Revolutionary regulations are a challenge for everyone. The creation of the New Restructuring Law and profound changes in the Bankruptcy Law are evidence of the long-standing need to implement changes for entrepreneurs, both those who are insolvent and those who are only threatened with insolvency. The regulations coming into force on 1 January 2016 are groundbreaking, and for Polish legal conditions, downright revolutionary. Nevertheless, the success of the new regulations depends primarily on the participants in the restructuring processes. These include the main beneficiaries of the act (debtors and creditors), courts and state institutions, banks and investment funds, as well as those handling the change processes themselves – trustees, and soon restructuring advisorsOnly the mobilization and involvement of all participants can bring the desired effects of groundbreaking changes.
The new law will change everything
Until now, entrepreneurs who lost their liquidity had a choice between bankruptcy with the possibility of concluding an arrangement or complete liquidation of the company. Considering the regulations on bankruptcy with an arrangement, unfortunately, liquidation was the most popular. In most cases, entrepreneurs did not know the arrangement procedure, they did not have professional support in formulating applications to the court, the formalities lasted for weeks, which meant that it often ended in bankruptcy with a liquidation. As a result, jobs were eliminated, tax revenues to the state treasury decreased, in short, the entire economy lost. With the entry into force of the New Restructuring Law, there is a great chance for change.
It should be noted that the changes are fundamental. The very purpose of the new restructuring proceedings is a complete revolution in the formula of approaching the subject of rescue companies at risk. The new philosophy of operation is guided by the repair function, implemented through restructuring activities. The priority is protection of entrepreneurs against executions and the possibility of introducing recovery procedures while still having financial liquidity. Entrepreneurs receive specific tools to protect their companies against aggressive debt collection and further loss of financial liquidity. In this way, they gain the chance to restore the ability to compete in economic turnover and repay liabilities to their creditors.
The new act introduces restructuring tools that have been completely unknown so far, although successfully used in Europe and the United States. In total, entrepreneurs will be able to use four different types of restructuring procedures, starting from the simplest: approval of the arrangement, accelerated arrangement proceedings, "ordinary" arrangement proceedings and sanitation proceedings. Basically, however, it should be pointed out that the variety of restructuring procedures should correspond to the variety of situations in which companies find themselves. In making the right decision, debtors will be supported by specialists - restructuring advisors.
What does this mean for debtors?
Entrepreneurs, by reaching for new restructuring tools, were given more freedom in making decisions. In some proceedings, it was the entrepreneur himself is arranging the architecture of its restructuring proceedings, e.g. by collecting votes from creditors to conclude an arrangement. Another decision that the court has made so far was the selection of a trustee. In light of the new regulations, debtors will have an influence on the selection of a restructuring advisor, with whom they will be able to cooperate before the proceedings are initiated. Another piece of good news is the fact that the entrepreneur's liability for failure to file a bankruptcy petition within 14 days of the occurrence of the grounds has been abolished. This deadline has been significantly extended, which in fact will allow it to be met. The new regulations make it impossible to declare bankruptcy in relation to an entity that has only temporarily encountered financial problems. Nevertheless, if the entrepreneur has reasonable suspicions that the problems are getting worse and he is actually at risk of losing liquidity in the near future, he can use the procedure for approval of the arrangement to which he is entitled. This is an effective, simple and the fastest procedure for regaining financial balance. A conscious entrepreneur notices problems quite early. Unfortunately, until now, he has not had the tools to get out of them in advance. There was also a sense of “self-resolution” – the illusory belief that the difficulties would go away on their own and the company’s situation would improve.
Companies on the brink of bankruptcy can also count on real help. The new law makes available to them the implementation of a sanitation procedure, allowing for a profound financial and operational reorganisation of the indebted company. Admittedly, the procedure minimises the autonomy of the debtor, but it is nevertheless the last alternative before bankruptcy.
The blocking times are also ending single creditor restructuring. The new regulations introduce the possibility of concluding a partial arrangement. According to the procedure, an agreement with creditors holding at least 2/3 of all receivables covered by the arrangement is sufficient. This is a real chance to stabilize this type of situation and the fastest way to get out of companies out of crisis.
Another benefit for entrepreneurs is the provision of external financial support in difficult situations, the so-called financial aid. public for restructuring. The legislator has applied provisions on financial support for entrepreneurs, which are clearly specified and realistic. Moreover, support for companies will also have a substantive form. In difficult decisions regarding the choice of the recovery procedure, in negotiations with creditors and in preparing applications to the court, entrepreneurs will be supported by professionals - restructuring advisors. Experts will guide companies throughout the entire change process, providing support in both legal matters and the technical implementation of corrective procedures.
