Sanitation proceedings are initiated at the request of the debtor and conducted before the Restructuring Court, on the other hand, is dedicated to companies in need of a full and in-depth restructuring of their operations in operational, financial and legal terms.

Advantages of sanitation proceedings:

• Facilitated downsizing of the sanctioned company (similar to bankruptcy proceedings)
• Possibility for the administrator to withdraw from non-performing (unprofitable) contracts
• Possibility of conducting an unencumbered sale of the debtor's redundant assets
• Possibility of even a complete change in the company's business profile.

As from the date of the opening of proceedings, the payment of all claims which arose before the date of the opening of proceedings shall be suspended.

All debts arising prior to the date of the opening of the arrangement procedure are subject to the procedure; partial restructuring of debts is not possible under this procedure.

The court may decide to leave the entrepreneur in charge, However, if such authorisation is not granted after the opening of the rehabilitation procedure, the debtor shall identify and hand over to the administrator all of its assets and shall be obliged to hand over to the administrator documentation relating to its activities, assets and accounts, in particular its books of accounts, other records kept for tax purposes and correspondence.

In the course of the proceedings, the administrator may rescind a reciprocal agreement that has not been performed in whole or in part before the date of the opening of the sanitation proceedings, with the consent of the judge-commissioner. This is a fundamental power of the administrator, which is a measure of the effectiveness of the sanitation proceedings as a restructuring tool.

Statutory solutions allow for strong employment restructuring, as the opening of sanitation proceedings affects labour relations and has the same effects on the rights and obligations of employees and the employer as a declaration of bankruptcy, with the powers of the trustee being exercised by the administrator - the following effects set out in the Labour Code, among others, take place:

• Reduction of the notice period for an employee of an employment contract concluded for an indefinite period of time or a fixed-term employment contract - cf. Article 361 § 1 of the Labour Code;
• exclusion of provisions protecting certain employees from termination of employment - cf. Article 411 § 1 of the Labour Code, which applies to the situations set out in Articles 38, 39 and 41 of the Labour Code.

Sanction proceedings are the proceedings that protect the debtor to the fullest extent. This has an important justification in terms of purpose, as in some cases the actual restructuring of a company requires the complete suspension of coercive actions against the debtor. All enforcement proceedings directed against the assets of the debtor forming part of the sanitation mass initiated before the date of opening of the sanitation proceedings shall be suspended by operation of law, whereby the Judge-commissioner may waive the seizures made in those proceedings, as well as the seizures made in security proceedings, if this is necessary for the continued operation of the enterprise.

The suspension of enforcement proceedings applies both to proceedings concerning claims covered by the composition agreement by operation of law and to proceedings that concern claims not covered by the composition agreement by operation of law, including claims that are secured on the debtor's property by mortgage, pledge, registered pledge, fiscal pledge or maritime mortgage. In addition, once the proceedings have been opened, directing enforcement to the debtor's property forming part of the sanitation mass is not permitted

Arrangement proceedings shall be initiated at the request of the debtor and conducted before the Restructuring Court, however, unlike the accelerated arrangement procedure and the procedure for approval of an arrangement may be conducted against traders whose disputed claims exceed the threshold of 15% and it is therefore necessary to settle disputes in court and to recognise claims or not.

As from the date of the opening of proceedings, the payment of all claims which arose before the date of the opening of proceedings shall be suspended.

All claims are subject to the procedure arising prior to the date of the opening of the arrangement procedure, no partial restructuring of liabilities is possible under this procedure.

During the proceedings, the company is protected from enforcement. Enforcement proceedings initiated prior to the opening of the proceedings are suspended by operation of law, and the initiation of new ones after the opening of the proceedings is not permitted. In addition, the judge-commissioner, at the request of the debtor or court supervisor, may revoke an attachment made before the date of the opening of the proceedings

The proceedings provide protection against the termination of key leases for the company, leases and other contracts essential for the operation of the business

Entrepreneur, is left in charge of the company, however, in the circumstances defined by the law related to the commission of material violations, it may be revoked.

