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What are the main insolvency procedures applicable to companies in your jurisdiction?
- Bankruptcy - Liquidation
- Bankruptcy - Arrangement with creditors
Bankruptcy – Poland has a gateway insolvency proceeding that can be commenced by company or a creditor where a company is unable to pay its debts as they fall due or is balance sheet insolvent. The court will determine whether a liquidation or an arrangement with creditors (a form of restructuring) will provide the best return for creditors. If circumstances change a liquidation can be changed to an arrangement with creditors and vice versa.
Liquidation – The court appoints an insolvency receiver to realise the company’s assets and distribute the proceeds to the creditors in the statutory order of priority.
Arrangement with creditors – A flexible restructuring procedure in which the company has one month (which can be extended by a further three months by the court) to devise proposals for the restructuring of the company. The proposals must be approved by the court and two thirds in value of the creditors, voting in classes as appropriate. The proposals can include rescheduling of debt, compromise of debt or a debt for equity swap. If the company carries out the arrangement successfully the insolvency proceedings are closed and the company is restored to financial health.
Can a company obtain a moratorium whilst it prepares a restructuring plan?
Yes, if the restructuring plan is prepared during a formal bankruptcy of the arrangement with creditors type, but not if the restructuring plan is prepared outside of formal proceedings.
To what extent do the directors of the company remain in control of its affairs during any of the above procedures?
Liquidation - the insolvency receiver takes control of the company.
Arrangement with creditors - the directors generally remain in control of the company subject to supervision by a court supervisor, the insolvency court and a creditors’ committee. In some cases the management can be replaced by an administrator appointed by the insolvency court.
Timeline to commence liquidation
How quickly can a creditor generally commence the liquidation of an insolvent company, assuming an undisputed claim and no opposition from the company?
Six months to one year.
Do your courts recognise insolvency proceedings commenced in the courts of another jurisdiction?
Yes - insolvency proceedings commenced in the courts of other EU members states will be automatically recognised under the EC insolvency regulation.
Poland has enacted the UNCITRAL model law on cross-border insolvency proceedings and insolvency proceedings commenced in jurisdictions other than EU member states can be recognised by the Polish courts on the application of the foreign liquidator.
Position of creditors
Forms of security
What are the main forms of security over movable and immovable property?
Security over immoveable property is taken by a mortgage.
Security over moveable property and rights is typically taken by a pledge (either ordinary or registered).
Which classes of creditor are given preferential status? Are any classes subordinated?
There are three categories of preferential debts that rank ahead of unsecured creditors. In order of priority these are:
- expenses of the bankruptcy proceedings; pensions due post insolvency; sums due under pre insolvency contracts that the receiver requires the counterparties to perform; and sums due as a result of actions taken by the receiver;
- wages and other employment related claims; pensions and social security payments due for the two years prior to insolvency; and
- taxes, other public levies and social security payments not within (2).
Subordinated debts include interest arising after insolvency or more than one year prior to insolvency and court and administrative fines.
Treatment of foreign creditors
Are foreign creditors treated equally to domestic creditors?
Termination of contract by reason of insolvency
Are contract terms permitting termination of the contract by reason of insolvency valid?
Retention of title
Are retention of title clauses effective?
Yes, as long as the clause is in writing and the date on the contact is officially certified by a notary public.
Setting aside transactions
Transaction avoidance provisions
What are the main transaction avoidance provisions, and who can challenge transactions?
Any creditor can challenge a transaction within five years of it being entered into if it is a:
- Fraudulent preference (actio pauliana) - a transaction entered into by a company that causes it to become insolvent or, if it is already insolvent, to incur further indebtedness at a time when the counterparty knows or ought to know that the company is insolvent.
A receiver, court supervisor or administrator can challenge the following transactions:
- Transactions at an undervalue entered into in the year prior to the commencement of insolvency
- Security granted for debts not yet due granted in the two months prior to insolvency unless a secured creditor can prove that it was not aware of the company’s insolvency at the time the security was taken
- Transactions with connected parties transactions between the company and its directors, directors’ family members, or shareholders or related companies entered into in the six months prior to the insolvency
- Excessive remuneration of the company’s representatives grossly overstated claims for remuneration of the company’s representatives that do not reflect the time and effort taken
- Security granted in favour of connected parties security in favour of a company’s directors, directors’ family members, shareholders or related companies granted in the year prior to insolvency, regardless of the amount of consideration provided by the counterparty
Position of directors
Risks for directors
What are the risks facing the directors of an insolvent company?
Directors can be held civilly liability for the company’s debts if they fail to apply for insolvency proceedings within the proper time limit.
Directors can be held criminally liable for:
- failing to apply for insolvency proceedings within the time limit
- failing to state the truth in a relevant application
- failing to cooperate with the receiver
The insolvency court has the power to disqualify delinquent directors from conducting business activity for three to ten years.