New procedures for the approval of arrangements
The revised arrangement approval procedure will take the place of the simplified restructuring procedure.
The Arrangement Approval Procedure (PZU) has always had a significantly simplified and out-of-court formula. Despite this, it has not been the most frequently chosen restructuring procedure. This changed after the introduction of the simplified restructuring procedure (UPR), which was based on the PZU. This procedure became very popular due to the protection of the debtor and the fact that it was easy to open and conduct.
The PZU amendments, which have been made permanent in the restructuring law, enable debtors to take advantage of the protection and quickly reach an arrangement with their creditors. This translates into significantly lower debt restructuring costs. Moreover, it can have a positive impact on the debtor’s immediate economic environment.
Start of proceedings for approval of the arrangement
- The way in which PZU starts has not changed. As before, in order to conduct the proceedings, the debtor is required to enter into a supervision agreement with a restructuring adviser. This adviser should meet the requirements set out in Article 24 p.r.
- Once the agreement is signed, the debtor and the supervisor of the arrangement shall agree on a date for the arrangement. This date may not be earlier than three months and not later than the day before the date on which the request for approval of the arrangement is submitted. This is important as the date determines the creditors’ entitlement to vote on the agreement. The arrangement day, pursuant to art. 189 sec. 2 p.r., has the effect of opening the restructuring proceedings. Its determination does not affect the admissibility of the fulfilment of obligations. The debtor may perform the obligations arising both before and after the arrangement date.
- Once the arrangement day has been set, the supervisor of the arrangement establishes and maintains the files in an ICT system – the National Debtors Register (KRZ). It also allows access to the files to interested parties (art. 211a p.r.). Previously, the only way to obtain information was to ask the supervisor of the arrangement. He was obliged to provide information about the debtor’s financial situation. He also had to inform about the possibility of implementing the arrangement to the extent necessary to take an economically rational decision to vote for or against the arrangement (Article 216(1) p.r.). After the changes, every creditor will be able to verify the receipt of documents in the case file on an ongoing basis and familiarise themselves with their content. It will also be possible to verify the current stage of proceedings. A creditor will also be able to check whether he/she is included in the list of claims or in the list of disputed claims, and to read the content of the arrangement proposals.
Vote on the arrangement
- The amendments allow the arrangement to be voted on in two ways. The first is the collection of votes and the second is the convening of a creditors’ meeting to vote on the arrangement. In both cases, the procedure is carried out by the supervisor of the arrangement.
- Before the vote, the supervisor of the arrangement shall give notice to creditors by return receipt. In addition, where the vote is to be conducted by a poll, the supervisor shall inform the creditors how to vote by means of the IT system for court proceedings. It shall also indicate how to authenticate oneself in the system and how to fill in the ballot paper. If a creditors’ meeting is convened, it shall inform the creditors of its date and deliver proposals for an arrangement. The supervisor is also responsible for informing the creditors about the division of the creditors into groups, which are to include the various categories of interests. The supervisor also provides information on how to vote at the creditors’ meeting and instructs on the content of Articles 107 to 110, 113 and 115 to 119. The notices must be sent at least three weeks before the date of the proposal to approve the arrangement (voting procedure) or before the date of the creditors’ meeting. After the vote on the arrangement has taken place, the supervisor verifies the creditors’ votes. He then issues a decision on whether to approve the arrangement.
Protection of assets
- The biggest change introduced to the arrangement approval procedure is the ability to obtain protection against enforcement actions by creditors and the termination of key agreements. Unlike in the UPR, in addition to protection against enforcement, it will be possible to lift an attachment during the PAP. This applies to an attachment made before the date of opening the sanitation proceedings in enforcement or security proceedings directed against the debtor’s assets.
- Four months of protection is provided for the debtor. It will be the effect of an announcement in the register by the supervisor of the arrangement. Beforehand, however, he must sign an agreement with a restructuring advisor, set an arrangement day, prepare a list of claims and an inventory of disputed claims, as well as a preliminary restructuring plan. The protection will be extended for the duration of the examination of the application for approval of the arrangement if the debtor files the application with the court before the expiry of the four-month period.
- The amendment also provides for an instrument to prevent abuse of the institution of the notice. The supervisor of the arrangement may refuse to make it in two cases. This will be possible if in the last ten years the debtor has conducted proceedings for the approval of a composition agreement in which an announcement about setting the arrangement day was made. A refusal is also to be expected if restructuring proceedings conducted against the debtor have been discontinued in the last ten years. The exception is the situation in which the discontinuance of restructuring proceedings took place with the consent of the creditors’ council. The debtor may complain about a refusal to give notice. The time limit for lodging an appeal is one week. It is calculated from the date of service of the refusal to make an announcement. The complaint is submitted to the supervisor of the arrangement, who then forwards it to the restructuring court.
No protection against liability for debtor’s obligations
- Members of the company’s management board are liable for damages if they fail to file a motion to declare the company bankrupt within thirty days from the date on which the insolvency occurred. The provisions allow them to be released from liability if, within the indicated period, restructuring proceedings are opened or an arrangement is approved in proceedings for the approval of an arrangement (Article 21(3) p.u.). Thus, commencement of proceedings for approval of an arrangement will enable protection of the company’s assets. However, it will not protect persons managing the company against liability for its obligations, if the arrangement is not approved within the time limit for filing a petition for bankruptcy. In practice, it is very difficult to meet the indicated requirement. Due to the number of conducted cases, restructuring courts do not recognise applications for approval of an arrangement within the deadline resulting from the Act. It amounts to two weeks.
- There is no doubt that the arrangement approval procedure will take the place of the simplified restructuring procedure. It will also lead to further marginalisation of the accelerated arrangement procedure. It is a solution for debtors whose business does not require fundamental changes. However, they have problems agreeing with their creditors on the restructuring of their receivables. The procedure for approving an arrangement offers the possibility of reaching an agreement. It also provides protection in key aspects for running a business.