Consequences of withholding information having a material effect on pending consumer insolvency proceedings - Part 1

Over-indebted people experience social exclusion, and this is particularly evident in the financial sphere. Many times, these people escape into the shadow economy to hide from bailiff enforcement. The declaration of bankruptcy can lead to the discharge of debts with little or no repayment. The institution of consumer bankruptcy is intended to help over-indebted people in a so-called fresh start, i.e. it is intended to bring these people back to full participation in society.

As a general rule, bankruptcy should be used in exceptional circumstances, a jej nadmierne upowszechnienie mogłoby mieć negatywne konsekwencje i prowadzić do zachwiania równowagi na rynku.  Niemniej jednak wizja umorzenia zobowiązań bez konieczności ich spłaty jawić się może wyjątkowo nęcąco i zachęcać do wielu nadużyć. Celem zapobieżenia nadużyciom i zuchwałemu zadłużaniu się ustawodawca wprowadził ograniczenia, które skutecznie mogą zniechęcić osoby szukające sposobu na łatwe pozbycie się długów. Tematyka w tym zakresie jest dość rozległa, stąd też rozważania w tym zakresie zostaną przedstawione w dwóch artykułach, do których przeczytania serdecznie zapraszam.

W 2020 r. wprowadzono istotne zmiany w Prawie upadłościowym, which were largely designed to relieve the Courts and cede some of their work to receivers, but above all to make it easier for insolvent private individuals (natural persons) to de-indebtedness and return to full participation in society. To this end, the prerequisites for declaring bankruptcy of (private) natural persons not conducting business activities. Since 2020, the basis for declaring insolvency has only been the existence of a state of insolvency. Previously, it was also necessary for the Court to examine how the insolvency occurred.

Where the debtor has brought about his insolvency lub istotnie zwiększył jej stopień umyślnie lub wskutek rażącego niedbalstwa wówczas Sądy oddalały wniosek o ogłoszenie upadłości. Ponadto istniało jeszcze kilka innych podstaw do oddalenia wniosku o ogłoszenie upadłości, jak np. podanie przez dłużnika we wniosku danych niezgodnych z prawdą lub niezupełnych, chyba że niezgodność lub niezupełność ta nie była istotna lub przeprowadzenie postępowania było uzasadnione względami słuszności lub względami humanitarnymi.

In the described state of the law, bankruptcy proceedings could also be discontinued in cases where the circumstances justifying the dismissal of the petition have already come to light after the declaration of bankruptcy. We encountered such a situation in one of our proceedings.

From PMR Restructuring practice

As part of the bankruptcy petition, the bankrupt did not disclose that she had been validly convicted of offences under Article 269 par. 1 kkk, art. 284 par. 1 of the CC and Article 294 par. 1 of the CC, which are intentional offences against the credibility of documents, property. In the case described, the perpetrator falsified documents regarding income and, in addition, by impersonating another person, defrauded a loan. The sentences imposed were not erased. As a result of the fines and the obligation to make good the damage, the bankrupt did not pay the remaining outstanding debts, thus acting to the detriment of her creditors and aggravating her state of insolvency. In the described case, the Court did not see the possibility of applying equitable and humanitarian considerations,

 "because the debtor, acting for several years, committed the same criminal acts and was fully aware of the significance of her actions. (...) Her reprehensible behaviour cannot therefore be protected by the law and, as such, should not ultimately lead to the cancellation of her debts at least to a minimum extent" (Order of 02.02.2021 ref. V GUp (...) /19).

Consequently, the bankruptcy proceedings were discontinued.

Currently, at the insolvency petition stage, the Court no longer analyses the causes of insolvency, but these causes nevertheless affect the possibility of obtaining debt relief. Under the current legislation, there will be no waiver of liabilities if the bankrupt caused his insolvency or materially increased the degree of insolvency in a deliberate manner. In particular, this refers to the squandering of constituent parts of the assets and the intentional non-payment of due liabilities. In addition, waiver of liabilities may also be refused if, within a period of ten years prior to the date of filing the bankruptcy petition, bankruptcy proceedings were conducted against the bankrupt in which all or part of his liabilities were waived. However, as in the previous legal state, equitable or humanitarian considerations may be taken into account here.

