How does Polish law define the moment of company insolvency and the time frame for filing for bankruptcy?
Chapter 11
11.1 At what juncture does insolvency necessitate the filing for bankruptcy?
Under laws of Poland, bankruptcy is declared against a debtor who has become insolvent. The debtor is required to submit a petition for bankruptcy to the court no later than thirty days from the date on which the grounds for declaring bankruptcy arose.
The legislator has maintained the existence of two bases for debtor insolvency, which can be referred to as “loss of liquidity” and “excessive indebtedness.” The legislator introduced also numerous presumptions, detailed below, related to the construction of insolvency in order to facilitate the submission of bankruptcy petitions.
The debtor is considered insolvent if they have lost the ability to meet their financial obligations as they become due. It is presumed that the debtor has lost the ability to meet their financial obligations as they become due if the delay in meeting such obligations exceeds three months.
The debtor, being a legal entity or an organizational unit without legal personality, to which a separate law grants legal capacity, is considered insolvent also when their monetary obligations exceed the value of their assets, and this situation persists for a period exceeding twenty-four months. The assets mentioned above do not include elements that are not included in the bankruptcy estate. The monetary obligations mentioned above do not include future obligations, including obligations subject to a suspensive condition, as well as obligations towards a partner or shareholder under a loan or other legal transaction with similar effects.
It is presumed that the debtor’s monetary obligations exceed the value of his assets if, according to the balance sheet, his liabilities, excluding provisions for liabilities and obligations to related parties, exceed the value of his assets, and this situation persists for a period exceeding twenty-four months.
The court may dismiss a petition for bankruptcy declaration if there is no imminent threat to the debtor’s ability to meet his monetary obligations in the near future.
The court will dismiss a bankruptcy petition filed by a creditor if the debtor demonstrates that the claim is entirely disputed and the dispute arose between the parties before the bankruptcy petition was submitted.
The court will dismiss a bankruptcy petition if the assets of the insolvent debtor are insufficient to cover the costs of the proceedings or only cover those costs.
- Legal responsibility on part of directors is of formal nature
For the mere declaration of bankruptcy, the cause of the debtor’s insolvency and the timing of the submission of the bankruptcy petition are irrelevant. The bankruptcy proceedings are intended to protect the interests of the creditors of the insolvent debtor. However, the circumstances leading to insolvency and the timing of the petition submission are legally significant, albeit under different provisions.
11.2 Detailed guidelines from court rulings concerning the determination of the timing for filing for bankruptcy.
Considering the strict liability associated with the failure to timely file a bankruptcy petition, one would expect guidelines regarding the definition of the commencement of the deadline for filing a bankruptcy petition to be very clear and precise. However, the Supreme Court has provided a series of indications on how to interpret the grounds for bankruptcy declaration. While not denying their validity, it must also be noted that they are formulated in such an unclear manner that even the oracle at Delphi or Nostradamus would not be ashamed of them.
Let us quote just a few of them, which I mention in reference to Izabela Heropolitańska’s commentary.
1) A brief halt in debt payments due to temporary difficulties is not grounds for declaring bankruptcy, as insolvency within the meaning of Article 11, paragraph 1 of the Bankruptcy and Reorganization Law can only be considered when a debtor, due to lack of resources, fails to fulfill the majority of their obligations for an extended period of time (ruling of January 19, 2011, V CSK 211/10, Legalis);
2) One cannot adopt the view in a schematic manner that every, even a single, delay automatically triggers insolvency necessitating the submission of a bankruptcy petition (ruling of the Provincial Administrative Court of December 17, 2020, case number III SA/Wa 301/20, Legalis);
3) In accordance with the Supreme Court ruling of January 8, 2013 (case number III KK 117/12, BSN 2013, No. 3), the occurrence of a situation where the debtor ceases to fulfill its due obligations gives rise to the obligation to file a bankruptcy petition with the court, even if the debtor is not in a situation where its assets are insufficient to satisfy its debts. A possible solution for the debtor could be the sale of part of its assets or the assumption of new obligations;
4) According to the NSA in the ruling of March 6, 2018 (case number II FSK 2173/17, Legalis), insolvency occurs not only when the debtor lacks funds, but also when the debtor fails to meet obligations for other reasons.
