Proceedings for the modification of the arrangement Part 2

Second chance for your company

In May this year, an introductory article was published on the PMR Restructuring S.A. website on the issue of proceedings to amend the arrangement.

The topics presented were of interest to you and revealed, that not all entrepreneurs who are in the process of implementing an arrangement adopted in restructuring proceedings are aware of the existence of such a solution and the possibilities and benefits it entails.

It is necessary to start by explaining the consequences of a delay in the implementation of the approved agreement, which may crystallise even in a situation where the entrepreneur will have only one arrears in the payment of the due agreement instalments. In such a case, among other things, the creditor and the supervisor of the implementation of the arrangement have the possibility of filing an application for the revocation of the arrangement, the successful recognition of which results in the loss of all the benefits deriving from it, including the redemption earned, and the entirety of the liabilities becoming immediately due and payable, including interest.

It should be borne in mind that the approved layout is not, however, the final construction, which means that these difficulties do not have to end in the realisation of the negative scenario indicated. Any entrepreneur in the process of executing an arrangement whose income has been reduced may file a request to open proceedings to modify it. Its purpose is to allow such a modification of the arrangement that will be feasible and will at least preserve the benefits earned under the original arrangement.

The catalogue of possible directions of change is very broad, the legislator has indicated several possibilities without limiting entrepreneurs in the ways of debt restructuring, but only defining the framework of their admissibility. The most intuitive, and also the most common in practice, proposals include postponing the date of execution of the existing arrangement, spreading the repayment into instalments, modifying the number of existing instalments, changing their amount or increasing redemption. It is worth noting that an amendment may comprise one or a combination of several of the proposed modalities, e.g. assume at the same time that repayment of the existing arrangement will be postponed for 12 months from the due date of a particular arrangement instalment, the amount of the outstanding debt under the arrangement will be reduced by an additional 20% and repaid in equal instalments, the number of which will be increased to the desired level.

In the course of redesigning the layout, a proposal is also possible within the framework, whose repayment of the arrangement will be taken over by a third party, or will be met from external financing on terms to be determined by them.

In the case of limited companies, the conversion of receivables into shares is an interesting proposition, which results in an extremely beneficial change in the balance sheet structure, where liability is converted into capital, causing an increase in the desired parament for the assessment of its financial condition. This is a solution worth considering, but one that requires professional support. If you are interested, we recommend PMR Restructuring S.A., whose portfolio includes successful implementations of proposals based on conversion.

A liquidation arrangement providing for satisfaction in a variation of the arrangement from the liquidation of the company's assets is also possible. The advantage of such a solution is the prospect of obtaining considerably larger sums for the repayment of creditors than in bankruptcy or enforcement proceedings, as the sale is conducted on market terms without the discount applicable in the forced liquidation, and the obtained sums are not reduced by the costs of enforcement or bankruptcy proceedings - which in the case of economic bankruptcy can be really high. The successful implementation of a liquidation arrangement also has the advantage from the company's point of view that it does not leave it with the 'patch' of bankruptcy.

As already indicated, the Restructuring Law imposes a certain framework of on the freedom of construction of proposals in proceedings for the modification of an arrangement by, inter alia, stipulating that the conditions of restructuring are the same for all creditors, with the legislator permitting their division into groups then identical within the same group and privileging creditors providing financing in the course of implementation of the arrangement. In addition, the Act imposes certain restrictions on the restructuring of Social Insurance Institution (ZUS) claims, secured claims, with respect to public aid received, or employee claims.

When analysing possible scenarios at each stage of the projection, it is important to bear in mind, that the arrangement proposals must anticipate the possibility of being accepted by a qualified majority of creditors, as well as correspond to the real possibility of fulfilling the obligations.

To conclude, an important note - the above content is presented with the proviso "in principle", as it is presented at a level of generality that facilitates understanding of the essence, without entering into the meanders of exemptions and legal complexities. Restructuring proceedings, as well as proceedings for the modification of an arrangement, are a tailor-made product. The law defines a certain framework and a range of possibilities, which a skilful restructuring advisor is able to adjust to an individualised situation and needs, which is why any decisions should be preceded by consultation with a professional.