The coverage of receivables secured in kind by an arrangement after the amendment of the restructuring law
One of the most important recent developments in the field of restructuring law is the entry into force of the amendment introduced by the Act of 6.12.2018 on the National Register of Debtors (Journal of Laws 2019, item 55). Equally important is the amendment introduced by the Act of 28.05.2021 on amending the Act on the National Register of Debtors and certain other acts (Journal of Laws 2021 item 1080).
These provisions introduced many fundamental changes. One of them is a change in the catalogue of claims covered by an arrangement by operation of law. This translates directly into the position of creditors participating in restructuring proceedings. It also affects the prospects for concluding an arrangement.
Changes to claims secured in rem – introduction of Article 151 § 2a p.r.
As of 1 December 2021, the legislator introduced a new Article 151(2a) p.r. into the restructuring law. It is modelled on Article 181 p.r. and Article 17(1) of the Act of 19.06.2020 on interest subsidies for bank loans granted to entrepreneurs affected by COVID-19 and on simplified proceedings for the approval of an arrangement in connection with the occurrence of COVID-19. According to it, if the debtor has presented suitably favourable arrangement proposals to the secured creditor, the consent of this creditor is not necessary for the claims to be included in the arrangement by operation of law. This is a satisfaction which is not lower than that provided for in the agreement or obtained in a potential enforcement or bankruptcy procedure.
In such a situation, the secured claim becomes incorporated by operation of law. It therefore falls under the disposition of, inter alia, Articles 252, 259, 260 and 270 p.r.
Main practical problems
One of the main problems related to the application of the new Article 151(2a) p.r., will be to determine whether the arrangement proposals submitted by the debtor meet the requirement of full satisfaction under the terms of the parties’ agreement. It will also not be easy to determine whether, alternatively, they provide for satisfaction of the creditor to a degree that is not less than that which the creditor can expect if the claim, together with ancillary receivables, is pursued from the subject matter of the security.
The first of the alternative requirements can be met quite easily by drafting the wording of the arrangement proposal in an appropriate way. It should also be addressed to the relevant group of creditors. Pursuant to the new regulation of Art. 161 Item 1a p.r., if the arrangement proposals include secured creditors, the division into groups is obligatory.
In contrast, the second requirement is likely to raise significant doubts. Assessing whether a creditor will obtain a higher level of satisfaction in the event of enforcement of the claim together with ancillary claims from the secured object than in the event of conclusion and approval of the arrangement invariably raises two issues. These have already been signalled in connection with the COVID-19 spec and the regulation of the partial arrangement (Article 181 p.r.).
Fair valuation of the collateral
Firstly, against the background of the new Article 151(2a) p.r., it is even more necessary than before to guarantee a real and reliable valuation of the secured object. This must be done in such a way that its value is not “artificially” and arbitrarily lowered, solely for the purpose of forcibly including the receivables secured in rem into the arrangement by law. This is particularly important in those proceedings in which the court supervisor is not, as a rule, obliged to draw up an inventory and a related evaluation of the assets under the composition agreement.
In the event of a dispute between a creditor and a debtor or an out-of-court proceeding authority regarding the liquidation value of the subject of the security, it should first be recommended that a professional appraisal of this subject be carried out by an asset valuer. However, if such a solution proves insufficient, and in particular if the correctness of the assumptions adopted for the valuation is questioned, such a dispute will have to be resolved by way of objections to the list of claims or reservations, and then by way of a complaint against the decision on the approval of the arrangement.
A significant practical problem in this case will be the limitation, envisaged by the legislator, of the possibility of conducting expert evidence. Such evidence, pursuant to Art. 196 of the Code of Civil Procedure, may be presented only in the proceedings initiated by an objection to the list of receivables. Thus, it will not be able to be used by the court at the stage of approving the adopted arrangement.
The second problem arising in the literature is the need to interpret the phrase: “in the case of recovery of a claim together with incidental receivables from the object of security”. This should be done by specifying the procedure in the context of which we assess the hypothetical effects of asserting a claim from the object of collateral. Specifically, it needs to be determined whether this should be a bankruptcy procedure or an enforcement procedure. In this respect, the view expressed in the earlier literature that the quoted phrase should primarily refer to the results of possible enforcement proceedings should be upheld.
It is therefore necessary to simulate the results of enforcement against the object of the security. It is also necessary to compare them with the amount of satisfaction in the arrangement proposed by the debtor. If the debtor’s proposal is more favourable, the creditor will be treated as covered by the arrangement by operation of law.
Changing the content of the proposals for an arrangement
The introduction of a solution that is available in all restructuring proceedings and that makes the debt arrangement subject to a specific proposal for an agreement by operation of law may give rise to certain risks. They may be related to the change of the content of the proposal in the course of the proceedings. It is not impossible that in the course of a single restructuring procedure, when the proposals for an arrangement are changed, the same debt will be covered by the arrangement one time and not the other. This may happen especially when the procedure lasts several months and the economic circumstances change at different stages of the procedure.
This creates significant difficulties, especially in the context of those court procedures that make the debtor’s protection against enforcement conditional on the fact that the claim is included in the arrangement. These are the accelerated arrangement procedure and the composition procedure. This solution may therefore pose a great challenge to enforcement authorities.
The amendment of 1.12.2021 significantly increased the catalogue of claims that may be included in an arrangement by operation of law in the course of restructuring proceedings. Consequently, the chances of carrying out effective restructuring have also increased. The possibility to include in an arrangement by operation of law the creditors secured in rem, also without their consent, in any restructuring proceeding is undoubtedly fundamental. From the point of view of the entire system of restructuring law. It will be of significant importance for corporate financiers.
This text is an extract from a practical commentary prepared by the authors for Wolters Kluwer publishing house. The full version of the commentary is available to LEX system users at https://sip.lex.pl/#/publication/470170787/objecie-ukladem-wierzytelnosci-po-nowelizacji-prawa-restrukturyzacyjnego.