Anti-crisis shield and restructuring in court
The new draft law constituting the Anti-Crisis Shield (draft law on specific support instruments in connection with the spread of the SARS-CoV-2 virus) in Article 2(3) of the draft excludes the possibility of entities in bankruptcy or restructuring receiving aid. It also suspends the possibility of obtaining aid for the time of court consideration of applications for announcement/opening of such proceedings.
GROUNDS FOR OBTAINING AID
According to the explanatory memorandum, the aid is to be directed only to those undertakings which, as a result of the restrictions imposed on COVID-19, are in financial difficulty, although they have not yet fulfilled the conditions for bankruptcy or restructuring.
EXCLUSION OF DEBTORS IN RESTRUCTURING
While it can be accepted to exclude entities in bankruptcy (whose insolvency is of a permanent nature), the assumptions of the project regarding the debtors in restructuring are at least incomprehensible. They exclude the possibility of granting new financing and obtaining funds to improve current liquidity to entities that have already taken corrective measures on their own initiative and are currently ‘struggling’ to avoid bankruptcy and survive on the market. In addition, the difficult economic situation may today mean that many entrepreneurs are at risk of insolvency as a premise for opening restructuring. Therefore, entrepreneurs are faced with a dilemma as to whether to take advantage of the aid offered by the state or run away under the umbrella of judicial restructuring.
If, in the long run, the government aid provided is not sufficient, it may be too late for the part of the entrepreneurs that will not benefit from the instruments of judicial restructuring. One of the key factors determining the success of corrective measures is the appropriate rapid reaction of managers, allowing for the protection of the most valuable assets of the company.
None of the government’s proposals explicitly excludes the possibility of conducting civil execution against entrepreneurs. Of course, there is no doubt that currently the enforcement activity of the authorities is actually very difficult, and due to the suspension of deadlines in the enforcement proceedings, a significant part of the proceedings may get stuck in a “deadlock”, waiting for a specific ruling to become final. However, there is a risk that entities that have had liquidity problems for a long time may lose the assets necessary to run their business as a result of the actions of their creditors. It cannot also be ruled out that business partners will aim at partial termination of key contracts or take other actions that are not acceptable, inter alia, in the course of restructuring proceedings.
At the same time, an attempt to defend against possible enforcement or other actions of creditors (contractors) by opening restructuring proceedings will result in the loss of the possibility to obtain state aid. In order for state aid to be effective, different regimes in which restructuring and support for economic activity takes place should interact with each other rather than compete. This is all the more so because problems with providing current liquidity (maintaining existing financing or obtaining new financing) is one of the main reasons for the failure of restructuring proceedings.
It is also worth pointing out that the draft in question was immediately adopted by the parliament, and at the same time, the governmental bill on granting public aid for the purpose of saving or restructuring entrepreneurs, despite its submission to the parliament on 26 March 2020, is not further processed.