Roman Rewald

A draft bankruptcy law that is part of Finance Minister Grzegorz Kołodko's anti-crisis package was accepted by the government's Cabinet and sent to Parliament last month. Roman Rewald and Lech Giliciński, partners at Weil, Gotshal & Manges, the law firm selected by the government to assist in implementing the new laws, talked to the WBJ's John Zoltowski about the proposed legislation.

Q: How inadequate is the existing bankruptcy law? Giliciński: The situation right now is that we have two so-called insolvency acts originating from 1934. These two acts are not in line with the present market circumstances. They were enacted before World War II in different social and economic circumstances - a different environment completely. Rewald: (The 1934) law is designed for a small merchant. In the small-merchant atmosphere, if you go bankrupt it's a tragedy for you and your family, and you are expected to shoot yourself in the back office. The contemporary world looks at bankruptcy differently.

Q: Why is there such an imminent need for change? Rewald: Not every bankruptcy is pejorative. Of course, you can be totally inept and incompetent and go bankrupt. But sometimes you take a risk. If you don't take a risk, you don't make progress. The risk might not (pan out). And then, you are all of a sudden facing a bankruptcy situation that might not have been entirely your fault. It's not blamable because it's a normal business practice. So the law has to come to the risk and the management of the risk in a more reasonable and contemporary fashion.

Q: It seems that bankruptcy is a dirty word in Poland today. Is that true? Rewald: That has to be changed. It is a necessary action; it's the cleaning up of the economy after a certain time of prosperity. Poland pretty much had a good time, you could say. For 10 years it was growing, growing, growing. A lot of fat that grew on the economy has to be cut out. I hope Poles come to an understanding that bankruptcy is not all a negative process.

Q: How does the draft law improve bankruptcy procedures? Rewald: It introduces something called "Chapter 4." It's a set of rules that is very similar to the American Chapter 11 (voluntary bankruptcy). It allows people who are not in insolvency yet to go to court and, as the Americans say, "avail themselves of the protection the bankruptcy court against the creditors." Companies will have time to prepare a plan for reorganization, submit it to a specially designed committee of creditors who have the power to approve or reject it. If they reject it, then insolvency happens. If they approve it, then the company has a chance to say, "Look, I made a mistake, or I made risk that was justifiable, and I know how to get out of it. So, give me a break."

Q: Will all creditors be treated equally? Rewald: In the draft law there are classes of creditors, too, that are very important. You cannot have one class for all creditors, which Poland has now. You have people with different interests. You have equity creditors; you have large and small creditors - secured, unsecured. With the new law, they will divide the classes and they will vote, giving everyone the chance to participate.

Q: The court system is massively overburdened. How will the draft law help alleviate this problem? Giliciński: Chapter 4 rehabilitation procee-dings are designed to foster out of court settlements. The organization plan can be agreed to by the debtor and its creditors and then approved by the court. It should also relieve the courts of some bankruptcy cases.

Q: Politicians have had a bankruptcy draft law in the works for a few years now. Were there any significant changes to the previous proposal by Kołodko? Rewald: Our observation is that it was in the pipeline for a while, but then it got expedited dramatically recently. It does coincide with Kołodko's accession, although we cannot say whether it was his doing or someone else's.

Q: When do you expect the proposal to become law? Rewald: The government thinks it will happen very quickly, with a very short vacatio legis, which means it might come into force early next year. Giliciński: No, no, no … Some people are even saying it's even more ambitious. That it will become law by December or even October.

Q: Is the proposal intent on streamlining all procedures? Giliciński: Yes. The efficiency of the procee-dings is the driving factor here. They are trying to eliminate opinions from the government (and) opinions from municipal authorities that could really postpone the proceedings.

Q: What industries does the law target? Giliciński: This law will really have a general application. But certainly the new law attaches a much greater importance to the bankruptcies of publicly listed companies, because there will be an obligation to notify the Securities and Stock Exchange Commission (KPWiG). This will help regulate the situation where certain debt instruments are still being traded when the company goes bankrupt so that the holders of those instruments are properly protected. It's much more advanced. This is one of the examples (of to what) extent the new law will be adjusted to the free-market economy in Poland. Q: How will it function on an international scale? Giliciński: This new law is in line with European Union standards. And, importantly, it does regulate cross-border insolvencies. If there's an insolvency of an entrepreneur with outposts in the U.S. and in Germany, there is a link between these two proceedings. And the two proceedings will be coordinated. It should not be one of the situations, as it is now, where the parent company goes bankrupt, and its assets in Poland cannot be touched by creditors. It has been a mess before. Rewald: Yeah, you had to file for bankruptcy in every single jurisdiction. Giliciński: We were actually hired by a company that went bankrupt in the Netherlands and we were asked for the impact of that bankruptcy on the assets in Poland. Under the current legal regime, the bankruptcy is territorially limited. There was no good advice to give to them. Rewald: You would think that if a foreign country's court cannot take your assets in Poland that that's good. It protects you here. That's not true. Let's say you issue a bond abroad. To get money for the bond issue, you need to convince investors that they are protected in case of bankruptcy. Under the present law, that's not the case. Under the new law, it will be much more transparent. Therefore, the people abroad will be better protected, (and) financing will be more accessible.

Q: Will foreign companies be more willing to open their doors to Poland as a result? Rewald: Yes.