It’s not worth going bankrupt. It’s worth restructuring.

It’s not worth going bankrupt. It’s worth restructuring.

The economic slowdown caused by the coronavirus epidemic for many entrepreneurs is connected with the same thing – a drastic drop in orders and orders, with fixed costs of running a business that cannot be regulated. Surely many entrepreneurs are lighting up a red light at this point – will I go bankrupt now?


But before an entrepreneur answers the question about bankruptcy, he should first determine whether he has become insolvent. The key to analysing the state of insolvency in the era of the coronavirus epidemic should be attributed to the so-called liquidity premise, according to which an entrepreneur who has lost the ability to fulfil his due monetary obligations is considered insolvent. Such an entrepreneur should file a petition with the court to declare his insolvency within 30 days of becoming insolvent.

State of insolvency

Determining when a state of insolvency was created was not an easy task even before the crisis triggered by COVID-19. This now seems to be even more challenging as insolvency must be characterised by a permanent, rather than temporary, loss of the ability to fulfil financial obligations. In many cases, where the difficult economic situation was directly caused by the effects of the epidemic, with a high probability of recovering liquidity after the situation has stabilised in the short term, the insolvency of the company does not have to become a fact. Of course, this will require the entrepreneur to analyse the economic situation on an ongoing basis, and if one of the creditors questions the failure to file for bankruptcy, also to prove that there were no prerequisites for filing for bankruptcy.


In our western neighbors, ideas have emerged to suspend the pregnancy of both the creditors of the Wnioñsk file for the general bankruptcy (Germany, Spain). It is now said that similar regulations can also be introduced in Poland. Entrepreneurs who became insolvent as a result of the coronavirus epidemic would have to file for bankruptcy within 3 months from the date of cancellation of the epidemic. If the problem of insolvency were to be solved within that time, it would not be necessary to apply for bankruptcy.

Solutions for suspending the obligation to file for bankruptcy were already commented on on our blog: Why should the Polish government not suspend the obligation to file for bankruptcy?


However, liquidity problems do not always mean bankruptcy. You can protect yourself from it as part of restructuring. It may consist of restructuring carried out on the basis of own resources, or using court proceedings. The first one is connected with the need to carry out a detailed analysis of the company, and in particular binding agreements, forecast sources of revenue, fixed operating costs, and the state of assets. Thanks to such an analysis, it is possible to consider how to reduce fixed costs, which contracts can be terminated, which assets can be liquidated, and take steps to reduce employment. You should also contact your contractors and financial institutions to renegotiate the terms of the contracts or conclude appropriate agreements that will protect the entrepreneur from initiating enforcement proceedings by creditors.

If the above steps fail, or if you know in advance that they will not bring the expected result, you can benefit from judicial restructuring. This will protect the company from bankruptcy and at the same time protect members of the management board of capital companies from personal liability for the company’s debts.

Court restructuring

The aim of court restructuring is precisely to avoid bankruptcy of the entrepreneur by entering into an arrangement. The composition agreement is a kind of agreement between the debtor and creditors on how to satisfy the liabilities accrued until the date of opening of the restructuring proceedings. Thanks to the composition agreement, it is possible, for example, to write off part of the receivables, postpone their payment date, spread the payment in instalments or convert the receivables into shares. Restructuring, depending on the specific restructuring procedure, also allows protection against enforcement (judicial and administrative) and termination of key agreements. At the same time, it allows for withdrawal from unprofitable contracts as well as redundancies on special terms.

Given the existing measures to respond adequately to the crisis, bankruptcy should be treated as a last resort. Especially in such dynamic conditions as those prepared by the coronavirus.

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