What is your overall assessment of the changes?
Marcin Ostaszewski: The changes in the scope of the simplified restructuring procedure are positive. The amended regulations are an attractive alternative to burdensome, costly, and sometimes lengthy court proceedings. I also consider the far-reaching computerization, which will streamline the restructuring procedure, a milestone.
Why were these changes implemented?
A simplified restructuring is a solution that was available for over 11 months as part of a Covid relief legislative package and turned out to be an effective and popular tool for bankruptcy protection. Simplified restructuring proceedings accounted for over half of all restructuring proceedings opened in 2020. Therefore, to meet the expectations of businesses, the legislator decided to transfer the solutions from Shield 4.0 to the provisions of the restructuring law permanently to the Polish law.
Can you explain what key changes have been made and how they affect Polish law?
Several solutions from other restructuring procedures combined with a form of the new simplified restructuring procedure (uproszczone postępowanie restrukturyzacyjne), enabling debtors to formalize arrangements with creditors to shield against execution on debts and prevent termination of contracts key to business operations.
One of the key planned changes is that the debtor's announcement will be replaced by the supervisor's announcement of the arrangement date, placed in the National Register of Debtors [Krajowy Rejestr Zadłużonych] (However, until the abovementioned register will be created, the announcement will be published in the Court and Economic Monitor [Monitor Sądowy i Gospodarczy]). This solution occurs only in arrangement approval proceedings and simplified restructuring proceedings. The arrangement supervisor's setting of the arrangement date in consultation with the debtor is extremely important because the creditor’s rights to vote on the arrangement and its effects are determined according to the amounts of receivables on that date.
In other restructuring proceedings, such a determination is made by a judicial, i.e. court, decision to open a proceeding, which in practice means that a claim arising before the arrangement date will be covered by the arrangement and may not be satisfied until completion of arrangement proceedings.
Further, pursuant to the new act, the debtor may settle a liability if such is justified by economic advantages to the arrangement estate. This solution materially differs from the previous simplified restructuring procedure by increasing the flexibility of options available to a debtor to improve its financial situation, while satisfying creditors to the highest possible extent.
There are, of course, other changes, but for the sake of brevity, I’ve selected only those two.
What should creditors do to better secure their claims and prevent any negative effects of these changes?
The purpose of restructuring proceedings is to avoid the debtor's bankruptcy by allowing restructuring through arrangements with creditors. Therefore, a reasonable solution for creditors, especially if the debtor is threatened with insolvency, is active participation in the restructuring proceedings, so that an arrangement is concluded to avoid burdensome and costly bankruptcy proceedings. Keep in mind that bankruptcy proceedings do not guarantee full satisfaction of debts owed to the creditors.
Notwithstanding the above, the amended act grants creditors protection and a number of powers that allow them to take action in the event that the effects of the announcement are detrimental to creditors. This solution, explicitly described in Art. 226f of the amended act provides that, at the request of the creditor, debtor, or the arrangement supervisor, the court shall quash the announcement if its effects are detrimental to creditors or if it is revealed that the debtor has conducted proceedings for approval of the arrangement in the last ten years, or the restructuring proceedings against the debtor were discontinued (except when the restructuring proceedings were discontinued with the consent of the creditors' council).
What advantages do you see for debtors in the new scheme?
The new legislation introduces a number of institutions undoubtedly beneficial for the debtor, which at the same time work to achieve objectives of restructuring proceedings. An example is a far-reaching protection against execution, available to the debtor from the date of the announcement of the arrangement date. The protection in question will be the same as in the remedial proceedings, i.e., the inadmissibility of the initiation and conduct of execution on debts, regardless of whether such would apply to claims covered or not covered by law in the arrangement. The possibility to repeal liens enacted in prior enforcement or security proceedings is new; in fact, it was previously excluded and often caused problems during the simplified procedure for arrangement approval.
When will the changes apply?
The changes were to enter into force on July 1, 2021, but due to the need to comprehensively prepare for the computerization of the restructuring procedure, the implementation will take place on December 1, 2021. As a result, the deadline for announcing the opening of a simplified procedure for approval of an arrangement under Shield 4.0 has been extended until November 30, 2021.I encourage distressed debtors as well as at-risk creditors to seek legal advice as soon as possible to take full advantage of the current protections.
Marcin Ostaszewski, a partner at the Mikulewicz Ostaszewski Law Firm, is an attorney with many years of experience in transactions, financial instruments, and corporate law.
