The end of the pandemic? – It's time to file for bankruptcy!

Krzysztof Bardel|
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The Act on special solutions related to the prevention, counteracting and combating of COVID-19, other infectious diseases and crisis situations caused by them ("Covid Act") introduced a number of ad hoc changes for the duration of the pandemic. They did not omit the provisions regarding the liability of obligated persons who are legally obliged to file for bankruptcy. Now that the legislator has decided to change the state of epidemic to a state of epidemic threat, and in the near future we will probably return to a state of full "normality", these provisions will no longer apply. So what about bankruptcy filings? How can the management board of capital companies and other persons protect themselves against liability? What are the penalties for failing to file a bankruptcy petition on time? This and much more below.

What is a bankruptcy petition?

An application for a declaration of bankruptcy is an element initiating bankruptcy proceedings described in the Act of February 28, 2003, Bankruptcy Law. It is submitted to the commercial department of the district court for the main center of the debtor's main business. Bankruptcy proceedings are initiated on the initiative of entities that have the right to submit the described application - never ex officio. This means that this application is a mandatory element and without its effective submission, bankruptcy proceedings will not be initiated. The right to submit it is primarily vested in the debtor, i.e., for example, an insolvent company (through persons authorized to represent it), but also its creditor and other entities expressly indicated in the provisions of the Act.

The bankruptcy proceedings themselves are separate civil proceedings whose main purpose - in accordance with the principle of optimization - is to satisfy the bankrupt's creditors to the highest possible extent. At the same time, if rational considerations allow, the proceedings should be conducted in such a way that the debtor's existing business is preserved. Bankruptcy proceedings are conducted under the supervision of the competent Commercial Court, which in the decision declaring bankruptcy appoints a trustee, i.e. a person responsible for, among others, for the liquidation of the bankrupt's assets and the payment to creditors of their share of the proceeds from the sale of property included in the bankruptcy estate.

Bankruptcy is declared only against a debtor who has become insolvent. The state of insolvency should always be assessed through the prism of Art. 11 of the Act
on bankruptcy proceedings. However, with great simplification, it can be assumed that an insolvent is a debtor who has stopped paying his debts, does not have the funds to repay them, fails to meet his obligations for other reasons or has no real prospect of regaining financial liquidity allowing for timely satisfaction of creditors. At the same time, it should be remembered that in the case of capital companies, the legislator introduces a special norm according to which: "A debtor who is a legal person (...) is insolvent also when his monetary liabilities exceed the value of his assets and this condition persists for a period exceeding twenty-four months.".

When should you file for bankruptcy?

Application for declaration of bankruptcy – in accordance with Art. 21 of the Bankruptcy Law - the debtor is obliged to submit a maximum of within thirty days from the date on which the grounds for declaring bankruptcy arose, i.e. the above-mentioned state of insolvency. Importantly, according to established case law, the moment of filing a bankruptcy petition is objective and cannot be left to the debtor's discretion. Therefore, it is extremely important that if you have doubts whether a given activity is insolvent, you consult a professional who will assess whether insolvency exists within the meaning of the relevant regulations and then provide appropriate advice.

Please remember that the application submitted by the debtor must meet a number of requirements arising from the Bankruptcy Law. Therefore, a situation may arise when the said 30 days will be insufficient to complete and properly prepare all the documentation on your own. In such a situation, it is worth seeking help from a professional who will provide appropriate advice and prepare everything in accordance with the relevant legal regulations.

Who is legally obliged to file for bankruptcy?

The obligation to submit an application for declaration of bankruptcy on time rests with the debtor who has become insolvent. At the same time, it should be remembered that the category of debtors is not uniform, as both entrepreneurs and natural persons who do not run a business can declare bankruptcy.
In the case of entrepreneurs running a sole proprietorship, determining the entity obliged to file a bankruptcy petition is not difficult - it is, of course, the debtor himself. What is the situation in the case of legal persons?

Pursuant to Art. 21 section 2 of the Bankruptcy Law: "If the debtor is a legal person or another organizational unit without legal personality, which is granted legal capacity by a separate act, the obligation referred to in section 1 rests with anyone who, pursuant to the act, the company's articles of association or the articles of association, has the right to conduct the debtor's affairs and to represent him, alone or jointly with other persons. It follows from the above that in the case of legal persons the obligation to submit the application within the appropriate deadline rests primarily with the Management Board (in the case of limited liability companies and joint-stock companies) or its partners (in the case of partnerships), but also with the liquidators or the successor manager.

Liability for failure to file for bankruptcy

The consequences of failing to file a bankruptcy petition may be very severe and result from many legal acts. Referring first to the Bankruptcy Act already discussed, two basic bases should be mentioned.

Pursuant to the content of Art. 21 section 3 pr.up. – persons who were obliged to submit a bankruptcy petition are liable for any damage caused as a result of failure to submit it in due time. This means that if damage is caused to the creditor as a result of failure to submit the application, the person who, contrary to legal obligation, did not submit the application will be obliged to repair it. At the same time, it is presumed that the damage covers the amount of the creditor's unsatisfied claim against the debtor. This liability is of a tort nature, the perpetrator is liable on the basis of guilt and - what is extremely important - is liable for this damage with all his assets. Moreover, practice shows that it is not easy to release yourself from this responsibility, due to the presumption that the failure to submit the appropriate application was due to the fault of the person obliged to submit it.