   Restructuring procedure relatively quick, opened at the request of the debtor and conducted before the Court allowing the conclusion of an arrangement following the preparation and approval of an inventory of claims in a simplified procedure.

This type of procedure can only be conducted against entrepreneurs in which the sum of disputed claims entitled to vote on the arrangement does not exceed 15% of the sum of claims entitled to vote on the arrangement.

It is one of the two types of proceedings (in addition to proceedings for the approval of an arrangement) that allows only part of the existing claims to be included in the proceedings and restructured, which have a significant impact on the continued operation of the company, e.g. public-law liabilities (including those to ZUS or the Tax Office), financing institutions (banks, lessors), lessors, a specific other homogeneous group of creditors (for transport services, supply of goods, services, fuel).

From the date of the opening of proceedings, payments shall be suspended all claims covered by the arrangement which arose before the date of the opening of the proceedings.

During the course of the proceedings, the company is covered by protection from enforcement. Enforcement proceedings initiated prior to the opening of the proceedings are suspended by operation of law, and the initiation of new ones after the opening of the proceedings is not permitted. In addition, the Judge-Commissioner, at the request of the debtor or the court supervisor, may revoke an attachment made before the date of the opening of the proceedings.

The proceedings provide protection against the termination of key leases, tenancies and other contracts essential to the running of the business.

The entrepreneur is, as a rule, left in charge of the business.

Restructuring may concern all or only certain liabilities that have a fundamental impact on the continued operation of the company. Partial arrangement is a solution for companies that need to restructure only selected liabilities (one or several groups), e.g. public and legal receivables (ZUS, Tax Office etc.), from financing activities, contracts of key importance for the company or secured in kind on the company's assets (mortgages, registered pledges etc.). The catalogue of claims covered by the proceedings may, of course, be much broader, with the selection criterion being based on objective, unambiguous and economically justified criteria.

The partial arrangement procedure, leads to the determination of new repayment terms for only that part of the debt, which will be covered by it, including, inter alia, the determination of new repayment periods, the method of repayment or the degree of redemption. In doing so, it does not interfere with the relationship with the other creditors, allowing the business in this area to continue on its previous terms undisturbed.

The advantage of the procedure is that the company can be fully protected and its assets against enforcement and the compulsory treatment of claims secured in rem (mortgage, registered pledge, etc.) on the company's assets.

A partial arrangement is possible under two restructuring procedures, i.e. the arrangement approval procedure and the accelerated arrangement procedure.

Arrangement approval proceedings have piqued your interest? No wonder - in 2023, more than 92% of restructured companies opted for this form of restructuring.

Restructuring proceedings often become necessary when a trader is unable to settle its debts, leading to delays in payments to creditors.

In such situations, creditors can take the matter to courtand having a writ of execution at the bailiff's disposal, which may result in the seizure of the entrepreneur's property and the blocking of the business. Such enforcement action is a serious impediment to the entrepreneur and the running of the business. The blocking of bank accounts or the seizure of equipment necessary for the business prevents the generation of profits that could be used to repay debts.

The legislator is aware that enforcement actions carried out during restructuring could nullify its purpose. Therefore, it has introduced legislation to regulate this. Restructuring proceedings take at least several months and in the worst case even several years. If, during this time, the bailiff seized all the debtor's assets, the restructuring would be pointless and the company would have to be closed down.

Pursuant to Article 278 of the Restructuring Law, enforcement proceedings relating to the debt covered by the arrangement shall be suspended as from the date of the opening of the proceedings. Sums obtained in the suspended proceedings and not yet spent shall be transferred to the restructured entrepreneur immediately after the opening of the restructuring proceedings.

Thanks to these provisions, entrepreneurs have the chance to restructure their liabilities without fear of immediate enforcement action, giving them the opportunity to rebuild and continue their business.

The initiation of restructuring proceedings offers the restructured entrepreneur a wide range of benefits.