In Judgment V CSK 211/10, the Supreme Court displayed a rather dark sense of humor, indicating that a brief pause in debt payments due to temporary difficulties does not constitute sufficient grounds for declaring bankruptcy. In other words, if the difficulties are only temporary, there are no grounds for a bankruptcy declaration, the deadline for submitting a petition does not commence, and there is no risk of shifting personal liability onto board members. However, if the difficulties prove to be only temporary, then the prerequisites for bankruptcy declaration have not yet been met.
Where is the humor in this, you may wonder?
The determination of whether the difficulties were indeed temporary or not can only be made ex post, with the benefit of hindsight, meaning when it is already too late to protect the board from secondary liability by submitting a bankruptcy petition on time. One can speculate that the Supreme Court intended to offer the board a lifeline by providing them with reasoning to avoid filing a bankruptcy petition, yet in reality, the Supreme Court unintentionally gave the drowning a razor blade to cling to – it is understood that a typical board will attempt to defend the company, deluding themselves with hopes that the difficulties are only temporary. Finding justification in Judgment V CSK 211/10 to delay filing a bankruptcy petition. Once the ability to view these difficulties as temporary is exhausted, it will be too late to submit a petition. Why? Because if the difficulties turn out not to be temporary, the deadline for declaring bankruptcy is not calculated from the day the difficulties ceased to be temporary but from the initial day when the debtor stopped meeting obligations.
Robert Nogacki is a Polish attorney at law (radca prawny), the founder and managing partner of Kancelaria Prawna Skarbiec (Skarbiec Law Firm), which has operated continuously since 2006.
The law is equal for everyone, but the parties rarely are: on one side stands an organization with time, money, and lawyers, on the other a person with one business, one nest egg, and one life.
Clients rarely come to him with a legal problem. They come with a problem that also has a legal side: an audit that began with a single invoice, money entrusted to someone who has disappeared, a company that has to be passed on before it is too late. Most such matters are decided long before the first letter is written, in decisions made without asking and in deadlines nobody remembered. So he begins by asking how the client got here, not what the client should have done.
He advises entrepreneurs and families from more than a dozen countries, including those whose accounts the tax office has just seized and who do not know what to do tomorrow morning. He defends them in tax audits, customs and fiscal inspections, disputes with the tax authorities, and criminal tax proceedings. He represents victims of investment fraud and Ponzi schemes. He helps families set up family foundations and plan succession, so that a life’s work outlasts a single generation.
Not every case can be won. Every case can be run so that the client knows where they stand. Since 2006 he has represented the victims in the WGI case (Warszawska Grupa Inwestycyjna, the Warsaw Investment Group), one of the longest criminal cases in the history of the Polish financial market, because some things must not be left half finished, even when they take two decades. In the case of the collapsed cryptocurrency exchange Zonda (Zondacrypto, operated by BB Trade Estonia OÜ), he represents several hundred victims in the criminal investigation conducted by Poland’s National Prosecutor’s Office and in the Estonian bankruptcy proceedings.
Kancelaria Prawna Skarbiec is listed in the rankings of Poland’s largest tax advisory firms published by Dziennik Gazeta Prawna and Rzeczpospolita, and it is a four-time recipient (2015 to 2018) of the European Medal awarded by the Business Centre Club and the European Economic and Social Committee. Robert Nogacki publishes regularly, in the press and on the firm’s website, for people who have a problem rather than a law degree, because a legal opinion the client cannot understand protects only the lawyer.
He believes that the best legal advice is the kind that means the client never has to appear in court.
