PZU still has many practical doubts

Despite its enormous popularity, the arrangement approval procedure introduced in 2021 still raises many practical doubts that may lead to refusal to approve the arrangement.

The high-profile case of the restructuring of Manufaktura Piwa Wódki i Wina S.A. highlights numerous problems in the procedure for approval of the arrangement, which should not occur in a procedure lasting 3 months. On February 5, 2024, the restructuring court in Kraków refused to approve Manufaktura’s partial arrangement. Last week, the justification for this decision appeared.

When refusing to approve the arrangement, the court pointed to numerous errors that resulted in the need to make such a decision – there were indeed a lot of them, but most of them seem highly questionable.

In principle, the only doubts raised are allegations regarding inaccuracies in the documentation prepared for the application for approval of the arrangement and too general a definition of the role of the investor on which the execution of the arrangement was based. However, the question arises to what extent the indicated inaccuracies and generalities were disqualifying and made it impossible to establish the factual and legal status.

While the above allegations, given the appropriate degree of intensity, may undoubtedly constitute an obstacle to the approval of the arrangement, the remaining allegations may be considered to be incorrect in their very essence.

1. Changing the proposal during voting and applying Art. 117 section 2 of the Labor Law, according to which, in the event of changes to the arrangement proposals, a creditor’s vote cast in writing in favor of the original arrangement proposals is deemed to be a vote cast in favor of the amended arrangement proposals if they are more favorable to that creditor, and the remaining votes are treated as votes against the arrangement. Although the provision states that it applies to voting at the creditors’ meeting, it is difficult to find arguments that it cannot apply to postal voting. The purpose of the regulation will be achieved regardless of the voting method – since the debtor receives support for arrangement proposals with less favorable content in a postal vote, there is the same interest in counting such a vote as a vote in favor of more favorable arrangement proposals. The issue of assessing the feasibility of implementing the arrangement remains in the hands of the arrangement supervisor and the court, which must approve the arrangement. It should be emphasized that in practice there are no doubts regarding the application of Art. 119 of the Act, which also states that it applies to voting at the creditors’ meeting.
2. Conversion of debt into equity – the court found a risk of weakening the position of existing shareholders at the expense of creditors related to the debtor. The question arises as to how much protection should be given to existing shareholders, since the value of the shares is probably close to zero. It is worth noting that the provisions of restructuring law do not provide for specific protective mechanisms for the interests of the current owners of the restructured debtor. The purpose of restructuring is to preserve the debtor’s enterprise in an objective sense, not in a subjective sense. Of course, if the conversion is to cover some creditors, the court should not disregard which creditors are covered by the conversion and how it will affect the possibility of implementing the arrangement. However, it must not be forgotten that conversion carries a greater risk on the creditor’s side than repayment.
3. Groups in a partial arrangement – two contradictory positions are expressed in the doctrine and case law, the most recent of which is the view that a partial arrangement cannot provide for division into groups. This view seems wrong. Since the Act allows for the restructuring of a specific group of creditors (with the exception of other creditors), one can also imagine a situation in which there is a need to separate two such groups (still with the exception of other creditors). Placing creditors in one group may simply be impossible due to the fact that, in accordance with Art. 180 section 2nd year the separation of creditors covered by a partial arrangement is based on objective, clear and economically justified criteria regarding the legal relations between the creditors and the debtor, which give rise to the obligations covered by the arrangement proposals. The argument that in such a situation several partial agreements should be concluded is contrary to the principles of procedural economics. Moreover, PZU in the variant with the announcement of the arrangement date may be carried out once every ten years.
4. Inadequate type of proceedings – proceedings for the approval of an arrangement are not always an optimal solution from the point of view of protecting the interests of the debtor and creditors and the chances of conducting effective restructuring. However, the legislator did not introduce any restrictions when it comes to conducting PZU, in particular, the possibility of conducting this procedure is not influenced by the sum of receivables covered by the arrangement or the number of creditors. We also cannot ignore the fact that the legislator is responsible for the current popularity of PZU, which has shaken the structure of restructuring proceedings. Currently, choosing PZU is the most reasonable choice from the point of view of the benefits received by the debtor and the related limitations.
5. Failure to convene a meeting of creditors – the argument that there were too many creditors to vote by correspondence is contrary to the assumptions of the regulation. Not only do the regulations not set any restrictions in this respect, but they were also designed specifically for proceedings in which a significant number of creditors participate. This solution is simply cheaper. Moreover, efficiently conducted postal voting protects the interests of creditors in the same way as voting at the creditors’ meeting.

To sum up, despite several thousand proceedings for the approval of an arrangement, the practice of restructuring courts remains inconsistent, and some of the presented interpretation directions raise justified doubts, not only from the point of view of the content of applicable regulations but also from the point of view of achieving the purpose of restructuring proceedings.