In today's, the last, article in the Compliance series on Arrangement Approval Proceedings, we will discuss the issues of debtor protection against creditors, protection against contract termination, and the impact of arrangement approval proceedings on the scope of management.

Moreover, as a curiosity, we will present you with statistics on restructuring proceedings, including in particular proceedings for approval of the arrangement.

Protection from creditors

From the moment of the announcement of the arrangement date until the final discontinuance or termination of the arrangement approval proceedings, Article 312 of the Restructuring Law, i.e. the suspension of enforcement proceedings, applies accordingly.

An important element of this process is that the suspension of enforcement by operation of law applies to all receivables, regardless of whether they are covered by the arrangement or not.

This therefore provides almost complete protection against enforcement.

Furthermore, enforcement proceedings cannot be initiated during this time. Enforcement proceedings against the debtor's assets and enforcement of a decision to secure a claim or an order to secure a claim against the debtor's assets are inadmissible after the date of announcement of the arrangement date.

To elaborate on this issue, this prohibition applies both to initiating enforcement proceedings and to enforcing a decision to secure a claim, even if it was issued before the time referred to above; neither an order to secure a claim may be issued nor executed – regardless of the proceedings in which it was issued.

There are, of course, exceptions in this regard. The stay of enforcement, the prohibition on initiating it, and the prohibition on securing the debtor's assets do not apply to enforcement against:

1. Maintenance payments;
2. Pensions for compensation for illness, incapacity for work, disability or death;
3. Claim to convert the content of a life annuity into a life annuity.

Protection against contract termination

From the moment of announcement of the arrangement date, in accordance with Article 256 of the Restructuring Law, there is a so-called inadmissibility of terminating material contracts.

Therefore, the debtor’s contractor cannot terminate the following contracts:

1. Lease or tenancy agreements for premises or real estate where the debtor's business is run,
2. Loan agreements regarding funds left at the borrower’s disposal before the date of opening of the proceedings,
3. Leasing agreements,
4. Property insurance,
5. Bank account agreements,
6. Guarantee agreements,
7. Agreements covering licenses granted to the debtor,
8. Guarantees or letters of credit issued before the date of announcement,
9. Other contracts of fundamental importance for running the business.

A list of such agreements referred to in point 9 above, i.e. those of fundamental importance for the running of the debtor's enterprise, is prepared by the arrangement supervisor.

The arrangement supervisor files such a list within three weeks of the announcement of the arrangement date. It should be noted that this decision is not appealable in any way, and therefore, it becomes legally binding on the aforementioned agreements upon filing in the electronic system.

It should be borne in mind, however, that there are no obstacles to the debtor concluding an agreement with the contractor to terminate such a contract with the consent of the arrangement supervisor, if such a solution is more advantageous for the debtor.

The impact of the announcement of the arrangement date on the scope of management

From the moment of the announcement of the arrangement date until the discontinuation or completion of the proceedings for approval of the arrangement, the arrangement supervisor performs the duties of a court supervisor.

During this time, the debtor may only perform ordinary management activities, however, those that go beyond ordinary management may only be performed with the consent of the arrangement supervisor.

It is important that this consent may be expressed both before and after such an action.

If an action is approved after it has been carried out, the arrangement supervisor shall approve the action within 30 days of its completion.

It should be remembered, however, that this deadline is absolute and cannot be extended for any reason. This is important because the lack of consent from the arrangement supervisor renders the transaction invalid.

Statistics

According to data published on the website of the Central Economic Information Center (hereinafter referred to as "COIG"), 2,379 restructuring proceedings were announced in 2022. Furthermore, the number of proceedings in 2022 is 26% higher than in 2021 .

As for the type of proceedings, debtors most often applied for restructuring

under simplified arrangement approval proceedings, which constitute 90.58% of all proceedings. The majority of proceedings concern individual businesses – 61.33% and limited liability companies – 17.4%.

In the first quarter of 2023, 1,052 restructuring proceedings were announced. Monthly records have been reached since January, with the highest number of proceedings announced in March, at 400. As in 2022, debtors most often filed for restructuring under simplified arrangement approval proceedings, representing 91.92% of all proceedings. The largest number of proceedings concern individual businesses (73%) and limited liability companies (13.21%).

The arrangement approval process is the simplest form of restructuring, yet it can still seem complicated. We hope that our articles over the past month have guided you through this process, clearing up any doubts you may have had, providing step-by-step guidance, and highlighting all the benefits. If you have any questions, please feel free to contact us directly.

This article is for informational purposes only and does not constitute legal advice.

Legal status as of April 26, 2023

Marta Stańdo

Lawyer/PhD student
+48 536 226 845 | m.stando@kglegal.pl

Mateusz Grosicki

Attorney, partner
+48 506 367 109 | m.grosicki@kglegal.pl