The Covid-19 Act of 2020 froze the statutory obligation to report company insolvency, thereby protecting company directors from personal asset enforcement. With the consistent lifting of epidemic states, this "grace period" is coming to an end. We explain from when the ticking 30-day deadline for filing for insolvency will commence and what penalties await for disregarding this deadline (including criminal liability).
💡 Key takeaways
- In standard circumstances, the debtor (or management team within a company) has Only 30 days from the moment insolvency arises to file for bankruptcy.
- The Covid Act suspended the running of this period (if insolvency arose during the pandemic). However, immediately after the lifting of the state of epidemic threat, 30-day terms will restart for all debtors simultaneously.
- Failure to file an application within the deadline results in financial liability for the company's debts (with the entire private assets of the management board member), a ban on business activity for 10 years, and criminal penalties (up to 1 year imprisonment).
For two years, many companies have been balancing on the brink of bankruptcy, remaining on the market solely thanks to the COVID shield. When the shield (and the legal "protection" from filing for bankruptcy) disappears, board members will have just 30 days to complete hundreds of financial documents. Waiting until the last minute is a guarantee of errors.
Bankruptcy announcement and the end of the pandemic. How to protect your assets?
What does declaring bankruptcy entail? (Prerequisites)
Bankruptcy proceedings are initiated solely at the request of a party (never ex officio), and their main objective is to satisfy creditors to the maximum extent possible from the debtor’s assets under the supervision of a receiver. Bankruptcy can only be declared against an insolvent debtor (Article 11 of the Bankruptcy Law). Insolvency is encountered in two cases:
- Liquidity The debtor has lost the ability to meet their due monetary obligations (i.e. they do not have cash for current repayments).
- Balance sheet (legal entities only, e.g. limited liability companies): The company's monetary liabilities exceed the value of its assets, and this situation has persisted for a period exceeding 24 months.
On whom does the legal obligation rest and when does it arise?
According to the Bankruptcy Law, the application shall be filed with the court maximum within 30 days of the date on which the insolvency event occurs.
Who has to do it? In a sole proprietorship – the entrepreneur themselves. However, in the case of limited liability companies or public limited companies, this obligation rests jointly on each member of the Board of Directors, as well as any liquidators or succession managers.
Sanctions and liability (own assets and Art. 299 of the Commercial Companies Code)
Failure to submit the application on time has serious personal consequences for the board members on three fronts:
- Civil liability/financial liability Pursuant to Article 299 of the Commercial Companies Code and Article 21 of the Insolvency Law, if enforcement against the company's assets proves unsuccessful, creditors may demand payment from the management board members – from their own private assets (home, savings). The only way out is to prove that the bankruptcy petition was filed "in due time."
- Criminal liability (Art. 586 KSH): Failure to declare bankruptcy and file an application is punishable by a fine, restriction of liberty, or even up to one year in prison.
- Prohibition of business activities The court may impose a ban on holding positions in management boards, supervisory boards, and conducting self-employed business for a period of 1 to 10 years.
Application for bankruptcy and the Covid shields (Art. 15zzra)
To save the market from a wave of bankruptcies during the pandemic, the government introduced Article 15zzra. Pursuant to this: if insolvency arose during the period of the epidemic/epidemic threat and was a result of COVID-19 (which is presumed by law), The 30-day deadline for submitting an application has been frozen (did not start or was interrupted)..
Thanks to this regulation, entrepreneurs who lost liquidity from 2020 onwards did not have to rush to court immediately, and their private assets remained protected.
What will happen after the state of epidemic threat is lifted?
COVID protection does not release you from your obligation – it merely PostponesAs soon as the authorities officially lift the state of epidemic threat in Poland, the protective shield will immediately fall.
Then a new 30-day period will begin to file overdue bankruptcy applications. Entrepreneurs will have just one month to assess their company's financial health and assemble extensive court documentation (including asset registers and creditor lists). Being even one day late will once again expose management to enormous liability under Art. 299 of the Commercial Companies Code.