New rules for protection against enforcement in restructuring
The consequences of opening and conducting restructuring proceedings for the debtor on the existence of enforcement proceedings initiated by the creditor, although regulated directly in the Restructuring Law, still raise a number of doubts. Enforcement proceedings, even if they are conducted against the debtor, are not always suspended. For this reason, when designing changes to the regulations necessary to implement the EU Preventive Restructuring Framework Directive (Directive No. 2019/1023) into Polish law, the national legislator decided to introduce a number of provisions intended to eliminate some of the doubts that exist in practice.
Current regulation
If the receivable constituting the basis for enforcement is an arrangement receivable (accelerated arrangement proceedings or arrangement proceedings), the provisions specifying the moment of suspension of enforcement proceedings apply (Article 259(1) of the Law in accelerated arrangement proceedings, Art. 278 of the Law in arrangement proceedings). Therefore, on the day of opening the restructuring proceedings, it is not possible to continue enforcement in relation to the receivables covered by the arrangement (the enforcement is suspended by operation of law), and the initiation of new enforcement proceedings is inadmissible.
This issue is different in restructuring proceedings and in proceedings for the approval of an arrangement from the date of the announcement establishing the arrangement date (Article 226a and 226e of the Labor Law). Due to the application of Art. 312 p.r. (in the case of proceedings for the approval of an arrangement in connection with Article 226e of the Labor Law), the proceedings are suspended in each case, and the feature of the receivable being an arrangement receivable is not important here; directing the execution to the sanitation mass is of decisive importance.
Consequently, we must also pay attention to the provision expressed in Art. 170 p.r. the principle – very important from the creditor’s perspective – of discontinuing enforcement proceedings by operation of law once the decision approving the arrangement becomes final.
Implementation of the Directive into national order
The EU legislator provided for the obligation of a Member State to ensure that debtors subject to restructuring proceedings can benefit from the suspension of individual enforcement activities (Article 6(1) of the Directive). This provision indicates that such a stay is intended to assist the debtor in negotiating a restructuring plan under preventive restructuring. It was also indicated that the debtor should be able to benefit from a temporary stay of individual enforcement actions in order to support the negotiations on the restructuring plan in order to be able to continue its business or at least retain the value of its arrangement and bankruptcy estate during the negotiations.
Therefore, the national legislator was faced with the task of constructing such a legal order that debtors who submitted an application for the opening of restructuring proceedings could benefit from protection against enforcement proceedings initiated before the date of opening the restructuring proceedings, as well as against the possible initiation of enforcement during the restructuring proceedings.
In this context, the proposed Art. 189a section 1 of the Law, according to which enforcement proceedings directed against the debtor’s assets initiated before the date of opening the restructuring proceedings are suspended by operation of law on the date of opening the proceedings for a period of four months from the date of opening the proceedings. At the same time, it will be inadmissible to direct enforcement against the debtor’s property and to enforce a decision to secure a claim or an order to secure a claim on this property (proposed section 2). The above-mentioned regulation will not apply to the enforcement of amounts due under an employment relationship, alimony benefits and annuities in respect of compensation for causing illness, incapacity for work, disability or death and in connection with the conversion of rights covered by the content of the right to life imprisonment into a life annuity (proposed section 5).
The initial period of suspension of enforcement proceedings will therefore last 4 months and will start on the day of opening the restructuring proceedings. After the expiry of this period, the judge-commissioner, at the request of the court supervisor or administrator, will be able to suspend the enforcement proceedings for a further period (not exceeding the initial suspension period of 12 months), if the progress in the negotiations between the debtor and creditors indicates the likelihood of concluding an arrangement, unless further suspension of enforcement would result in harm to creditors (proposed section 3).
The proposed change also provides for granting the judge-commissioner the right to revoke the initial suspension of enforcement proceedings (which will take place ex lege upon the opening of restructuring proceedings) in a situation where such suspension would result in gross harm to at least one creditor, when there is a justified assumption that the meeting of creditors would not a resolution on the acceptance of the arrangement is adopted or when the debtor himself or the court supervisor submits a request for such an annulment (proposed section 6).
In restructuring proceedings, the period of suspension of enforcement proceedings and the period of prohibition of enforcement will be 12 months.
Protection against enforcement while waiting for the arrangement to be approved
The new regulations will also provide the debtor with protection against enforcement in the period between the adoption of the arrangement and the end of the restructuring proceedings (i.e. the decision to approve the arrangement or the decision refusing to approve the arrangement becomes final) or the final discontinuation of the restructuring proceedings.
Temporal scope of protection provided for in Art. 6(1) of the Directive covers the period from the opening of restructuring proceedings, or from the moment the court issues a decision to suspend enforcement activities (if the suspension does not take place by operation of law), to the moment the negotiations are completed, i.e. the debtor concludes an arrangement with creditors.
However, the legislator extends the scope of this protection to the period from the date of conclusion of the arrangement to the date of completion of the restructuring proceedings or its final discontinuation (proposed Article 168a). In practice, it is common to wait for the court to approve or refuse to approve the arrangement (on average several months). If only the proposed Art. 189a, the debtor would be deprived of protection against possible enforcement of claims by creditors while waiting for the approval of the arrangement.
Enforcement after completion of restructuring
The drafter also provided separate regulations for the effects of approval of the arrangement on enforcement proceedings. Invariably, on the day the decision approving the arrangement becomes final, the enforcement proceedings are discontinued by operation of law (Article 170(1) of the Labor Law). The proposed Art. is particularly important for securing the rights of creditors. 170 section 1, according to which the sums obtained in enforcement and security proceedings, which have been written off by operation of law and not yet released, are issued to the creditors who carried out the enforcement or to the creditors who obtained security for the receivables included in the list of receivables, in the total amount specified in the content of the arrangement. , unless the arrangement provides for satisfaction of the creditor in a non-monetary manner. The proposed change will help eliminate cases where the only source of financing for the arrangement were amounts recovered in suspended enforcement proceedings. It happened that after the possible adoption of the arrangement and discontinuation of the enforcement proceedings, these funds were transferred to the debtor to the detriment of the creditors conducting the enforcement.
Summary
The consequence of the new regulation of the effects of opening restructuring proceedings for enforcement proceedings is the repeal of Art. 259, 260, 278, 279 and 312 p.r. The proposed changes will strengthen the debtor’s negotiating position towards creditors when determining the content of the future arrangement, and at the same time will increase the protection of a debtor subject to restructuring proceedings against individual enforcement by his creditors.
