Change of the restructuring plan due to the COVID-19 pandemic
According to the legislator’s intention, the restructuring plan is to be the central document of the restructuring proceedings. A properly prepared plan includes a detailed analysis and diagnosis of the debtor’s problems and indicates measures to restore the debtor’s ability to settle current liabilities. For this purpose, it should undoubtedly correctly reflect the economic environment and the state of the market in which the debtor operates. This assumption finds its direct expression in the obligatory elements of the restructuring plan indicated in Art. 10 sec. 1 p.r., in particular in point 1, according to which the plan contains “a description of the debtor’s enterprise along with information on the current and future state of supply and demand in the market sector in which the enterprise operates”. In addition, numerous references to the debtor’s economic environment should certainly be taken into account when indicating the level and type of risks related to the implementation of the plan.
Currently, there is no doubt that the COVID-19 pandemic has had a huge impact on most industries, re-shaping the levels of demand and supply in the largest markets (it should be noted that this is not always a negative phenomenon – some industries, e.g. entities related to e-commerce is basically experiencing an increase in demand for its services). In practice, however, in many cases, the pandemic led to the obsolescence of the restructuring plans submitted in the course of restructuring proceedings and called into question the prepared profit and loss forecasts. In the vast majority of cases, the situation of debtors under restructuring has worsened, and a further decline in demand for their services may, in the coming months and a possible lockdown, lead to the inability to regain current liquidity and perform a possible arrangement.
Some supervisors and managers in restructuring proceedings are currently facing the need to decide whether they should update the restructuring plan submitted in the proceedings so that it reflects the current situation of the debtor and the state of the economic environment after more than a year of the pandemic. What is important in this case, the restructuring law does not require supervisors and managers to update the plan in the event that the circumstances indicated therein change. Moreover, the possibility of changing the plan was explicitly indicated only in the provisions on rehabilitation proceedings (in Article 318 of the AA), which, a contrario, may constitute an argument for the inability to change a plan once submitted in other proceedings.
However, taking into account the objectives of the restructuring procedure and the functions of the plan submitted therein, including, in particular, its argumentation function (a properly prepared restructuring plan should be one of the main factors influencing the creditors’ decision to support the arrangement), one should support the view, that a restructuring plan once submitted may be updated (changed) in any restructuring procedure and at any stage thereof. Failure to update it may, in practice, lead to a situation in which the assumptions and forecasts contained in it do not adapt to the new reality in an extreme way, which may have an effect opposite to that intended by the legislator – such a plan will reduce the creditors’ confidence in the restructuring process and the debtor’s ability to perform layout.
In cases where the restructuring procedure is already at its final stage and due to its degree of advancement, it would be economically unjustified to update the plan (e.g. the date of the meeting of creditors has already been set or the procedure related to collecting votes has been initiated in the case of ordering a vote without a meeting of creditors) , the role of updating the plan should be taken over by the opinion on the feasibility of the arrangement prepared by the supervisor or the manager.
The preparation of the indicated update of the plan or an opinion on the possibility of implementing the arrangement is certainly not an easy task in the current situation. Nobody knows exactly how long the COVID-19 pandemic will last and what restrictions may be introduced in the coming months. However, it seems that using the data collected over the last year and a half of the pandemic, it is possible to take into account its impact on the debtor’s financial results and to make adjustments to the prepared financial forecasts. Superimposing data on the impact of a pandemic on the debtor’s past forecasts should be the minimum information that should be provided to creditors in order to update their knowledge of the impact of the pandemic on the debtor’s business. Thanks to updated forecasts, creditors can try to assess to what extent the debtor is able to generate a surplus from current activities that could be used to pay off creditors. In addition, when preparing the plan update, one should take into account the state aid obtained by the debtor and possible changes to the planned restructuring measures (e.g. if, due to the pandemic, part of the investment was postponed or completely suspended). It should be noted that the more up-to-date and detailed the information provided to the court and creditors along with a plan description of how the debtor intends to deal with the current difficult situation, the lower the risk of the restructuring court refusing to approve the arrangement pursuant to Art. 165 sec. 1 sentence 1 in fine p.r., ie that the court will find that “it is obvious that the agreement will not be performed”.