Category: bankruptcy filing

Category: bankruptcy filing

Bankruptcy filing obligation – COVID

As of July 1, 2023, the state of the pandemic in Poland officially ended, marking the first time since 2020. Consequently, certain regulations that were implemented to protect businesses from the economic consequences of the COVID-19 pandemic have expired. One of these regulations is the suspension of the obligation to file for bankruptcy within 30 days of insolvency, specifically for cases where insolvency was caused by the pandemic.

Therefore, members of the management boards of Polish companies that became insolvent due to the pandemic and have not yet filed for bankruptcy were required to do so by July 30, 2023. Failing to meet this deadline may result in civil, criminal, tax, and administrative liability for the managers.

In light of these developments, it is crucial for members of Polish management boards to be aware of their obligations and take appropriate actions. This has practical implications for businesses operating in Poland.

Insolvency Tests under Polish Law:

Polish Bankruptcy Law includes two separate insolvency tests:

  1. Liquidity Insolvency Test: A debtor is considered insolvent if they are unable to pay their pecuniary liabilities as they become due. This test applies to both individuals and legal entities. If the delay in payment of pecuniary liabilities exceeds three months, it is presumed that the debtor has lost the ability to pay.
  2. Balance Sheet Insolvency Test: This test applies only to corporate entities. A debtor is presumed to be insolvent if their pecuniary liabilities exceed the value of their assets for a period exceeding twenty-four months. Future liabilities and liabilities towards partners or shareholders arising from a loan within the previous five years are not included in the balance sheet liabilities.

Insolvency-Related Obligations of Managers of Polish Companies and Associated Liability:

Managers of Polish limited liability companies and simple joint-stock companies may be personally liable for the company’s debts if enforcement against the company proves ineffective. To avoid liability, managers must demonstrate that they filed for bankruptcy in a timely manner, initiated restructuring proceedings, were not at fault for a late filing, or that creditors did not suffer any damage.

Managers may also be liable for tax and social security arrears if enforcement against the company’s assets proves ineffective. Liability can be avoided if a timely bankruptcy filing was made or if the manager is not at fault for the late filing.

Criminal and quasi-criminal liability can also arise from a lack of or late bankruptcy filing, leading to penalties such as fines, limitations of liberty, or imprisonment. Furthermore, a late filing may result in a court-imposed prohibition on conducting business or being a member of the management or supervisory boards of legal entities.

COVID Bankruptcy Filing Suspension:

During the COVID-19 pandemic, specific measures were introduced in Polish law to protect businesses, including a temporary suspension of the bankruptcy filing obligation. This suspension applied to debtors who became insolvent due to the pandemic and lasted until the state of epidemic threat was lifted.

With the state of epidemic threat ending on June 30, 2023, members of management boards of insolvent Polish companies will have until July 30, 2023, to file for bankruptcy to avoid personal liability.

Considerations and Mitigating Risks for Those Conducting Business in Poland:

Given these developments, an increase in bankruptcy filings and restructuring processes is expected in Poland. While a massive wave of bankruptcies is unlikely, it is crucial to monitor the solvency status of Polish business partners, as their bankruptcy or restructuring can significantly impact commercial relationships.

Bankruptcy or restructuring processes can lead to the deprivation of management rights, court-appointed trustees or administrators overseeing business operations, and potential invalidation of contracts predating the opening of proceedings. Restructuring processes may also prevent the termination of certain agreements without the consent of the creditors’ council.

To mitigate risks, it is advisable to continuously monitor the central register of debtors, which reveals bankruptcy and restructuring motions related to entities in Poland. This allows for timely awareness of potential risks and the ability to take appropriate actions.

Overall, staying informed, conducting thorough assessments of insolvency tests, and considering available restructuring options can help mitigate risks and ensure compliance with Polish bankruptcy regulations.