Restructuring procedure may be a chance of survival for companies in threat of bankruptcy. Shield 4.0 will simply the rules for such a solution.
The current situation caused by the coronavirus pandemic has a direct impact on business operations. For many of them, it probably is or will be a direct cause of the loss of financial liquidity and thus the inability to meet their financial liabilities.
This is not only a problem of large enterprises, but also individuals conducting business activities or the self-employed. Those people are most likely at risk of losing financial liquidity due to the introduced changes in law which limited the possibility to operate due to the spreading virus in industries such as gastronomy, hotel or tourism.
Learn more: The Sejm adopted Shield 4.0
In a difficult business environment caused by the COVID-19 epidemic, an alternative to filing for bankruptcy is opening a restructuring proceedings. The purpose of such proceedings is to avoid bankruptcy of an enterprise and restore its business ability.
One of the aid measures for enterprises under the Anti-Crisis Shield 4.0 is a modification of procedural rules applicable to the simplest of the restructuring proceedings – proceedings for approval of an arrangement that will be available to businesses by 30 June 2021.
It should be noted that the regulations of the Shield are addressed not only to enterprises whose difficult situation arose because of the COVID-19, but to all debtors who are currently in of threat of insolvency, regardless of the reasons.
The changes introduced by Shield 4.0 are designed to extend the protection of debtors against enforcement and extend the protection of debtors and managers against personal liability for debts and tax liabilities. The option of using the protection provided for under the shield, however, involves a restriction of the freedom in managing the enterprise.
The proposed solutions of Shield 4.0 provide that the protection of a debtor will be activated upon the publishing of notice on opening of the proceedings for approval of the arrangement in the Monitor Sądowy i Gospodarczy. [Court and Business Gazette]. Until now, such protection was in effect only after the court approved the agreement. Upon the publication of notice, the entrepreneur will have 4 months to submit an application for approval of the arrangement, which means that during this time creditors will have to vote on the arrangement.
The simplified procedure provides for the protection of the debtor’s assets against claims of creditors. This means that as of the day of publication of the notice on the opening of proceedings, enforcement of the claims covered by the arrangement will be suspended.
In addition, a debtor during the proceedings will receive protection against termination of a contract by the other party, in particular:
The above contracts may be terminated only with the consent of the arrangement supervisor.
During the proceedings, a debtor will be entitled to perform activities not exceeding ordinary management, and with respect to the activities exceeding ordinary management, the debtor will be required to obtain the consent of the arrangement supervisor. This consent may be given within 30 days of the act being performed, and its refusal will render the act invalid. This means that, for example, when selling real estate, you will need to obtain the supervisor’s approval.
From the date of publication of the notice, a 4-month period for concluding an arrangement with creditors will start to run. The debtor, under the supervision of the supervisor, will be entitled to collect votes in writing from the creditors regarding the arrangement. Furthermore, the arrangement supervisor himself will be able to convene a meeting of creditors to vote on the arrangement. The meeting can be held in the form of a video conference, and the minutes will have to be recorded on an electronic storage medium.
Liability of the debtor’s board members
Thanks to the proposed solutions, apart from the debtor, the members of the company’s (debtor’s) management board will also be protected. They will be released from liability:
The liability of management board members will be excluded if, within the time limit for filing for bankruptcy, a notice is made on the opening of an arrangement approval proceedings, as a result of which an arrangement with creditors will be concluded and approved. Protection will be maintained even if the entering into an arrangement proves impossible, provided that within 7 days of discontinuing the proceedings due to the lack of an application for approval of the arrangement, the debtor filed a petition for bankruptcy or for the opening of the restructuring procedure that led to its opening.
The above clearly shows that a draft regulation is to provide an incentive for entrepreneurs at risk of insolvency to attempt to restructure their debt instead of filing for bankruptcy. The simplified procedure is to provide a kind of protective umbrella for entrepreneurs from the moment the notice is published. In addition, its significant advantage is a small intervention of the court, whose role will be limited to approval of the arrangement, or to examination of applications for annulment of the effects of opening the proceedings. In addition, it is worth noting that the regulations of the Shield introduce a significant reduction in the remuneration of restructuring advisors, which will significantly reduce the costs of this type of restructuring proceedings.
Director of the Commercial Law and Property Department, Advocate
TGC Corporate Lawyers
TGC Corporate Lawyers
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