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act BSWW proposes legislative changes: suspension of obligation to file for bankruptcy

07.04.2020

With works underway to revise the so-called Anti-Crisis Shield, act BSWW has proposed that the amended legislation should include a provision suspending the obligation to file for bankruptcy. The issue is discussed in detail in the article of March 25, 2020 by Barbara Szczepkowska (Partner at act BSWW, co-heading the bankruptcy and restructuring practice), which is available on the Rzeczpospolita online news service.

On April 7, 2020, the draft of so-called Anti-Crisis Shield 2.0, including the suspension of the obligation to file for bankruptcy, headed to the Sejm. Based on the drafted legislation, the obligation to file for bankruptcy will be suspended with respect to debtors who became insolvent during and as a result of the COVID-19 epidemic. The 30-day deadline for filing for bankruptcy will start to run anew for these debtors once the state of epidemic is called off.

While we agree with the idea behind the changes proposed in the draft, we also believe that it has certain flaws. First of all, it fails to stipulate any conditions for the suspension in respect of a debtor’s efforts to save its business. This means that a debtor who takes restructuring measures, negotiates with the creditors and seeks public aid and a debtor who fails to respond to its financial difficulties allowing its assets to gradually melt away are treated equally. In our opinion, the solution will materially harm creditors’ interests. Second of all, the deadline for a debtor to regain profitability after the state of epidemic is called off is too short. If the 30-day deadline starts to run immediately after the state of epidemic is ended, businesses will not have enough time to restore the ability to pay their debts. What this basically means is that insolvent business will need to start preparing bankruptcy petitions straight away, which is not the point of this legislation. It should be also noted that the draft legislation does nothing to stop creditors from initiating bankruptcy procedure with respect to a distressed business, which will be left without any protection.

The solution we propose strikes a balance between creditors’ and debtors’ interests. As we see it, the suspension of the obligation should not be unconditional. Based on our proposition, businesses which want to stop the 30-day deadline for bankruptcy filing from running (or ensure that it is not set running) will be required to take substantial actions aiming at restoring the ability to pay due debts after the epidemic ends. Our goal is to protect especially the businesses which will file for public support, e.g. on the basis of one of the so-called special-purpose acts, and will be waiting for the financial help, businesses which file for restructuring and will be waiting for their applications to be processed, as well as businesses which will engage in negotiations with their creditors to reach settlement. Moreover, we believe that businesses should have at least several months after the epidemic ends to regain profitability. We also put forward that the courts should be required to dismiss a creditor’s petition for bankruptcy filed with respect to a debtor which satisfies established requirements (most importantly, the debtor should take substantial actions aiming to improve its liquidity).

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