Bankruptcy Proceedings Under Polish Bankruptcy Law: A Domestic And European Perspective

This article was originally published in the schoenherr roadmap'10 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.

The accession of Poland to the EU changed the legal approach to the instigation of bankruptcy and insolvency in Poland.

Introduction

Previously, the bankruptcy of a company seated in Poland was exclusively a matter of meeting the relevant criteria and following the procedural rules provided in the domestic insolvency law. Now a company in Poland may also find itself under bankruptcy proceedings it is completely unfamiliar with because they have been initiated outside of Poland, with unknown criteria and based upon a decision of a non-Polish official body. Apart from this, there is still a threat of involvement under domestic bankruptcy proceedings governed by the Polish Act on Bankruptcy and Composition (Prawo upadłosciowe i naprawcze; the Bankruptcy Law). It makes the situation of the managers of Polish companies complicated: they have to bear in mind risks relating to the insolvency of their company under the domestic law and at the same time be prepared for the possibility of losing administration rights as a result of an international bankruptcy.

Legal grounds for bankruptcies

Insolvencies in Poland are governed by the Bankruptcy Law, which distinguishes between two types of insolvency proceedings: bankruptcy proceedings (Postepowanie upadłościowe), which relate to distressed companies and judicial composition proceedings (Postępowanie naprawcze) for companies only jeopardised by insolvency (and which will not be discussed in this article). EU proceedings are regulated by EC Regulation 1346/2000 (the EC Regulation), which implies the application of one of the European laws, depending on the jurisdiction where the proceedings have been instigated.

Domestic procedures

In accordance with the Bankruptcy Law, the grounds for the initiation of proceedings for both existing bankruptcy subcategories (i.e. bankruptcies including liquidation of the bankrupt's assets and bankruptcies open for arrangement) is the insolvency of the company. Under the Bankruptcy Law a company qualifies as insolvent if it is illiquid or over-indebted. Illiquidity in general means that the debtor cannot pay its debts in due time. Over-indebtedness is where the company's liabilities exceed the balance-sheet value of its assets, even if it is current in the discharge of its obligations.

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