Another basis for liability is Art. 373 section 1 point 1 of the Act up., which determines that:

The court may order deprivation for a period of one to ten years of the right to run a business on one's own account or within a civil partnership and to serve as a successor manager, member of the supervisory board, member of the audit committee, representative or attorney of a natural person conducting business activity in the field of this activity, a commercial company, a state-owned enterprise, a cooperative, a foundation or an association of a person who, due to his own fault and being obliged to do so under the Act, did not submit an application for declaration of bankruptcy within the statutory deadline

An equally important basis for liability in the context of a limited liability company is Article 299 of the Commercial Companies Code. According to this regulation, if enforcement against the company's assets turns out to be ineffective, then the members of the management board will be jointly and severally liable for its obligations with their private assets. This sounds quite serious, but there are ways to protect yourself from this kind of unpleasantness. It is enough to demonstrate that that the debtor filed for bankruptcy in due time.

It should also be remembered that in addition to civil liability, failure to file a bankruptcy petition on time may also result in criminal liability.. Pursuant to Art. 586 of the Commercial Companies Code, "Whoever, being a member of the company's management board or a liquidator, does not submit a petition for bankruptcy of a commercial company despite the existence of conditions justifying the company's bankruptcy according to the provisions - shall be subject to a fine, restriction of liberty or imprisonment for up to one year."

The above shows how important it is to file for bankruptcy at the right time. At the same time, determining this moment may be - as mentioned above - extremely difficult for people who do not have the necessary experience in this area.

Filing for bankruptcy and Covid.

When introducing the Covid Act, the legislator provided for certain specific regulations regarding the deadline for submitting a bankruptcy application. 

Pursuant to Art. 15zra above. Act - if the debtor's insolvency, i.e. the basis for submitting a bankruptcy petition, arose during the period of the state of epidemic threat or the state of epidemic announced due to Covid-19, and the state of insolvency arose due to Covid-19, a 30-day deadline for submitting the application
bankruptcy proceedings do not start and once started are interrupted. It begins to run again only after the above states have ended. Moreover, the legislator also introduced the presumption that any insolvency arising during the state of epidemic threat or the state of epidemic announced due to COVID-19 occurred precisely because of COVID-19.

To clarify this somewhat complicated recipe, it is worth pointing out the main elements:

  1. During the period of epidemic or epidemic threat, the deadline for submitting bankruptcy applications does not run.
  2. If, in the case of a given debtor, the 30-day deadline for submitting an application ran before the introduction of the state of epidemic threat in 2020, it has been interrupted. It will run again (once again 30 days) after the end of the said states.
  3. If insolvency arose as a result of Covid-19 and occurred during the state of epidemic or epidemic threat, the debtor was not (and still is not) obliged to submit an application for bankruptcy until the state of epidemic or epidemic threat ends.
  4. It is assumed that any insolvency arising during the epidemic or epidemic threat is related to Covid-19, so the debtor does not have to prove it. In this respect, the so-called reversal of the burden of proof. However, if a dispute arises and it is shown that the state of insolvency resulted, for example, from uneconomical conduct of business activity, and the pandemic had no impact on it, then the described provision does not apply and the "normal" 30-day deadline applies.
  5. To put it simply, the period for filing a bankruptcy petition ends 30 days after the end of the state of epidemic and the state of epidemic threat.

However, this provision in no way exempts you from the obligation to file a bankruptcy petition! What should be emphasized - the debtor has the opportunity to submit such an application before the commencement of the above-mentioned period. deadline.

What if Covid regulations no longer apply?

However, since the Polish authorities are consistently lifting the existing restrictions, entrepreneurs should be aware of what they need to take care of in the near future.

A few days ago (06/05/2022), the Minister of Health announced that on May 16, 2022, the state of epidemic will be replaced by a state of epidemic threat. We assure you - this does not change anything at the moment, however, all debtors who became insolvent and took advantage of the benefits of Art. 15zra of the Covid Act, they must be on guard.

When the above-described provision 15zzra of the Covid Act ceases to be in force, i.e. when both the state of epidemic and the state of epidemic threat end in Poland, then the deadlines for submitting applications for declaring bankruptcy will begin to run. Together with them will appear the above-described responsibility for failure to fulfill this obligation!

However, the above means that the state of epidemic threat will most likely be lifted soon then all 30-day deadlines for filing a bankruptcy petition will begin to run. Thus, debtors will have a relatively short period of time to assess whether there are any indications of insolvency and to prepare appropriate applications for declaring bankruptcy.

These activities may take a long time and will not always be obvious to the debtor. Therefore, we offer you full support in the scope described above. As part of the Law Firm's activities, we will assess whether there is a requirement to submit an application, i.e. whether the debtor is indeed insolvent, and we will also prepare the necessary application along with all documentation, ensuring that the entire process is as painless as possible.

Please contact us!

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