Adoption and approval of a non-consensual arrangement on the basis of the draft act implementing Directive (EU) 2019/1023 on preventive restructuring frameworks

Although work on the implementation of Directive (EU) 2019/1023 on preventive restructuring frameworks¹ into the Polish legal system is taking a long time² , the currently published version of the draft³ marked as “Final Text” of March 29, 2023 is unlikely to change in the areas commented below at the stage of government works. Therefore, it is advisable to discuss the new regulations of the Restructuring Law on approving an arrangement that has not been adopted due to the lack of the required majority of creditors’ votes. These regulations – at least according to current assumptions – are to enter into force on March 1, 2024.

The drafter left in force Art. 119 sec. 1 and sec. 2 of the RPA, and therefore the arrangement will be accepted if the resolution on its acceptance is obtained by the majority of voting creditors who cast a valid vote (numerical majority), having a total of at least two-thirds of the total receivables due to the voting creditors (quota majority, also referred to as capital majority). If voting on the arrangement is carried out in groups of creditors covering particular categories of interests, the arrangement is adopted if the above-mentioned majorities of votes are reached in each group. The agreements concluded in this way can be called consensual agreements, which means that they were adopted with the required majority of votes, and therefore they have the appropriate statutory support and democratic justification. In other words, such an arrangement will be effective because it is supported by a sufficiently large group of creditors (both in terms of numbers and amounts).

If a consensual agreement has not been adopted, then – in accordance with the Directive and with the currently applicable Art. 119 sec. 3 p.r. – the arrangement may be effective if it is functionally justified (non-consensual arrangement). It will be an arrangement that does not harm groups of creditors, because it satisfies them evenly in relation to each other. At the same time, the relationship of mutual satisfaction of given groups of creditors in bankruptcy proceedings is taken as the reference point. The point is that the value generated as a result of successful restructuring should be distributed not arbitrarily, but in accordance with the general bankruptcy priority rules.

I would like to point out that at this stage of elaboration of the agreement, we adopt a group, not an individual, point of view, and therefore a group perspective of assessing the satisfaction of interests. To assess the creditor’s individual position in the arrangement in relation to satisfaction in bankruptcy, we will use the criterion of the creditor’s best interest, referred to in the draft Art. 165 sec. 2 p.r. Pursuant to this provision, the court refuses to approve the arrangement if any creditor who voted against the arrangement raised objections, including the allegation that as a result of the arrangement, he would be in a worse situation than in the case of bankruptcy proceedings or in the event of termination of restructuring proceedings without acceptance of the arrangement. arrangement (the criterion of protecting the best interests of creditors) and this allegation is justified.

Pursuant to the draft art. 165b sec. 1 R.L., in the event of non-acceptance of the arrangement pursuant to Art. 119 sec. 1 and 2, at the request of the debtor or with his consent, the court may declare acceptance of the arrangement if all of the following conditions are met jointly.

Firstly, most groups of creditors voted for the arrangement, including at least one group of creditors being materially secured or preferential creditors (i.e. those satisfied in bankruptcy in the first category). If such a majority of groups would not be obtained, it is enough that at least half of the groups of creditors who would have obtained any satisfaction in bankruptcy voted in favor of the arrangement.

Secondly, if an arrangement has not been accepted in a given group, the arrangement will be approved only if a proposal has been made to that group that is at least the same as that of another group in bankruptcy, and better than the group in minor bankruptcy. In other words, the arrangement cannot violate the relationship between the degree of satisfaction of creditors in bankruptcy. Therefore, it is necessary to examine how the degree of bankruptcy satisfaction of creditors of one group relates to the degree of satisfaction in another group. 

As an example, let’s assume a group of commercial creditors and a group of financial creditors, both of which are unsecured and both will be satisfied in tier two in bankruptcy. We cannot offer these groups different degrees of satisfaction in the arrangement, because it will be mutually disproportionate, and therefore harmful. This is because in bankruptcy these groups would receive proportionately the same satisfaction. Moreover, if we have a group of creditors in the arrangement, which in bankruptcy is ranked higher than another group, then this priority relationship should be maintained in the arrangement. Of course, unless the agreement is voted down in a given group – then the democratic principles of capital and personal majority will apply.

Thirdly, the existing partners or shareholders may not obtain, as a result of accepting the arrangement, benefits exceeding the value of the funds they contributed as part of the restructuring plan. This not very clear provision is intended to maintain the hierarchy of satisfaction between creditors and owners. It is necessary to carefully consider whether this provision indicates that the owners (partners or shareholders) retaining their share rights is dependent on their contribution of funds in the implementation of the restructuring plan. The most difficult part of the interpretation process will be to explain the meaning of the phrase “benefit obtained as a result of the agreement”.

This strict interpretation of Art. 165b sec. 1 lit. c) p.r. is softened somewhat by Art. 165b sec. 2 of the GDPR, according to which this condition does not have to be applied if

1. the arrangement provides for the full satisfaction of creditors or
2. the value of the funds contributed by partners, shareholders or shareholders is greater than the value of the reduction in the amount of the claim provided for in the arrangement for creditors voting against the arrangement, or
3. the debtor’s partners are only natural persons.

Of course, the arrangement approval procedure differs depending on whether the arrangement is consensual or not. The designed art. 120 p.r. specifies that the minutes of the creditors’ meeting, where the arrangement was voted on, include a statement by the supervisor or administrator that the arrangement has been adopted pursuant to Art. 119 sec. 1 or sec. 2 (consensual arrangement) or a statement that the arrangement has not been accepted. The protocol also includes the content of the agreement.

In the event of non-acceptance of the agreement pursuant to Art. 119 sec. 1 and 2 of the RPA, within two weeks from the date of announcement in the KRZ that the arrangement has not been accepted, the debtor or the creditor may submit to the court an application for confirmation of acceptance and approval of such a non-consensual arrangement pursuant to Art. 165b p.r. In the event of a creditor’s application, the consent of the debtor is required to confirm the acceptance of the arrangement by the court.

¹ Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, discharge of debt and disqualifications and on measures to enhance the efficiency of restructuring, insolvency and discharge procedures, and amending Directive ( EU) 2017/1132 (Restructuring and Insolvency Directive).
² The implementation was to take place by July 17, 2022, taking into account the one-year extension of the implementation deadline.
³ See government project (UC120): https://legistacja.rcl.gov.pl/docs//2/12361503/12891108/12891109/dokument617858.pdf