Summary of news published in February 2023 on the Restructuring Website
In February, the Restructuring Service published several news items aimed at reflecting the current economic situation. They were created on the basis of articles published in various press titles and on various industry portals.
The news published on the Website has been analyzed and commented on by us. Its effect is a prepared summary.
Forecast verification
In 2022, an increased interest of entrepreneurs in opening restructuring proceedings was noticed. There was an increase of 26% compared to 2021. At the same time, this was accompanied by a decrease in the number of bankruptcies announced by 14.5%. However, the optimism resulting from the correlation between the number of initiated restructuring proceedings and the number of announced bankruptcies is cooled down by experts. Good restructuring statistics are related to the popularity of the arrangement approval procedure. In addition, it cannot be ruled out that the emerging trend will be reversed and the number of bankruptcies announced will soon increase. The first teasers confirming this prediction are appearing. The data of the National Debt Register indicate that in the first quarter of this year the debt of bankrupt entrepreneurs towards creditors increased (by 13% compared to the previous quarter). Those, in turn, as a result of unpaid payments, may themselves fall into financial problems.
It is worth noting, however, that in the face of an uncertain economic situation, the behavior of entrepreneurs varies. Many of them, despite uncertainty, decide to start a business. However, definitely more liquidate their companies or suspend their business activity. Accordingly, in January 34,000 new companies were registered, 17,000 were liquidated, and 22,000 were suspended1 . Experts do not agree on the forecasts in this regard. Some believe that now there will be stabilization and we can expect a gradual improvement of the situation. Others, on the contrary. They predict that the number of suspended and closed companies will systematically increase, and will reach the highest values in the second half of the year.
Difficult decisions of entrepreneurs in times of uncertain economic situation
The current economic conditions leave their mark on all market participants, both small and large companies, located all over the world and representing various sectors of the economy. This forces entrepreneurs to take action to eliminate or significantly reduce the negative consequences of the rapidly changing reality. Making important decisions affecting the further functioning of the business should be preceded by a thorough analysis of the current state of the enterprise, allowing to determine which aspects of the business need to be improved.
The following industries have joined the group of industries in which the effects of the current situation are becoming more and more clearly visible: technology, brewing, automotive and construction. In these areas, there is a noticeable decrease in demand for the products or services offered. This forces their representatives to take corrective action.
Employment restructuring is becoming more and more common in the technology sector. Among the tech giants, we can even talk about a wave of redundancies. In January, we reported that consortiums such as Microsoft, Amazon, Meta and Philips made redundancies. In February, representatives of e-bay, Yahoo and Ericsson decided to take the same step. In these companies, there is overstaffing, which was shaped as a result of large-scale recruitment processes in response to the increase in demand for products and services of these companies caused by the coronavirus pandemic.
The effects of the current economic situation are also reflected in the condition of the brewing industry. This was discussed after information about the closure of one of the breweries belonging to the Żywiec Group. Whatever the company’s internal problems, experts say it partly reveals the problems the industry is facing. Well, its production capacity is at least three times greater than the currently reported demand. Alcohol sales are declining both due to consumer decisions and for reasons attributable to the catering industry, which is shrinking as a result of mass closures.
The slowdown also affects the automotive and construction industries. In both of these sectors of the economy, interest in new flats and cars has decreased as a result of the deterioration of the financial capacity of potential customers. In the case of the automotive industry, EU regulations are also of great importance, forcing the reduction of the production of cars with internal combustion engines in favor of electric cars. This also pushed FCA Powertrain Poland to develop and implement an employment restructuring plan. In the construction industry, developers are adjusting previously prepared investment plans, which is a response to lower demand.
Awaiting final decision
Last month, the fate of two companies that clearly marked their presence on the Polish food market was in the balance. We are talking about the companies: Marwit and Krakowski Kredens. Both have struggled financially for several years. They tried to overcome them by taking corrective actions in the form of restructuring proceedings. However, they turned out to be ineffective. In 2021, the companies were declared bankrupt, and then both companies were put up for sale. In the case of the first of them, the transaction is at an early stage, and 10 entities have declared their willingness to purchase Marwit’s assets. On the other hand, the finalization of the sale of the second company is more advanced. Well, out of the three interested entrepreneurs, one (the Scapremium company, associated with the French chain of grocery and industrial supermarkets – E. Lecler) offered the highest amount, which was accepted. According to assurances, the sale agreement is to be signed in March.
