Ladies and Gentlemen,
On May 20, 2020, the Government adopted a draft act on simplified restructuring proceedings (hereinafter referred to as the "Draft" ). All indications are that this amendment will be part of the so-called anti-crisis shield 4.0.
The most important element of the Project is to grant the entrepreneur the right to initiate restructuring proceedings independently (i.e. without the participation of the court).
Independent initiation of proceedings and four months of protection of the entrepreneur against bankruptcy
The proposed solution is primarily a response to the economic crisis caused by the COVID-19 pandemic. It is expected that businesses will soon initiate restructuring and bankruptcy proceedings on a large scale, which could significantly overload courts and prolong the duration of these proceedings. The simplified restructuring procedure is intended to facilitate faster communication between debtors and creditors, which will subsequently reduce the burden on courts and accelerate and streamline the restructuring process itself.
The key proposal of the Project assumes that an entity that is insolvent or at risk of insolvency will conclude an agreement with a restructuring advisor (who will become the arrangement supervisor at a later stage of the proceedings) and publish an announcement in the Court and Economic Monitor without the need to first apply to the court .
The next step will be for the arrangement supervisor and the entrepreneur to prepare arrangement proposals and submit them to a vote by the creditors. An application for arrangement approval will be approved once two-thirds of the total value of the receivables and more than half of the votes cast are in favor. Only at this stage will the court become involved in the restructuring proceedings, and the application for arrangement approval will be submitted to the court. Importantly, the application for arrangement approval will have to be filed within four months of the announcement being published in the Court and Commercial Gazette. Once the arrangement is legally approved, the debtor will begin implementing it.
At the same time, it should be emphasized that from the moment the proceedings are initiated under the terms of the Draft, the debtor's assets are protected for a period of four months. During this period, enforcement proceedings cannot be initiated against the assets. The protection also prohibits creditors from terminating key contracts for the debtor, such as leases or rentals.
The simplified restructuring procedure also provides protection against debtor actions that could harm creditors. According to the Draft, a restructuring advisor's consent will be required for a debtor to undertake actions beyond the ordinary course of business . Creditors' interests are also protected by the ability to file a motion to quash the effects of the debtor's announcement in the Court and Commercial Gazette. The final tool envisaged by the Draft, intended to protect creditors, is the debtor's obligation to compensate the creditor for any damages incurred if restructuring proceedings are initiated in bad faith.
The proposed solutions should be assessed positively, both by debtors and creditors, because – as the name suggests – they are primarily aimed at simplifying the restructuring proceedings.
If you are interested in legal advice in the above-mentioned area or other matters related to restructuring proceedings, please contact our Law Firm – our restructuring and bankruptcy specialists will answer your questions.
