The influence of creditors and the judge-commissioner on the liquidation of the bankruptcy estate

The bankruptcy process in the Polish legal system is a procedure aimed at satisfying the claims of creditors and organizing the financial situation of the debtor. Liquidation of the bankruptcy estate is one of the key elements of this process, as we mentioned in one of the previous articles. The course of the bankruptcy estate liquidation depends to a large extent on the activity of the creditors and the role of the Judge-Commissioner. In this article, we will discuss how these two parties affect the implementation of the bankruptcy estate liquidation process.

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The role of creditors in the liquidation of the bankruptcy estate

Creditors are a fundamental element of the bankruptcy process, as it is their interests that are protected during the liquidation of the bankruptcy estate. In principle, creditors can participate in the bankruptcy process at various stages, and their actions have a significant impact on decisions made in the management of the bankruptcy estate.

Creditors, in addition to having the right to file complaints against decisions issued in bankruptcy proceedings, they may, among other things, request that doubts be resolved as to which of the items belonging to the bankrupt are part of the bankruptcy estate. In addition, a creditor may participate in the meeting of creditors or be a member of the Council of Creditors.

1. Creditors' Meeting

The creditors' meeting is one of the collegial bodies of bankruptcy proceedings, whose task is to ensure that creditors directly participate in the activities of bankruptcy proceedings and enable them to influence their course. Although it is a statutory body of bankruptcy proceedings, it is not an indispensable body without which bankruptcy proceedings cannot proceed, because creditors can also be represented by a creditors' council. The tasks of the creditors' meeting include protecting the interests of all creditors. On the basis of a resolution of the creditors' council, it is possible, for example, to exclude a component of the bankrupt's property from the bankruptcy estate.

2. Creditors' Council

The creditors' council undoubtedly has broader competences in terms of influencing the manner of liquidation of the bankruptcy estate.. The creditors’ council is a procedural body appointed by the Judge-Commissioner or at the request (of the bankrupt or eligible creditors). Creditors' Council is not a mandatory body of proceedings.

The main tasks of the creditors' council include:
providing assistance to the trustee, monitoring his/her activities, examining the state of the bankruptcy estate funds, granting permission for activities that may only be performed with the permission of the creditors’ committee, and expressing an opinion on other matters if requested by the judge-commissioner or the trustee. In addition, the creditors’ committee may request explanations from the bankrupt and the trustee and examine the books and documents relating to the bankruptcy to the extent that this does not violate business secrets.

The key to conducting bankruptcy proceedings is the issuance by the creditors’ committee of permission to perform the following activities:

1) further management of the enterprise by the trustee, if it is to last longer than three months from the date of declaration of bankruptcy;

2) withdrawal from the sale of the enterprise as a whole;

3) sale of property included in the bankruptcy estate without notice;

4) taking out loans or credits and encumbering the bankrupt’s assets with limited property rights;

5) recognition, waiver and conclusion of a settlement regarding disputed claims and submission of the dispute to an arbitration court.

The above consent is not required if the above actions must be performed immediately and they concern a value not exceeding PLN 10,000. Additionally, the consent of the creditors' committee is not required in the case of:

– sale of movable property, if the estimated value of all movable property included in the bankruptcy estate, as indicated in the inventory, does not exceed the equivalent of PLN 50,000.

– sale of receivables and other rights if the nominal value of all receivables and other rights included in the bankruptcy estate, as indicated in the list of receivables, does not exceed the equivalent of PLN 50,000.

Role Judge-commissioner in the liquidation process

The judge commissioner is a person who holds a key position in bankruptcy proceedings, whose task is to supervise the course of the process and ensure compliance of actions with the law. The role of the judge commissioner in the process of liquidation of the bankruptcy estate is invaluable, because he decides on many aspects of the proceedings. He is responsible for managing the entire process, ensuring compliance of actions with the law and taking care of the interests of all participants in the proceedings, including creditors and the debtor

It is the judge-commissioner who performs the activities reserved for the creditors’ committee if the committee fails to perform them within the time limit set by the judge-commissioner or within the time limit specified in the regulations.

