The role of the Creditors’ Council in restructuring proceedings – benefits for creditors
The Creditors’ Council is the voice of the creditors in the restructuring proceedings. As an optional extrajudicial body, it represents the interests of creditors in the course of the proceedings. It is an expression of the guiding principle of the restructuring law, which is the principle of the dominance of the group (collective) interest of creditors. The legislator explicitly indicates that the creditors’ council, when performing its duties, is guided by the interests of all creditors.
Who establishes the Creditors’ Council?
The Creditors’ Council is established by the judge-commissioner ex officio or upon request. Experience shows that this body is appointed more often at the request of authorized entities.
Both the debtor and the creditors themselves who meet certain statutory requirements (the numerical criterion of the applicants or the quantitative criterion of the claims held by the applicants) may apply for the establishment of the Council. In such a situation, the judge-commissioner is obliged to establish a council. As a rule, the Council consists of 5 members and 2 deputies elected by the judge-commissioner or by the creditor or creditors who have debts representing at least 1/5 of the sum of debts due to creditors who are participants in the restructuring proceedings. Exceptionally, when the number of creditors in a given proceeding is not greater than 7, the Board consists of 3 creditors.
In order to be an extrajudicial body of proceedings, the Council cannot therefore consist of either a smaller or a larger number of creditors. Such a solution may be problematic in proceedings with a small number of creditors. There have been cases where, due to the lack of consent of a sufficient number of creditors to perform the function of a board member, the Supervisory Board could not be established at all.
When is the Creditors’ Board established?
The provisions of the act do not specify either the initial or the final date for the appointment of the Council. Of course, the best solution is to set up a Council shortly after the opening of the restructuring procedure. Then, the rights of creditors in matters relating to the Council are determined on the basis of the list of creditors attached to the application for opening the proceedings. As access to court files relating to the opening of proceedings is available, apart from a participant in the proceedings, also by anyone who will sufficiently justify the need to review them, creditors should not have problems with determining the legitimacy of submitting an application for the establishment of a Council.
Despite the fact that the act does not specify the date when the Council may be established at the latest, motions submitted at the stage of collecting votes in voting on the arrangement, i.e. at the final stage of the restructuring procedure, should be rejected. It should be recalled that the role of the Creditors’ Council is to represent and take care of the interests of creditors in the course of the proceedings. Proceeding to vote on the arrangement means that the debtor has basically already carried out key remedial actions and ongoing operational actions (on which the Council could speak) and only waits for confirmation whether all creditors accept the effect of the introduced actions or are against it.
What are the functions of the Creditors’ Council and how to use them properly?
A properly appointed body performs the following functions: control, advisory and opinion making and decision making.
As part of the control function, the Creditors’ Council, pursuant to Art. 128 sec. 1 of the restructuring law, it primarily controls the activities of the court supervisor and the administrator (e.g. by obliging them to provide information or provide explanations). Moreover, the Creditors’ Council has the right to examine the state of funds of the composition or remedial estate. This is most often done as part of detailed reports by the administrator, court supervisor or debtor presented at the meetings of the creditors’ committee.
It seems that the least frequently used competence of the Creditors’ Council as part of the control function is the possibility of examining the company’s books and documents, of course only to the extent that it does not breach the company’s secrets. Such a limitation should be regarded as justifiable. The group of the debtor’s creditors may include suppliers, willing to learn about the terms of commercial cooperation with other suppliers. Moreover, when the restructured entity acts as an intermediary in the supply of goods or the provision of services, access to the company’s books and documents may facilitate the establishment of cooperation between the initial and final participant in economic transactions, which will ultimately be detrimental to the debtor in the form of loss of contractors.
This competence is not used by the Council because the audit costs do not constitute the costs of the restructuring proceedings and do not burden the debtor, but the Council, i.e. the creditors themselves. So it is not surprising that creditors are not interested in additional investment “in the debtor”.
Actions taken by the Board as part of this function are open to creditors who are not its members. The creditors’ council is obliged to submit to the judge-commissioner a report on the control of the activities of the debtor, court supervisor or administrator, and to examine books and documents. The Council’s report is, of course, attached to the files of the restructuring case.
The advisory and opinion-making function of the Creditors’ Council is performed as a result of the request of the judge-commissioner, court supervisor, administrator or the debtor himself (Article 128 (1) of the restructuring law). The opinion of the Council may concern the shape of arrangement proposals submitted by the debtor, the direction of the debtor’s operational activity, the content of the restructuring plan in proceedings other than the recovery proceedings, the manner of exercising by the administrator of the share rights from shares included in the remedial estate, the legitimacy of withdrawing the debtor’s authorization to perform the management board in recovery proceedings own over the enterprise or part of it.
The resolution of the Creditors’ Council implementing this function is not binding on the restructuring court, judge-commissioner, court supervisor, administrator or debtor. Nevertheless, it is often taken into account by the above-mentioned entities, in particular, it is a question of withdrawing the authorization for the debtor to perform its own management.
The decision-making function of the Creditors ‘Council includes granting authorization to activities that may be performed only with the consent of the creditors’ council, as well as adopting resolutions on allowing the debtor to perform management within the scope not exceeding the scope of day-to-day management (this applies only to the absence of authorization to the debtor in recovery proceedings). on own management) and changing the court supervisor or manager in restructuring proceedings (a particularly important right in the event of the delay of this extrajudicial body of proceedings as well as disturbance of proper relations between the debtor and the court supervisor or the administrator).
The catalog of activities requiring, by operation of law, the authorization of the council of creditors is strictly defined in Art. 129 p.r. However, it should be remembered that in accordance with Art. 19 paragraph 1 p.r. the judge-commissioner may define activities that cannot be performed without the consent of the council.
Members of the Creditors’ Council should remember that the provisions of Art. 129 p.r. is absolutely binding. Therefore, the council does not have the power to otherwise shape its obligations and obligations of the debtor in this respect. This means that the content of the Regulations, the Creditors’ Council may not impose on the debtor, for example, the obligation to obtain a permit from the council to sell real estate or other assets with a value lower than PLN 500,000. Such a resolution as unlawful should be repealed by the judge-commissioner ex officio or as a result of examining the charges.
Is it worth being a member of the Creditors’ Council?
Considering the above-mentioned powers of the Creditors’ Council, this question should be definitely answered in the affirmative. The creditors’ committee can have a real impact on the course of the restructuring proceedings, provided that it is established at an early stage.
The positive answer is also strengthened by the obligatory reimbursement of necessary expenses related to participation in the meeting of the Creditors’ Council and optional remuneration for participation in the meeting (currently max. PLN 116.11 per one day of the meeting).