Not everyone feels the effects of a crisis situation
Following and analyzing the publications from the past month, it seems that some companies operating in the clothing industry are immune to the uncertain economic situation. This conclusion is prompted by the activities of the LPP Group, whose representatives implement large-scale development plans. They no longer focus only on the Polish market. Encouraged by the positive response from Mediterranean customers, they expand their activities to foreign markets. Another Polish clothing brand – Monnari – is also part of the dynamic development trend. Its representatives have recently reported good financial results, which have positively verified the current activity and encourage the company to continue its activities.
Looking for the reasons for the good situation on this market, one should certainly emphasize the fact that clothing manufacturers and retailers have not recently increased their prices or have raised them only slightly. There was no such need, because in this sector there are high margins anyway, which translate into the recorded profits. In addition, according to data provided by the Central Statistical Office (GUS), against the backdrop of all the analyzed industries, it is clothing and footwear that still sell best.
Also in February, the changes in the food industry, in the form of the acquisition of part of the Graal Group’s assets by Lisner, resounded loudly. Currently, the companies are waiting for the consent of the Office of Competition and Consumer Protection (UOKiK) to finalize the sale. It is worth emphasizing that both companies have an established position on the market and see the transaction as opening new directions of development.
Waiting time
In February, a stir was caused by information about an attempt to recognize the merger of PKN Orlen and Lotus Group as invalid. This step was taken by minority shareholders who are trying to prove that the merger of the two companies was not beneficial at all and may cause many negative consequences. It seems that they are the exponents of growing opinions that raise the legitimacy of concentration, which are present in the public space. The court now has a lot of questions to decide. It is worth noting that the process of merging the two companies was spread over the years. Its beginning dates back to 2018. At that time, PKN Orlen made its first attempts to merge with Grupa Lotos. The breakthrough year was 2020. At that time, the European Commission defined the conditions that Orlen had to meet in order to finalize the concentration plans. In August 2022, Orlen announced the merger.
The effects of legislative work
Thanks to the so-called the debt relief act and the “second chance” directive, the past month provided some valuable information on the implementation and application of the law.
With undisguised disappointment, farmers assessed the effects of the debt relief act addressed to them. Under the aforementioned legal act, they were to be provided with support in situations of loss of financial liquidity. However, so far few farmers have received the aid they have applied for. They unanimously indicate that the complexity of the documentation makes it difficult or impossible to complete them on your own.
In turn, work on the act implementing the solutions required by the EU “second chance directive” (Directive 2019/1023) into the Polish restructuring law is gaining momentum. In February 2023, the stage of public consultations and issuing opinions on the act as part of government work ended, and the draft act is currently being considered by the Committee for European Affairs. As a rule, the act is to enter into force on March 1, 2024, i.e. exactly in a year. Of course, it should be remembered that due to the Sejm’s term of office ending this year, for this to happen, work on the bill must be completed before the start of the new term.
While the change in the date of entry into force of the act (from 18-month vacatio legis to March 1, 2024) should be assessed positively, it should be remembered that in accordance with the obligation expressed in the directive, Poland should implement it already in the middle of last year.
Importantly, as part of the legislative work, an effective dialogue with social partners took place. Some proposals for changes submitted as part of the opinion and consultations were reflected in the current text of the act. The Ministry published a comprehensive list of which comments were taken into account and which were omitted. The implemented changes included the proposal of the National Chamber of Restructuring Advisors and the INSO section of the Allerhand Institute to specify the value of collateral provided in the list of receivables (Article 86(3) of the Restructuring Act), as well as the comment of the Polish Bank Association regarding transitional provisions. As a result, the current draft includes not only the provisions implementing the directive, but also contains corrections to certain defects in the current wording of the act.
Summary
The variety of issues raised on the Website through the published news allows you to present and look at the surrounding reality from many perspectives. First of all, it is clear that an increasing number of industries (technology, brewing, automotive and construction) are facing the current economic situation. It leaves its mark on market participants who differ in many aspects, including size, location, available financial resources. Regardless, however, it forces them to consider their current functioning and revise their plans.
In this context, the sale of enterprises (Krakowski Kredens and Martwi) was an important event, which raises questions about the reasons for the failure and makes it necessary to look at the further activities of the new owners. Similarly, it is worth observing the resolution of doubts regarding the merger of PKN Orlen and Grupa Lotos and the finalization of talks between representatives of Rafako and Tauron.
The summary was prepared by: Ph.D. Maria Wąsicka-Sroczyńska, Legal Counsel Maciej Woźniak and restructuring advisor Hubert Zieliński.
1 Figures vary by source. Nevertheless, there is a noticeable disproportion between the number of emerging and the number of suspended and closed businesses, https://tvn24.pl/biznes/dlafirm/liczba-firm-w-polsce-zrejestrowane-i-wyrejestrowane-w-styczniu-dane-gus-o-firmach-6749372
