Protection of contracts of fundamental importance to the debtor’s business

Protection of contracts of fundamental importance to the debtor’s business

On December 1, 2021, amendments to the Restructuring Law (p.r.) went into effect. One of the most significant concerns the modification of the wording of Article 256 p.r., which protects a debtor’s selected contracts. Such protection makes it possible to stabilize his situation and focus on improving his economic situation.

Article 256(1) p.r. concerns, among other things, the termination by a lessor or lessor of a contract for the lease, rental of premises or real estate in which the debtor’s business is conducted, without the permission of the council of creditors (or the judge-commissioner in the absence of the appointment of a council of creditors). It says that this is impermissible from the date of the opening of the proceedings until the date of their termination or the decision on their discontinuance becomes final. This solution protects the debtor’s business from having to physically change its location.

Catalog of protected contracts

Prior to the amendment, the above protection, according to Article 256(2) of the P.R., also applied accordingly to credit agreements to the extent of funds placed at the borrower’s disposal prior to the opening of proceedings. It also covered contracts for leases, property insurance, bank account, sureties, as well as contracts covering licenses granted to the debtor. The catalog closes with guarantees or letters of credit issued before the opening date of the proceedings.

Catalog of covered contracts was criticized as selective and unsuited to the needs of debtors. The problem was removed by the amendment, through which the catalog of contracts was opened. The protection of contractual relations was extended to other contracts of fundamental importance to the running of the debtor’s business. In order to identify these contracts, the law requires the court supervisor (administrator) to draw up an inventory of them. He must also file them within three weeks of the opening of proceedings.

Contracts of fundamental importance to the running of the debtor’s business may include those related to the provision of utilities, communications, or payments. For many entrepreneurs, such a contract will also be a supply contract. Contracts providing the debtor with financing (in addition to those explicitly mentioned in Article 256(2) of the P.R.), in particular factoring and forfaiting contracts, should also be mentioned. Depending on the type of business conducted by the entrepreneur, other contracts can be added to the listed contracts.

Summary

The change in the wording of Article 256(2) p.r. has significant implications for the practice of restructuring proceedings. The introduced change, on the one hand, strengthens the protection of the interests of debtors, and on the other hand, increases the legal uncertainty of creditors. However, the duty to draw up a catalog of contracts of fundamental importance to the running of the company rests in the hand of the court supervisor (administrator), which should effectively limit abuses. The opening of the catalog of protected contractual relationships should therefore be viewed positively.

This text is an excerpt from a practical commentary prepared by the author for Wolters Kluwer Publishing House. The full version of the commentary is available to users of the LEX system at: https://sip.lex.pl/?_ga=2.27420284.1127814320.1657198874-771045044.1657090318#/publication/470181826

 

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