Proceedings for approval of the arrangement – planned changes

Introduction

Proceedings for the approval of an arrangement, in which the arrangement supervisor announces the determination of the arrangement date, is currently the most frequently used restructuring proceeding. The practice of its application shows, however, that the statutory regulation contains a number of shortcomings that undermine the internal coherence of the assumptions underlying the restructuring law. For this reason, the Ministry of Justice, when drafting the amendments to the regulations necessary to implement the EU Directive on Preventive Restructuring Frameworks (Directive 2019/1023) into Polish law, decided to propose a number of provisions to eliminate some of the doubts existing in practice and to “fix” the current contradictions in the law.

Duration of the proceedings

The proposed changes provide for the extension of the pre-litigation period of proceedings from 3 to 4 months. This will eliminate one of the main inconsistencies existing under today’s regulation of arrangement approval proceedings, i.e. the difference between the duration of the protection of the debtor’s assets (4 months) and the period that may elapse between the arrangement date and the submission of an application for approval of the arrangement, including the validity of votes (3 months). At the same time, the draft contains a provision indicating that the arrangement date may not be a date later than the date of the announcement of its determination (Article 211(2) of the LPR). This issue could raise doubts, primarily due to the existing difference between the statutory period of protection and the time for voting. In practice, some believed that in order to fully use the 4-month protection period, it is permissible to announce the setting of the arrangement date, which will fall only “in a month’s time”.

Possibility to opt out of the proceedings

The designed art. 218a p.r. comprehensively regulates issues related to the discontinuance and completion of proceedings for approval of the arrangement, both at the pre-litigation stage and after submitting the application to the court. In particular, it introduces the possibility of discontinuing the proceedings by operation of law as a result of the debtor’s submission of an appropriate statement. So far, the possibility for the debtor to resign from the protection granted to him as a result of the announcement has not been directly regulated in the act.

Introduction of a ban on the fulfillment of benefits covered by the agreement by law and a ban on deductions during the protection period

In the current regulations, the protection of the debtor’s assets against enforcement and the ban on terminating key contracts have not been linked to the prohibition of performance under the arrangement by operation of law and the prohibition of set-offs. This situation could, in practice, lead to abuses, because at the same time the debtor’s assets were under full protection from all his creditors, and at the same time the debtor could selectively repay some of them, in particular those who did not support the arrangement. The current solution was also inconsistent with one of the basic assumptions underlying the restructuring law, according to which the protection of the debtor’s assets should always be proportionally related to the restrictions imposed on him.

Extension of the period for the application of the provisions on the ineffectiveness of legal acts performed on the pre-bankruptcy stage by the period of proceedings for approval of the arrangement

The draft provides for the introduction of Art. 131a of the Act of February 28, 20-3 – Bankruptcy Law, it is also understood, respectively: the arrangement date and the date of discontinuation of the proceedings, referred to in mrt. in art. 218a.

Not from Art. 131a sentence 1 p.u. if bankruptcy was declared as a result of examining a bankruptcy petition submitted no later than 3 months from the date of completion of the restructuring proceedings or the decision on discontinuation of the restructuring proceedings becoming final and binding, by the date of submitting the bankruptcy petition referred to in Art. 127-130, shall be understood as the date of submission of the restructuring application.

Introduction of general rules for the preparation of economic documents for voting

One of the important elements of the planned amendment is the introduction of a rule in all restructuring proceedings according to which all economic documents necessary from the point of view of creditors’ decisions on whether to support or not support the arrangement should be prepared at least 30 days before the start of voting. These documents are primarily: the satisfaction test, the opinion on the possibility of implementing the arrangement and the private creditor test. At the same time, participants in the proceedings will be able to submit objections to the documents prepared by the supervisor within 2 weeks, and their submission does not suspend voting. The supervisor of the arrangement may take into account the reservations or make a statement on not taking them into account, together with the justification. This rule will also be introduced in the procedure for approval of the arrangement.

Summary

The entry into force of the proposed changes to the procedure for approval of the arrangement should contribute to making it an even more effective instrument for preventing the insolvency of entrepreneurs. The amendment should also have a positive impact on the systemic cohesion of the restructuring law, at least in terms of the effects that the act associates with the notice on setting the arrangement date.