Changes in consumer bankruptcy

On 19 July 2019. The Sejm accepted the amendment to the bankruptcy law and passed it on to the Senate for further proceedings. The aforementioned act introduces many changes, in particular with regard to the so-called consumer bankruptcy. The purpose of this entry is to discuss the most important changes that will come into force after the adoption of the Act.

Equal treatment of sole proprietors and consumers in access to debt relief

The fundamental change is the equalisation of the legal situation of natural persons under the bankruptcy law (especially the possibility of separating the amount to secure housing needs also for an entrepreneur who is a natural person and the unification of procedures leading to debt reduction), which constitutes a significant improvement in the situation of persons running sole proprietorships, and there are currently approximately 3 million of them in Poland. This should encourage entrepreneurs to apply for bankruptcy under the procedure provided for them.

Payment morality – further liberalisation

Currently, the bankruptcy court, in the case of an application of a natural person – both the entrepreneur and the consumer – will not examine the reasons for insolvency, and the examination of the so-called “payment morality” will take place only at the stage of the application for determination of the creditors’ repayment plan (PSW) or redemption of liabilities without PSW, translating into the length of the PSW implementation.

Although the debtor will not be 100% sure that bankruptcy will lead to the cancellation of defaulted obligations, a significant relaxation of redemption conditions makes it highly probable that the debtor has not acted intentionally, in particular by squandering assets and deliberately failing to settle outstanding liabilities. However, even in such a situation, the court will be able to grant the application for establishing the PSW or redemption without the PSW if it is determined that it is justified on the grounds of equity or humanitarian reasons, which, unfortunately, it has not been able to do until now.

Debtors therefore benefit from a significant liberalisation of the conditions for the cancellation of defaulted debts. This will allow a much wider circle of people to return to normal functioning in society, which must be assessed unequivocally positively.

Positives for creditors

Contrary to the prevailing reactions to the planned changes, the amendment also contains significant advantages for creditors, e.g. the introduction of the possibility of conditional cancellation of liabilities, which allows creditors to request the establishment of a repayment plan within 5 years from the date of conditional cancellation in the event that obstacles to making repayments to creditors cease. The acceptance of amicable solutions aimed at repayment, such as the possibility to enter into an arrangement at a creditors’ meeting or the sale of significant assets under a pre-pack procedure, should also be assessed as beneficial to creditors.

Submission of claims – only to the trustee

The revolutionary change will be to submit claims not to the judge-commissioner, but to the trustee.

It can be seen that the approach to restructuring advisors performing this difficult function is changing. Good experience in the application of the restructuring law, which provides for the preparation of a list of receivables by managers and supervisors, allowed the Ministry to place trust in the receivers, which was not the case in the previous regulations. After all, applications will be directed directly to the office of the receiver, whose administrative service will certify the date of receipt with all legal consequences.

Until the introduction of the National Debt Register, applications will still be submitted in writing to the address of the receiver’s office indicated in the decision on the declaration of bankruptcy, which will be announced in Monitor Sądowy i Gospodarczy. After the introduction of the register, the applications will be introduced electronically and only then the whole procedure will gain the efficiency and effectiveness assumed from the very beginning.

The application deadline is still 30 days after the announcement in the Ministry of Economy and Economy. Late applications will have to be additionally paid in advance in the amount of 15% of the average monthly salary, i.e. about 750 PLN. This is to cover the costs resulting from the application.

It is interesting that the submission of receivables to the receiver will interrupt the course of the statute of limitations, while the interruption itself will last throughout the entire bankruptcy proceedings. A stamp with the date of receipt by the receiver’s office will therefore become of particular material and legal significance.

This change will speed up the proceedings, as the long-term stage of the proceedings will be omitted in some courts, when the judge-commissioner will check the formal conditions of the application and only after filling in any deficiencies will he hand over the application to the receiver. In practice, this prolonged the proceedings by several months.

I am also convinced that the completion of formal deficiencies between the creditor and the receiver will be more efficient and faster. The receivers will probably use less formalistic approach than the courts.

Until the introduction of the National Debt Register, applications will still be submitted in writing to the address of the receiver’s office indicated in the decision on the declaration of bankruptcy, which will be announced in Monitor Sądowy i Gospodarczy. After the introduction of the register, the applications will be introduced electronically and only then the whole procedure will gain the efficiency and effectiveness assumed from the very beginning.

The application deadline is still 30 days after the announcement in the Ministry of Economy and Economy. Late applications will have to be additionally paid in advance in the amount of 15% of the average monthly salary, i.e. about 750 PLN. This is to cover the costs resulting from the application.

It is interesting that the submission of receivables to the receiver will interrupt the course of the statute of limitations, while the interruption itself will last throughout the entire bankruptcy proceedings. A stamp with the date of receipt by the receiver’s office will therefore become of particular material and legal significance.

This change will speed up the proceedings, as the long-term stage of the proceedings will be omitted in some courts, when the judge-commissioner will check the formal conditions of the application and only after filling in any deficiencies will he hand over the application to the receiver. In practice, this prolonged the proceedings by several months.

I am also convinced that the completion of formal deficiencies between the creditor and the receiver will be more efficient and faster. The receivers will probably use less formalistic approach than the courts.
The trustee will keep files for applications which will be available in his office for all creditors. They will also be subject to control by the supervisory services of the Minister of Justice.

I only hope that the judges-commissioners will agree that the costs of conducting these management processes by the trustee’s offices should be covered by the mass of bankruptcies.

Court referees as judge-commissioners

The key to the efficiency of conducted proceedings will be the possibility to perform the function of a judge-commissioner by a court referendary.

This is an extremely positive change. I hope that it will make bankruptcy proceedings, which are currently very protracted, clearer. Some motions are processed with a delay of several months.

Unfortunately, in practice, everything will depend on the number of posts allocated to court referendaries in bankruptcy courts, or perhaps even more so, on the number of administrative support posts. In many departments, the bottleneck is precisely the secretariats, which not only lack jobs, but also efficient systems and management models.

I also have no doubt that a person who is a court referendary is fully competent to conduct bankruptcy proceedings as a judge-commissioner.

A great many judicial activities are of a reporting and supervisory nature when constitutional guarantees of the independence of the judge are not needed. However, where it is necessary to recognize an objection to the list of claims, objections to the division plan or a motion to exclude a judge from the bankruptcy estate, the legislator provided for the appointment of a judge. Additionally, a complaint against the activities of court referendary, known in the procedural law system, was introduced, which will be recognized by the bankruptcy court.