The new law also provides greater protection for companies against enforcement by bailiffs. Under the new regulations, bailiffs will not be able to seize assets that have been included in restructuring process. This will facilitate the possibility of working out an arrangement that will enable the continued operation of the enterprise and the repayment of receivables. The order in which creditors are satisfied will also change. In accordance with the new guarantees of respecting the rights of creditors, the privileges of public-law receivables, including tax receivables, have been abolished. The exception are receivables for ZUS contributions for a period of up to three years.
What does this mean for creditors?
The new Restructuring Law gives a higher status to the creditor – especially the active one. This can be seen in many aspects. The court may refuse to initiate proceedings against the debtor if it finds that doing so could creditors may be harmed. At the same time, creditors have influence on the selection of the trustee, supervisor and administrator. They will be able to submit an application for the appointment of a given person to perform the function in the proceedings and, as a rule, the court will be bound by such an application. This solution is of key importance for all participants in the proceedings. It should be noted that the restructuring advisor will be of great importance for the success of the change process, so it is important to the courts looked favorably on the applications creditors on this topic.
The new Restructuring Law is to protect the rights of creditors and provide them with effective tools for effective debt recovery. The Act therefore introduces greater decision-making power for this group. The creditors' council will also be given the opportunity to change the person in the position of judicial supervisor. or administrators. In some cases provided for in the Act, creditors will also be able to file an application to open the proceedings themselves restructuring towards the debtor and actively participating in it, have an influence on the actions taken by the administrator or judge commissioner. And because the Restructuring Law provides that the debtor may submit application for appointment to serve as manager in the proceedings conducted, this application will be binding for the court only with the acceptance of the creditor or creditors having in total more than 30 percent of the sum of the receivables.
What does this mean for courts and receivers?
The new definition of bankruptcy and the Restructuring Law is a real challenge for the judiciary and receivers. To representatives of both groups, I appeal to them to approach restructuring cases with more sensitivity and less formalism as matters of "living economy".
The judiciary is going to undergo a profound transformation and, in my view, this will be enforced by far-reaching changes. What I see here is extensive cooperation between restructuring advisers and the courts to develop good practice. Importantly, the courts will only have two weeks to make certain decisions. This is a far-reaching change and, if applied, will have a positive impact on entrepreneurs, on confidence in the courts and on business as a whole.
The Act requires the justice system to approach the issue of restructuring in a holistic manner. The mere introduction of so many restructuring tools means that courts should focus on defending the interests of the entrepreneur, while satisfying his creditors. Therefore, it is also important for the Ministry of Justice to keep its promise and create a tool such as the Central Register as soon as possible Restructuring and Bankruptcy, which will allow participants in the proceedings to have a real influence on their course and ongoing access to information.
The new regulations are also a chance to professionalize the community of trustees and, after the Act is introduced, licensed restructuring advisors. The law of equal access to services will support the commercialization of the profession, which will ultimately affect the higher level of services provided. The changes will allow for the construction of strong, dynamic law firms that will compete with each other in terms of quality, scope of services and experience of advisors.
What does this mean for the economy?
All the changes described will be important for the indicated participants of the restructuring processes. As a result, they will also have an impact on economic turnover and will be of particular importance for the domestic sector of small and medium-sized enterprises, which are most exposed to bankruptcy. The Act clearly separates restructuring proceedings from bankruptcy proceedings, which significantly affects the functioning of the entrepreneur in the process of changes on the current market and affects his perception by contractors. Thanks to this company in the process of restructuring avoids stigmatization. Greater efficiency in debt recovery is also a chance to maintain the liquidity of other companies, which may also be at risk as a result of the bankruptcy of their main contractors.
Keeping a business running also brings positive social and economic effects in the long term. Restructuring, unlike bankruptcy, means preserving jobs, and even employee development. Engaging employees in the repair process is a chance to increase their involvement and strengthen bonds. Paradoxically, employees who have gone through a stage of often difficult changes feel more responsible for the fate of the company, their loyalty and effectiveness of actions increase.
Polish business has been waiting a long time for new regulations regarding restructuring. I believe that their entry into force will help to protect many companies. However, we still have a lot of work to do to change the mentality of entrepreneurs, so that more often and as early stages of the crisis used tools from a wide range of new restructuring procedures. The perception of judges and trustees also requires a change. These activities will therefore require a large amount of work and financial resources for training, for the necessary social campaign, but also for research on the issues restructuring and bankruptcy. It is also crucial to create good practices and professional standards on the basis of which the new service market will develop. But you always have to start somewhere.
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