As mentioned earlier, however, the creditors' council does not have to be appointed in bankruptcy proceedings. In such a case, the activities reserved for the creditors' council are performed by the judge-commissioner, and thus directly influence the form and manner of liquidation of the bankruptcy estate. It is also the judge-commissioner who approves the terms of the tender or auction and approves the selection of the bidder made by the trustee during the conducted auction or tender.

In order to ensure the efficient liquidation of the bankruptcy estate, the judge-commissioner and the creditors’ committee shall consider the application for consent to a specific method of liquidation no later than within two weeks from the date of presentation of the application to them by the trustee.

The judge-commissioner may stay the liquidation of the bankruptcy estate until the decision declaring bankruptcy becomes final.

It is worth noting that the Judge-Commissioner also has the option of excluding certain assets from the bankruptcy estate, including real estate or a fraction thereof, if they cannot be disposed of in accordance with the provisions of the Bankruptcy Law, and their continued presence in the bankruptcy estate would be detrimental to the creditors due to the burden of the related costs on the bankruptcy estate.

Liquidation of bankruptcy estate within the framework of so-called simplified consumer proceedings

Due to the fact that consumer bankruptcy proceedings can be conducted in the so-called simplified procedure, the legislator has provided certain simplifications in the scope of liquidation of the bankruptcy estate components. The main responsibility for choosing the method of liquidation of assets, which is to ensure the fullest possible satisfaction of creditors, taking into account the costs that will be associated with it, has been transferred to the trustee.

The legislator granted the trustee's right to freely decide on the liquidation of assets (excluding real estate) whose estimated value indicated in the inventory does not exceed five times the average monthly salary in the enterprise sector, excluding bonuses from profit, in the third quarter of the year preceding the submission of the inventory, announced by the President of the Central Statistical Office - as at the date of preparation of this article, this would be an amount not exceeding PLN 41,331.50.

In relation to the liquidation of real estate and other assets whose estimated value exceeds the above amount, the trustee is obliged to notify the creditors and the court of the proposed method of liquidation and the minimum price of the assets. In response to such a notification, by way of a complaint or ex officio, the court may prohibit the liquidation in the manner proposed by the trustee. Such a decision may be made if the liquidation would be unlawful or would lead to the detriment of the bankrupt or the creditors.

Referring the bankrupt to the so-called simplified procedure does not completely exclude the possibility of establishing a creditors' council in such proceedings and taking into account its influence on the course of the proceedings. Nevertheless, the intention of the legislator in distinguishing two modes of conducting consumer proceedings, leads to the assumption that it is the proceedings conducted according to general provisions (i.e. provisions that are applied in economic proceedings) that are characterized by a higher degree of complexity and require a higher scope of supervision by the bodies of the proceedings. Therefore, it is in such proceedings that a creditors' council could appear and it is it, together with the Judge-Commissioner, that would mainly decide on the form of liquidation activities.

Cooperation between creditors and the judge commissioner

Proper cooperation between creditors and the Judge Commissioner is crucial for the efficient liquidation of the bankruptcy estate. Creditors, representing their interests, and the Judge Commissioner, as the supervisor of the process, should strive to achieve a common goal - the maximum satisfaction of creditors' claims while maintaining the principles of proper conduct. In this context, transparency, communication and mutual respect are the foundations of efficiently conducted bankruptcy proceedings.

Summary

The bankruptcy estate liquidation process is a complex proceeding that depends on the activity of creditors and the role of the Judge Commissioner. Creditors have an influence on decisions regarding the management of the bankrupt's assets and can submit their claims and arrangement proposals, while the Judge Commissioner performs a supervisory function, ensuring that the process complies with the law and the interests of all parties. The joint action of both groups is necessary for the effective liquidation of the bankruptcy estate and the satisfaction of creditors.

Magdalena Żabińska

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