Restructuring law a new hope for companies facing bankruptcy

PMR team

January 23, 2016

The new restructuring law, which came into force on 1 January 2016, is intended to make procedures to rescue companies more streamlined, faster and effective. However, this does not mean that these provisions are easy and straightforward - to apply on your own. Restructuring advisors will assist in their effective use.

In the event of loss of financial liquidity or other crisis that has a strong impact on the company's condition, entrepreneurs and managers most often try to cope on their own or use the help of internal financial and legal services. As practice shows, only a few manage to get out of the impasse in this way. The most common reason for bankruptcy is considered to be "external factors", and not a lack of practical experience in restructuring processes.

However, according to research, the main problem is the late and passive attitude of entrepreneurs towards the crisis. Many people believe that intuition and possibly reading bankruptcy regulations are enough to cope with a difficult situation. Restructuring is a complex issue and therefore it is necessary to use knowledge specialists. In a situation of bankruptcy threat, entrepreneurs should not experiment, mistakes can be irreversible and costly.

Second chance for business

New Chance Policy and the Law Closely Related to It restructuring are two big steps towards change philosophy of approach to insolvency. This is a change of the culture of liquidation to the culture of restructuring. The idea of introducing new regulations is to improve procedures enabling the rescue of threatened companies and increase their efficiency.

According to the new philosophy, entrepreneurs will be able to use recovery procedures, the selection of which will depend on the situation and the purpose of changes in the company. What is more, in order to fully benefit from the new restructuring tools, the legislator took care of the appropriate technical support for entrepreneurs. This is the introduction of a professional participant restructuring process – restructuring advisor. He will design, implement and control restructuring architecture and support the negotiation processes and conclusion of an arrangement with creditors. The exact scope of the advisor's activities is determined by individual remedial procedures, including:

- proceedings to approve the arrangement,
- accelerated composition proceedings,
- arrangement proceedings and
– sanitation proceedings

New profession

Consulting services in the field of restructuring will be able to be provided by an individual as well as a commercial law company. The idea of establishing a corps of experts is to provide comprehensive support to entrepreneurs whose companies found themselves on the brink of insolvency. The persons delegated to this task were those with a current professional license of a trustee, specializing in composition and reorganization proceedings. This is a professional group that has been carrying out restructuring tasks for a long time, often in out-of-court proceedings, but also in those supervised by the court (composition and reorganization). It is therefore important to note that this is not a completely newly created professional group of theoreticians.

In fact restructuring advisor is a specialized profession that stands out from the existing professions. Previous restructuring practitioners, with extensive professional experience (on the border of law, economics, finance and management), brought a significant added value that constituted an advantage over the theoreticians of this profession – i.e. strictly lawyers, economists or accountants. A specialized professional group with interdisciplinary knowledge and practical experience in the field of effective restructuring should generate increased confidence in a new profession whose mission is to help entrepreneurs.

An effective restructuring advisor is a specialist, expert in the nuances of professional practice, who expertly assesses and diagnoses the actual state of affairs. He/she selects the appropriate type of restructuring, indicates the possibilities of restructuring, reduction or transformation of the company, and also knows how and from what source to obtain financial resources to save the company. He/she will prepare the appropriate restructuring application, on the basis of which the court will issue consent to the implementation of the remedial process. Today, many applications are dismissed by the court precisely because of glaring formal errors or inappropriate, wishful arrangement proposals. The help of an advisor can be an important, practical help for entrepreneurs, moral and image support, and to some extent a guarantor of trust – as a result, it will be possible to restructure, and thus save many companies from liquidation.

A challenge for all

The new regulation is a challenge for entrepreneurs, the judiciary, but also for the advisers themselves. The entry into the market of restructuring advisers will verify the competence of those holding a previous receiver's licence, which at the same time means that not everyone with a licence will advise on restructuring. In the current environment of receiverships, one can already see a polarisation phenomenon. Some people do not want to, do not intend to or do not feel able to perform the function of a restructuring adviser, and they intend to continue to deal only with insolvencies after the Act comes into force. However, there is a group that is licensed and is preparing for a new scope of activity in the field of efficient, professional restructuring.

