Admissibility of set-offs in the course of restructuring proceedings

It is not uncommon for a creditor of an entity undergoing restructuring to be, or become at the same time, its debtor. From the creditor’s point of view, the deduction is intended, on the one hand, to satisfy his claim and, on the other hand, to reduce his debt to the restructured entity. This is important inasmuch as, in principle, it is unacceptable for the receiver and the debtor to satisfy the creditor under an arrangement in the course of restructuring proceedings (Article 252 of the restructuring law). The creditor may not receive payment of his claim until the implementation of the accepted and approved agreement has begun. Moreover, in the case of cure proceedings, the creditor who is a debtor of the curee should take into account that the receiver will undertake intensive cure actions aimed at collecting the debtor’s receivables. Often, the creditor himself is also in a difficult financial situation. Compensation of mutual receivables may be a rescue for such a creditor.

DEDUCTION ON THE BASIS OF RESTRUCTURING LAW

It should be remembered that the deduction institution is regulated primarily in articles 498 to 505 of the Civil Code. The provisions of the Restructuring Law on set-off (Art. 253 of the restructuring law) do not constitute a lex specialis in relation to the Code norms. Restructuring law only introduces additional restrictions on the admissibility of withholding. This entry contains an analysis of the content of Article 253(1) of the restructuring law.

INADMISSIBILITY OF OFFSETTING THE CLAIM

Pursuant to Article 253(1)(1) of the of the restructuring law, no set-off of mutual claims is permitted if the creditor became a debtor of the debtor after the date on which restructuring proceedings were opened. We are therefore in a situation where, in relation to the restructured debtor, an entity was a creditor prior to the opening of the restructuring and became a debtor of the restructured entity only after the opening of the restructuring. To put it simply, the creditor’s ‘old claim’ cannot be offset against his ‘new liability’. In this case, the creditor’s claim is covered by the agreement, so that the prohibition of set-off is intended to treat all creditors whose claims are covered by the agreement in the same way.

INADMISSIBILITY OF SET-OFF OF THE CLAIM ACQUIRED BY TRANSFER OR INDOS

Subsequently, pursuant to Article 253(1)(2) of the restructuring law, a set-off of mutual claims is inadmissible if the creditor, being the debtor of the debtor, became its creditor after the date of opening of the restructuring procedure by way of purchase by transfer or indos of a claim arising before the date of opening of the restructuring procedure. In this situation, the entity in question is a debtor of the restructured entity (i.e. the restructured entity may collect its receivables from it), and then, after the opening of restructuring proceedings, the entity becomes a creditor by purchasing from a third party a debt arising before the opening of proceedings, i.e. a debt which, as a rule, is covered by an arrangement by law and cannot be satisfied outside of it. In simpler terms, the ‘old liability’ of the creditor cannot be set off against the liability acquired after the opening of the procedure, which existed before the opening of the restructuring procedure. Such a solution serves to prevent depletion of the debtor’s assets and effectively excludes trading in the debtor’s receivables (covered by the agreement) after the opening of restructuring proceedings in order to set off mutual liabilities.

CONDITIONS TO BE MET WHEN SETTING OFF CLAIMS UNDER RESTRUCTURING LAW

In view of the above, it is acceptable to set off counterclaims, if, inter alia, the debtor’s receivables are to be set off against each other’s liabilities, and the debtor’s receivables are to be set off against each other’s liabilities:

• both existed before the date of opening of restructuring proceedings as regards both the creditor having a claim to be set off and the debtor;
• both arose after the date on which the restructuring procedure was opened;
• the debtor’s claim on the creditor existed prior to the opening of the restructuring procedure, and the creditor’s claim on the debtor arose after the opening of the procedure. This means that the ‘debtor’s old claim’ can be offset against his ‘new liability’.

REQUIREMENTS AND FORMALITIES RELATING TO THE DEDUCTION DECLARATION

As regards procedural issues: the set-off statement described above is made by the creditor to the debtor, and if the debtor is deprived of its own management, the receiver. There are no statutory requirements as to the form of a set-off declaration. As regards the temporary possibility to effectively submit a statement of deduction, there is a dispute as to whether the 30-day time limit (laid down in Article 253(3) of the restructuring law) from the date of the opening of restructuring proceedings or from the date on which the basis for set-off arose, to submit a statement of deduction should be applied only to the deduction laid down in Article 253(2) of the restructuring law or also to other cases of allowable deduction. It should be noted that the wording of Article 253(3) of the restructuring law suggests that the 30-day time limit referred to above applies only to the specific case of deduction from Article 253(2) of the restructuring law. In addition, it would appear that it is crucial for the assessment of the admissibility of offsetting that the moment at which the claim arose is determined, not the moment at which it falls due. The starting point for classifying a claim as a debt under an arrangement is that it arose before the date on which restructuring proceedings were opened and not that it fell due before that date.

THE APPROPRIATE APPLICATION OF THE PROVISIONS TO OTHER RESTRUCTURING PROCEDURES

Moreover, it should be pointed out that the provision of Article 253 of the restructuring law, which directly refers to the accelerated composition procedure, applies mutatis mutandis to the arrangement proceedings pursuant to Article 273 of the of the restructuring law and to the remedial proceedings pursuant to Article 297 of the restructuring law.