Above all, he receives protection that allows him to concentrate on negotiating with his creditors without fear of losing his assets as a result of bailiff enforcement.

The bailiff cannot:

• Directing enforcement to the assets of the debtor forming part of the sanctioning or arrangement mass and the enforcement of a freezing order or an order securing a claim on those assets shall not be permitted after the date of the opening of the sanctioning proceedings;
• Direct enforcement at assets against which proceedings for approval of an arrangement or simplified arrangement have been opened;

Enforcement proceedings initiated before the restructuring shall be suspended by operation of law for the duration of the restructuring proceedings in question. At the same time, the initiation of new bailiff cases during this period is prohibited.

Once a restructuring has been opened or a day of arrangement has been agreed, the possibility of enforcement by creditors is suspended. The effect extends to proceedings initiated before the date of composition or the opening of proceedings and limits the possibility of initiating new enforcement proceedings.

How long does security last?

• Effect of the notice of the day of arrangement for proceedings for approval of an arrangement and protection from enforcement shall be valid for four months. A condition for its extension for a further period is that an application for approval of the arrangement is submitted to the competent restructuring court before the expiry of the indicated period.
• For sanitation or arrangement proceedings the period of protection from enforcement extends from the issuance of the order opening the proceedings until the conclusion of such proceedings.
• In proceedings without publicity on the setting of the arrangement day, there will be no protection against enforcement until the day the restructuring court approves the arrangement that the debtor has previously concluded with its creditors. In other words, protection from enforcement will only occur at the final stage of the proceedings.

Importantly, from the date of the notice of the proceedings for the approval of the arrangement, it becomes impermissible to initiate new enforcement proceedings and the enforcement of a freezing order obtained in court proceedings (e.g. by attachment of the defendant debtor's bank account) or a freezing order on the debtor's assets.

From the date of the opening of the restructuring proceedings, the entrepreneur is relieved of the obligation to repay outstanding liabilities that arose before the date of the opening of the proceedings.

The entrepreneur not only does not have to, but in fact cannot - even if he wanted to - settle these obligations (except in cases indicated in the law). Payment of successively falling instalments of credits or loans is also suspended.

This solution allows the entrepreneur to restore liquidity very quickly and the ability to carry on business as normal, albeit under the control of the court. As in the case of enforcement, the withholding of repayments applies only to obligations covered by the arrangement. Any fulfilment of such obligations would be void and subject to repayment under the rules of unjust enrichment.

The Restructuring Law does not specify the maximum debt reduction we can apply, It all depends on negotiations with creditors, the company's ability to grow or its earning capacity.

The conclusion of an agreement enables the entrepreneur to make use of various tools which are negotiations with creditors and obtaining an appropriate agreement. The agreement covers liabilities which, through negotiations, the entrepreneur will be able to write off to the extent specified in the agreement proposals, spread into instalments or apply a grace period (a period in which the liabilities covered by the restructuring are not repaid at all).

In many cases, it is possible to apply all of the above, i.e. reduction of the liability, instalment, as well as grace in repayment.

Creditors can vote in favour of the debtor's proposal, It is therefore important to develop a well-considered strategy, based on a restructuring plan drawn up by a qualified restructuring adviser and which will be acceptable to creditors.

Restructuring proceedings shall be carried out to avoid the declaration of bankruptcy of the restructured entrepreneur by enabling him or her to restructure by means of an arrangement with creditors and, in the case of a sanctioning procedure, also by carrying out sanctioning measures (a deeper remodelling of the business), while safeguarding the legitimate rights of creditors.

Restructuring aims to:

• heal the entrepreneur's situation,
• enable recovery,
• show that there is another way than declaring bankruptcy.
• Allow the entrepreneur to make money,

Restructuring proceedings allow for the suspension of tax and court bailiffs. Restructuring of both sole proprietorships, partnerships (e.g. general partnerships) and limited liability companies (e.g. Sp. z o.o.) allows for the recovery of financial liquidity by unlocking funds for current business activities (reduction of business debt).

