Arrangement proposals – the most important document in restructuring proceedings

Arrangement proposals are definitely the most important document in restructuring proceedings, being both an offer and a promise that the entrepreneur makes to his creditors. Properly prepared, realistic and feasible arrangement proposals are the key to success in restructuring proceedings, because they can help to keep the company on the market and secure the redistribution of funds as part of the implementation of the arrangement, securing the protection of the legitimate rights of creditors. In this article, we would like to present you with the most important information in this area. 

Contents:

1. What are arrangement proposals?

Arrangement proposals define the principles and methods of satisfying the obligations the debtor towards his creditors. In other words, it is an offer agreement addressed to creditors containing the most important provisions for the parties, as to the methods, deadlines, amounts and forms of settlement. Arrangement proposals in restructuring proceedings, due to the fact that they generally cover a wider range of receivables, are much more complex and allow for the conclusion of a comprehensive arrangement, even in the absence of acceptance by some creditors.

2. What is the purpose of submitting arrangement proposals in restructuring proceedings?

As indicated, arrangement proposals are by far the most important document in restructuring proceedings, because their provisions constitute the arrangement concluded with creditors, and the manner specified therein restructuring of liabilities determines the success of the entire processThe purpose of the restructuring procedure described in the Act is to avoid the declaration of bankruptcy of the debtor by enabling him restructuring through an arrangement with creditorsand in the case of restructuring proceedings – also by carrying out restructuring activities, while securing the legitimate rights of creditors. The arrangement and the arrangement proposals it comprises are therefore a strategic tool in the entire process, which determines the achievement of its goal.

3. submits arrangement proposals in restructuring proceedings?

The right to submit arrangement proposals is held not only by the debtor but also by creditors council, court supervisor or administrator and creditor or creditors with more than PLN 30% of total receivables (excluding the claims of a co-debtor, surety, guarantor or bank opening letters of credit that has not satisfied the creditor; acquired by way of transfer or endorsement after the opening of restructuring proceedings and entities and persons associated with the debtor, which are specified in detail in Article 116 of the Restoration Law.). In practice, the vast majority of proposals are submitted by the debtor, and the work is carried out with the support of a restructuring advisor. Due to the fact that the right to submit them is granted to a larger number of entities, there are situations where several arrangement proposals are submitted in the restructuring proceedings. Then, they are put to a vote one by one (at the creditors' meeting, the order is determined by the Judge Commissioner), and those that receive the greatest support calculated in relation to the sum of the creditors' voting receivables are considered accepted.

4. What are the possible ways of restructuring liabilities under the arrangement proposals?

The catalogue of possible methods of restructuring liabilities that may be proposed to creditors in the content of arrangement proposals is open, which does not mean, however, that all conceivable methods and structures are permissible. Arrangement proposals must, firstly, be in accordance with the law, and secondly, the Restructuring Law itself limits the possibilities of restructuring certain types of liabilities, e.g. employee or public law - towards ZUS.

In the restructuring proceedings, the legislator limited itself to indicating examples of possible ways of restructuring liabilities, which may include in particular:

– postponement of the payment deadline or performance of the obligation;

– payment by instalments;

– reduction in height;

– conversion of receivables into shares or stocks;

– change, exchange or revocation of the right securing a specific receivable.

Within the limits of the freedom to shape arrangement proposals, it is possible to indicate one or more of the above-mentioned methods of restructuring.

5. Do arrangement proposals have to be the same for all creditors? 

As a rule, the conditions restructuring of the debtor's obligations should be the same for all creditors, although the Act allows for certain derogations.

First as already indicated, the Act limits the possible methods of restructuring certain types of receivables, including employee receivables or Social Insurance Institution contributions.

Secondly, it allows for granting more favourable restructuring conditions to a creditor who, after opening restructuring proceedings has provided or is to provide the financing necessary to implement the arrangement.

Thirdly, it allows for the division of creditors into groups within which the proposals must be homogeneous, while allowing for the differentiation of the method of satisfaction between groups. The criteria for distinguishing groups can be made, among others, based on the criterion of the value of the receivables, their nature, or their maturity.

