Amendments to the Polish Insolvency and Reorganisation Law Paweł Kuglarz

1. Amendments to the Polish Insolvency and Reorganisation LawPaweł Kuglarz

2. Table of Contents • The Insolvency and Reorganisation Act • Principles • The Amendment • Reorganisation under the Amendment • New Definition of Insolvency and Entrepreneur • Bankruptcy Estate • Creditors and Claims • Adoption of the Arrangement • Marriage in Insolvency

3. Principles • Uniform procedure for insolvency proceedings, whether ending in liquidation, composition; addition: reorganisation proceedings • Universality: debtor's total assets become assets in insolvency • Equal treatment of creditors within creditor classes • Optimal satisfaction of creditors, but emphasis on preservation of business if possible

4. The Insolvency and Reorganisation Act • TheInsolvency and Reorganisation Act („Act”) dated 28.02.2003 governs the following proceedings: • Reorganisation proceedings („Reorganisation”) Aim: to protect a company from bankruptcy 2. Insolvency proceedings („Insolvency”) Aim: to protect company’s creditors The court declares bankruptcy in two types of proceedings: • liquidation proceedings – sale of the bankrupt’s assets and satisfying creditor’s claims („Insolvency by Liquidation”) • arrangement proceedings – composition with creditors on terms of satisfying their claims; possible only under condition that creditor’s claims will be better satisfied than under Insolvency by Liquidation („Insolvency by Composition”)

5. The Insolvency and Reorganisation Act Proceedings under the Insolvency and Reorganisation Act Insolvency Reorganisation Insolvency by composition Insolvency by liquidation

6. Amendment • 147 changes to the Law (the „Law”) came into force on 2 May 2009 (the „Amendment”) Major changes: • Reorganisation more available to entrepreneurs facing financial problems; less strict conditions for application in force • Debtors who face minor financial problems are now not threatened by Bankruptcy • Art. 81 (provided wrong time limit for filing a motion to record a mortgage) and Art. 82 (failed to provide for the possibility to appeal to a court’s decision) amended as a response to a decision of the Polish Constitutional Tribunal under which both articles were declared inconsistent with the Polish Constitution

7. Reorganisation under the Amendment Reorganisation can be applied to entrepreneurs: 1. whose unperformed obligations do not exceed 10 % of the balance sheet value of the debtor’s enterprise and 2. the delay in performing the obligations is not permanent (art. 21 section 4) => a debtor who is insolvent „only to a small degree” may be reorganised instead of going bankrupt • The court may dismiss a petition to declare bankruptcy and at the same time consent to the Reorganisation (art. 12 section 3) • A decision on declaring Insolvency by Composition is admissible even after declaring Insolvency by Liquidation (art. 16)

8. New definition of Insolvency and Entrepreneur Definition of Insolvency (art. 11 section 1) Now: A debtor is insolvent when he fails to perform his due pecuniary obligations Before: A debtor is insolvent when he fails to perform his due obligations. Definition of Entrepreneur (art. 5) Now: definition is consistent with the Polish Civil Code Before: special definition was in force The Law no longer applies to branches of foreign banks, limited liability companies and public companies which do not conduct economic activity

9. Bankruptcy Estate (1) Upon the Amendment the Bankruptcy Estate does not include: 1. Property exempt from execution under the Civil Procedure Code 2. Remuneration for work of the bankrupt in the part not subject to seizure • Other elements of the bankrupt’s property may also be exempted in a resolution adopted at the creditors’ meeting (art. 63) • items, claims, other proprietary obligations transferred by the bankrupt onto the creditor to secure a claim => exemption does not apply (art. 701)

10. Bankruptcy Estate (2) • Mortgage, maritime mortgage, pledge, registered pledge, tax lien => cannot encumber the Bankruptcy Estate to secure a claim which arose prior to declaring the Insolvency (art. 81 section 1) • Mortgage is allowed if the respective motion is filed with the court at least six months prior to the day of filing a petition to declare bankruptcy (art. 81 section 2) • Entry in the land and mortgage register contrary to above may be removed ex officio; this removal is now subject to appeal (art. 82)

11. Creditors and Claims • Now: 5 categories of claims satisfied out of Bankruptcy Estate (art. 342) • Before: 4 categories of claims satisfied out of Bankruptcy Estate Dividing creditors into groups no longer obligatory; up to the judge’s decision • Now: 5 groups of creditors representing different interests (art. 278) • Before: 4 groups of creditors representing different interests Creditors may vote also in writingby post (art. 198)

12. Adoption of the Composition (art. 285) 1.Majority of creditors jointly holding at least 2/3 of the total sum of claims with voting rights 2. If voting in groups of interests=> majority of creditors in each group, jointly holding at least 2/3 of a total sum of claims in a separate group of creditors with voting rights 3. If no majority is attained in some groups => majority of creditors from other groups approve the composition under conditions that: • they hold 2/3 of a total sum of claims with voting rights and • the creditors against the composition will be satisfied not less than in liquidation

13. Marriage in Insolvency • Claims of the bankrupt’s spouse – only if the marriage contract was concluded at least two years prior to the filing of the petition to declare bankruptcy (art. 116) • Dissolution of the joint property regime: (art. 125) • ineffective towards the Bankruptcy Estate if within one year prior to the filing of the petition to declare bankruptcy • effective if a motion for dissolution filed at least two years prior to the filing of the petition to declare bankruptcy • assets used by the bankrupt’s spouse exclusively for economic or professional activity – excluded from the Bankruptcy Estate BUT: included if were acquired to the joint marital estate within two years prior to the filing of the petition to declare bankruptcy (art. 124 section 5)