopted in its current form, a debtor will be adjudged bankrupt if he is unable to pay his bills as they fall due (i.e., insolvency). A corporate entity may also be declared bankrupt if the sum of its debts exceeds the value of its assets, even if the company is able to meet its financial obligations.
Bankruptcy proceedings may focus on either liquidating the assets of the debtor or negotiating a settlement with the creditors in order to save the debtor from liquidation. However, the selection of which solution to undertake may be changed during the course of the bankruptcy proceedings, depending on the given circumstances of the debtor.
Another change will empower the court to act ex officio in securing and preserving the assets of a business that has filed for bankruptcy, if the bankruptcy motion is filed by the debtor. A bankruptcy motion filed by a creditor will not automatically lead to the seizure of the company's assets, unless the creditor is able to substantiate its claim.
In addition to bankruptcy proceedings, the new law will create a system of remedy proceedings designed to help businesses to renegotiate their debts. This option is restricted to only those entities recorded in the National Court Register, and which are threatened with insolvency. In this situation, the debtor can seek help in restructuring its debts if it reasonably believes that it will soon be unable to meet its financial obligations, even if at present it does not fit the criteria for declaring bankruptcy.
The current provisions of the proposed law are intended to make it more difficult for businesses to abuse the use of remedy proceedings. The Senate introduced several restrictions on the use of remedy proceedings by businesses to renegotiate their debt obligations. The current law includes restrictions as well, although not as strict as the changes introduced by the Senate. For instance, remedy proceedings may not be used by a debtor that has previously had its debt restructured during bankruptcy proceedings during the past five years or has been denied the right to use the remedy proceedings during the previous two years.
Another change introduced by the Senate will grant the bankruptcy court the power to determine up front if the debtor seeking remedy proceedings is in fact capable of paying its debts. The version submitted by the Sejm would not have granted the judge the power to verify whether the debtor satisfied the prerequisites for opening the remedy proceedings. Under the Senate's version, the judge will be able to verify whether the debtor even has the right to seek remedy proceedings.
The law has now been returned to the Sejm for final review following the Senate's amendments. If not rejected by the Sejm, the act will take effect on October 1, 2003, subject to being signed by the president.
For those of you interested in personal bankruptcy, you'll probably have to wait a few more years.