6. How are the arrangement proposals financed?

Catalog of financing sources for proposals arrangement and the arrangement concluded on their basis is also not closed. For example, proposals may provide for financing the arrangement:

– from funds obtained in the course of current operations. If the arrangement proposals provide for the repayment of liabilities from the profit of the debtor's enterprise, they may specify what part of the profit will be allocated to the repayment of liabilities;

– from funds obtained from a credit or loan. In such a case, a statement of the person who has undertaken to provide financing is attached to the arrangement proposals.

– by changing the content of legal relations, rights or establishing security for receivables. In such a case, the statement of the person who has undertaken to express consent to change the legal relation, right or establish or change security for receivables is attached to the arrangement proposals;

– from funds obtained from the liquidation of the debtor’s assets.

7. How does voting on arrangement proposals proceed?

Voting on the arrangement, as a rule, takes place at a meeting of creditors for the purpose of voting on the arrangement, which is convened by the judge-commissioner by means of an announcement specifying the date, place and subject of the meeting and the manner of voting on the arrangement. Additionally, the act obliges the supervisor or administrator (depending on the type of proceedings) to notify creditors of the voting date via a postal operator or an IT system for handling proceedings – National Register of Indebted Persons (if the creditor in the proceedings has already submitted a letter via this system).

If technically possible, voting at the creditors' meeting may be conducted using electronic means of communication. In this form, it may include, in particular, a real-time broadcast of the creditors' meeting, in which creditors may speak during the creditors' meeting from a location other than the creditors' meeting.

If holding a creditors' meeting is difficult due to a significant number of creditors, the judge-commissioner may decide to conduct the voting exclusively via the IT system supporting court proceedings.

In the proceedings for approval of the arrangement, which is one of the four types of restructuring proceedings, the convening of a meeting is optional and depends on the decision of the arrangement supervisor.

8. When are arrangement proposals accepted and do all creditors have to accept the arrangement proposals?

To accept an arrangement in restructuring proceedings, it is required to obtain the consent of the majority of voting creditors who cast a valid vote, having a total of at least two-thirds of the sum of receivables due to the voting creditors, and if voting is conducted in groups - an analogous majority within each of them. Moreover, the arrangement is accepted even if it does not obtain the required majority in some of the groups of creditors, if creditors having a total of two-thirds of the sum of receivables due to the voting creditors voted in favor of accepting the arrangement, and creditors from the group or groups that voted against accepting the arrangement will be satisfied on the basis of the arrangement to a degree no less favorable than in the case of conducting bankruptcy proceedings.

This means that the arrangement can be accepted even if some of the creditors are against its provisions or do not actively participate in the vote. Such a solution makes restructuring an extremely attractive solution for debtors, promoting the interests of the majority, taking into account the diversity of economic situations and securing against the unfavourable consequences of the inaction of some creditors.

Slightly more restrictive criteria are provided for in the case of a partial arrangement, because in this case, the entire amount due to creditors covered by the partial arrangement and entitled to vote is taken into account for the calculation of the voting power and capital majority, even if they did not participate in the voting.

9. What are the chances of approval of the arrangement proposals?

The assessment of the chances of approval of arrangement proposals is made individually and depends on many factors, including the complexity of the case, the number of creditors and their structure, the possibility of obtaining financing and the characteristics of the proposal itself. Often, the determinant of success is the right choice of the type of restructuring proceedings allowing for the preparation and implementation of actions appropriate to the possibilities and needs of the entrepreneur.

10. Who can help prepare arrangement proposals and is it worth outsourcing their preparation? 

The preparation of arrangement proposals in restructuring proceedings should definitely be entrusted to or at least consulted with counselor restructuring, which has extensive specialist knowledge in terms of the admissibility of proposals in the light of acts and legal regulations, as well as practical experience enabling their assessment in terms of feasibility, possibility of approval or threats resulting from potential appeal proceedings. Due to the multi-disciplinary nature of the arrangement, the provisions of which may affect a wider sphere of activity, when constructing the document it is worth using the services of entities that have in their ranks both restructuring advisors and specialists in the field of law, accounting or finance. Such an offer is often in the portfolio of companies acting as restructuring advisors in complex and complicated proceedings, including PMR Restrukturyzacje SA