All the measures that are implemented in the company are aimed at restoring earning capacity, which will allow the implementation of the arrangement provisions and return the company to the market.

The purpose of restructuring proceedings is to avoid the declaration of bankruptcy of a debtor by allowing the debtor to restructure by entering into an arrangement with its creditors.

Initiation of restructuring proceedings equips the company with a wide range of debt-recovery procedures, while safeguarding the legitimate rights of creditors.

The company, thanks to the protection it receives from the opening of the proceedings, can focus not only on working out an agreement with its creditors but also on earning.

The inadmissibility of enforcement and security shows this, that the enforcement authority may not take any enforcement and security actions, which consequently amounts to the impossibility of establishing security on the assets of the restructured entrepreneur in the form of mortgages, registered pledges, liens or fiscal pledges.

The restructuring law provides for a number of instruments allowing the debtor to 'catch its breath', reach an agreement with its creditors, enter into an arrangement and then successfully implement its provisions. One of the tools for reaching an agreement with creditors is the protection of the company's key contracts (Article 256 of the Act of 15.5.2015 Restructuring Law).

The Act protects key contracts that are essential to the debtor's continued existence. If they were not afforded special protection, they could expire or be terminated and the restructured entrepreneur would not be able to continue his or her business, thus essentially defeating the point of continuing the proceedings. Without the key agreements, the entrepreneur would not be able to restore the viability of his or her business and to implement the provisions of the agreement concluded with the creditors.

Thanks to the provisions in the Restructuring Law, the entrepreneur obtains protection against the termination of contracts that are fundamental to its business.

Contracts that are protected by law:

• the lease of premises or real estate in which the debtor's business is carried on,
• credit to the extent of funds made available to the borrower prior to the opening of proceedings,
• leasing,
• property insurance,
• bank account,
• guarantees,
• covering licences granted to the debtor,
• guarantees or letters of credit issued before the date of the opening of proceedings

If, after the opening of the restructuring, the contract is terminated by the counterparty due to arrears under the arrangement, this action will have no legal effect. Thus, the debtor is given the comfort that a disgruntled creditor waiting for repayment will not be able to terminate the contract between them and thus will not block the debtor's business.

As part of restructuring proceedings, it is possible to suspend loan instalments, which can be a key element in the company's recovery process. Suspension of loan instalments gives the company a financial breather, allowing it to concentrate on implementing the restructuring plan or negotiating with creditors to work out an arrangement.

The restructuring law does not limit the methods of restructuring liabilities; It is important that they are realistic and lawful. The most common and popular ways of restructuring include the write-off of a certain part of liabilities, spreading the repayment of liabilities into instalments or setting new dates for the payment of liabilities. On the other hand, the law also provides for the conversion of receivables into shares or stocks, the modification or cancellation of the existing collateral (e.g. in order to sell the secured part of the assets), the determination of the creditors' share in the company's profit or the assumption of additional obligations (loans, credits).

All restructuring proceedings have one key advantage - offer the possibility of deferring the payment of liabilities, including credit instalments incurred prior to the opening of restructuring proceedings, for the duration of those proceedings and their repayment on terms to be determined within the framework of an agreement concluded with creditors.

This suspends the possibility for creditors (arising prior to the date of the opening of restructuring proceedings) to pursue their claims during the restructuring proceedings. However, it should be borne in mind that the debtor is obliged to pay the current liabilities, which have already arisen after the opening of the restructuring procedure, on time.

Under commercial law, Management board members may be personally liable for the obligations of a company that has become insolvent and is unable to settle its liabilities on its own. A board member may discharge this liability by filing a timely request for the opening of restructuring proceedings.

With the element of time being very important here. Indeed, in the case of restructuring, it is not the mere filing of an application that protects against liability, but only the issuance of an order by the Court to open the proceedings or to approve the arrangement in the procedure for approval of the arrangement (simplified procedure).

Therefore, the application - in order to have a protective effect - should be made well in advance.