It has wrought financial havoc, forcing governments and policymakers to look for and implement unorthodox solutions to save the economy, businesses and jobs. Many states swiftly introduced extraordinary legal measures, including in the area of restructuring and insolvency, designed to alleviate the financial burden of cash-strapped but otherwise healthy businesses and allow them to survive. In Poland, one such measure that has the potential to significantly amend the debt restructuring framework is the simplified restructuring proceeding ("SRP").
Key features of SRPs
The SRP is an enhanced form of an already existing restructuring procedure, an arrangement sanctioning proceeding (postępowanie o zatwierdzenie układu) that has been available in Poland since 2016. The SRP has been designed as a fast-track and flexible debt-restructuring tool. It combines the traditional benefits of a judicial restructuring procedure, such as protection against enforcement actions, with the highly limited involvement of a restructuring court. As explained below, the SRP restructuring proceeding is almost entirely an out-of-court exercise.
The main features and advantages of the SRP are as follows:
- It is available to already insolvent companies (regardless of the reason of the insolvency) and those on the verge of insolvency. Hence, a troubled company may initiate the SRP to avoid becoming insolvent. The size of the business is irrelevant – both SMEs and large businesses may avail themselves of the SRP.
- The initiation of the SRP does not require a court's decision. In fact, a court is not involved at all in the initial stage of the SRP. The decision rests entirely with the debtor, which initiates the SRP simply by publishing a statement on the opening of the procedure in the official Court and Business Gazette.
- It is almost entirely an out-of-court procedure. A debtor not only initiates the SRP but also runs it, negotiates with creditors, prepares restructuring proposals and even collects the votes. Only once an arrangement is finally approved by the necessary majority of creditors will the debtor file a petition to a restructuring court to sanction the arrangement. This is usually when a court becomes involved in the SRP. However, throughout the entire process the debtor will be supervised and accompanied by a licensed restructuring practitioner (appointed by the debtor itself). The restructuring practitioner acts in the interest of creditors and its primary role is to verify votes cast by creditors, the correctness of the procedure and the debtor's compliance with the law.
- Crucially, the SRP is a debtor-in- possession procedure. The debtor's management keeps running the debtor's business and managing its assets during the SRP. Only those decisions and actions that fall outside the ordinary course of business require the supervisor's (the restructuring practitioner's) consent.
- The SRP covers not only commercial claims but also public-law claims (e.g. tax debts) and secured claims. Contrary to other types of restructuring proceedings in Poland, secured creditors may be forced into the restructuring if the proposed arrangement offers them the repayment of (i) at least the portion of their claims equal to the value of the security, or (ii) 100 % of their claims, but in the extended schedule (compared to the original repayment schedule).
- In the course of the SRP the debtor is protected against creditors' enforcement actions. Enforcement proceedings concerning claims covered by the SRP that were initiated before the opening of the SRP are suspended, while new enforcement proceedings may not be commenced while the SRP is pending.
- During the SRP the debtor is also protected against unilateral termination of essential executory contracts, including loan agreements, licence agreements or lease agreements. The debtor's business partners may not terminate those contracts unless the supervisor consents to the termination or the debtor's breach of those contracts occurs after the opening of the SRP.
- As in other restructuring proceedings under Polish law, the successful restructuring does not require the support of all creditors. The arrangement (restructuring plan) is adopted if it is backed by more than half of all voting creditors holding at least two-thirds of claims of all voting claims. Group-voting and cross-class cramdown are also available. As a result, the debtor may put forward different proposals to different groups of creditors and even override an objection expressed by one or more groups (e.g. by secured creditors voting against the plan).
- The SRP is limited in time. The debtor must finalise the voting process and lodge a petition to sanction the arrangement within four months following the initiation of the SRP.
A temporary measure (or maybe not?)
The SRP has been structured as a temporary solution. The currently binding law assumes that debtors may initiate the SRP not later than on 30 June 2021. Debtors facing financial difficulties should keep this date in mind, as the SRP provides them with a flexible out-of-court restructuring tool. It is no exaggeration to state that the SRP would be the restructuring proceeding of choice for the vast majority of distressed businesses today. But given its clear advantages and expected popularity, the SRP ultimately may become a permanent solution.