It should also be noted that the current trustee, and in the future also the restructuring advisor, will be a profession of public trust, whose mission is to care for and support the implementation of the public interest. Hence the wide range of competences that a specialist in this field must use today. According to the new act, the tasks of the previous trustees have been expanded to include restructuring advice, i.e. assistance in obtaining financing, setting the direction of strategic changes, cost restructuring and negotiations with creditors. The profession of a restructuring advisor will therefore be a set of interdisciplinary competences related to cross-sectional knowledge and experience in all aspects of the functioning of the enterprise, in particular the economic and legal environment.

It is positive that a significant number of people with a trustee license, already at the initial stage of work on the act, noticed the need to improve their own qualifications. The National Chamber of Trustees (from the new year the National Chamber of Restructuring Advisors), Association of Practitioners Restructuring and the Allerhand Institute in Krakow They have been undertaking joint activities for a long time, including conducting regular training sessions, conferences and seminars for their members.

Supply of consultancy services

A special solution of the new law is to give entrepreneurs the right to choose a restructuring adviser on their own, as up to now the receiver was delegated independently by the court. As in the case of legal services, the debtor or creditor will be able to decide for themselves on the choice of their adviser for a particular case. The new order is therefore conducive to the development of competition and the professionalisation of the profession. The best in the industry, who will be most effective in helping companies, will take the lead. Thus, it is the market that will verify the experience of advisers and entrepreneurs will use their services as they see fit. The commercialisation of the activities of restructuring advisers will shape the greater diligence of the profession, which will also have a positive impact on the range of services provided.

Professionalization of the consulting profession restructuring is also reflected in the context of company consolidation providing such services. So far, in most cases, trustees have operated individually, and rarely only within a law firm as a registered sole proprietorship. Recently, however, following global patterns, we have seen a trend of specialists associating into larger organizations, e.g. commercial law companies, which, having common know-how, organizational culture and internal corporate control, will offer a wider range of specialized services and will operate on a nationwide scale, which may prove particularly important, e.g. for network companies, but also for smaller enterprises dependent on, e.g. financing institutions from Warsaw, and running production plants in the field. We already have several larger, professional restructuring advisory firms on the market. It is worth paying attention to choosing an advisor who will offer services not only in the field of consulting and designing restructuring architecture, but also in implementing and conducting the entire restructuring process. Creating restructuring companies whose competitive advantage will be the exchange of knowledge and experience potential is a new order on the restructuring advisory services market. The benefits of this solution will be felt in particular by customers, i.e. entrepreneurs.

How it was

The evolution and professionalisation of the advisor's profession both under the existing regulations and the new Act is an inevitable phenomenon and a natural process of the profession's development, initiated in 2003 with the Act - Bankruptcy and Reorganisation Law. Continued with the Act on the license of a trustee of 2007 and developed with the Acts - Restructuring Law and on the license of a restructuring advisor of 2015. It was in 2007 that a number of receivership holders were verified by examination before the examination board of the Ministry of Justice. This was the moment when this professional group underwent a far-reaching transformation. The scope of duties increased, but so did the requirements for cases handled. Today, receivers are not only required to skillfully manage the assets of a debtor. Their aim is also to carry out a profound process of change in the company, which will satisfy creditors, but above all allow the plant to remain in operation despite bankruptcy - Huta Krosno or Autosan plants being excellent examples.

According to the author:
Maciej Roch Pietrzak,Restructuring Advisor, President of PMR Restructurings

Favourable law for entrepreneurs

Changes in bankruptcy law and restructuring law mean new opportunities for protection Polish companies. The reorganization of the legal and judicial systems is a nod to entrepreneurs, who, thanks to the new regulations, will be able to improve the operation of their own companies more quickly and effectively. So far, reorganization and arrangement proceedings have constituted a negligible percentage of all bankruptcy proceedings. They were stigmatizing, and companies were reluctant to use them because they made it difficult to continue operating in economic transactions. The new law is a chance to change the perception of Polish entrepreneurs, who, following the example of Western companies, will more often decide to use reorganization proceedings as procedures that facilitate and ennoble the company.
Thanks to new regulations and opportunities for cooperation with experts at risk companies will cope with problems more effectively. I believe that the skillful use of new opportunities will bring many useful changes, will streamline restructuring proceedings and thus save many companies from bankruptcy, supporting the country's economy and protecting jobs. The support of advisors at the pre-trial stage may prove particularly valuable. Professional support from restructuring practitioners will certainly improve this situation, especially in the sector small and medium-sized companies.