However, the question arises as to how the court is to gain knowledge of such circumstances?

Well, the Receiver is obliged to examine whether the data provided by the debtor in the bankruptcy petition are truthful, and if there are discrepancies, he is obliged to notify the bankruptcy judge. And this in turn may lead to the discontinuation of the bankruptcy proceedings. Jeśli bowiem zostanie ujawnione, że dane podane przez dłużnika we wniosku o ogłoszenie upadłości są niezgodne z prawdą lub niezupełne, Sąd może wydać postanowienie o umorzeniu postępowania, unless the non-compliance or incompleteness is not material or the proceedings are justified on equitable or humanitarian grounds. Thus, also in the current state of the law, the legislator has left a gateway for unreliable debtors in the form of the aforementioned reasons of equity and humanitarian grounds. However, it is worth noting that they will not be applicable in every situation, and everything will depend on the individual realities of the case.

In addition, the basis for discontinuation of insolvency proceedings is also the widely understood lack of cooperation of the bankrupt with the trustee and the bankruptcy judge, by which it can be understood:

• failure to identify or release all assets to the receiver,
• failure to issue the necessary documents,
• failure to fulfil the bankrupt's obligations.

It is clear that what matters is the scale of such omissions and the degree of their materiality. Zupełnie inaczej będzie odbierana odmowa wydania syndykowi np. nieruchomości, a inaczej zostanie potraktowane np. brak wydania syndykowi aktualnej decyzji o wysokości podatku od nieruchomości (jeśli o taką poprosi upadłego).  Także w tych przypadkach ustawodawca pozostawił furtkę w postaci zasadności przeprowadzenie postępowania podyktowanej względami słuszności lub względami humanitarnymi.

At every stage of the entire insolvency procedure, there is ample scope to manipulate the facts, disinformation, silence, concealment of certain information, assets, motives, etc., which may serve to conceal assets or to obtain more favourable redemption terms. Any of such actions may face negative consequences if detected. It is worth realising that the trustee has a wide range of instruments at his disposal to verify the information provided by bankrupts. It is also not uncommon for outsiders or, for example, creditors or persons aggrieved by bankruptcy to signal certain issues to the trustee or the court. Let us not forget that information on declared insolvencies is made public, thus anyone interested may check who has been declared insolvent, which Court is conducting the proceedings, as well as who has been appointed a trustee in the given proceedings. This includes the trustee being able to verify whether, for example, bankruptcy proceedings have already been conducted against a certain bankrupt. Therefore, taking into account the comments made above, it is reasonable to conclude that a person facing bankruptcy proceedings runs a high risk already at the stage of filing a bankruptcy petition by giving untruths or covering up the existence of certain relevant facts. All issues concerning assets and liabilities are relevant to the insolvency proceedings under way and should not be a justification for concealing information.

It is a common mistake not to indicate in the application for the opening of proceedings the fines imposed, or measures of compensation or maintenance obligations. Claimants often point to the legitimacy of such an action, arguing that they are not written off in bankruptcy proceedings. This is not a correct interpretation, because also claims that are not written off in bankruptcy proceedings are obligations of the bankrupt, which the bankrupt is obliged to disclose in the petition and additionally show how the state of insolvency was created or deepened. 

In addition, it is important to emphasise how important it is to list all creditors in the bankruptcy petition, bowiem nie ulegają umorzeniu zobowiązania, których upadły umyślnie nie ujawnił, jeżeli wierzyciel nie brał udziału w postępowaniu. Czy więc zatem warto zatajać istotne informacje w procesie upadłości konsumenckiej, skoro może to doprowadzić co zniweczenia celu w jakim składa się wniosek? Odpowiedź jest jednoznacznie negatywna. Jeśli dotychczas przedstawione argumenty nie były wystarczające, kolejne przytoczę w następnym artykule. Zapraszam do lektury.