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The Act of 16 April 2020 on Special Support Instruments in Connection with the Spread of the SARS-CoV-2 Virus regulates among others the issue of an impact of the state of epidemic risk or the state of epidemic introduced due to COVID-19 on the run of the 30-day period fixed for filing for declaration of bankruptcy, specified in art. 21 of The Bankruptcy Law Act of 28 February 2003.

The existing legislative acts adopted as part of the Anti-crisis Shield did not contain regulations that would have an impact on the duty to file the petition for declaration of bankruptcy. Specifically, the provisions of Articles 15zzr and  15zzs of the CVIC-19 Act regulating the issue of suspending the run, or of not initiating the run of the periods specified in regulations (including of the court or procedural time-limits) – did not involve the time-limit fixed for filing the petition for declaration of bankruptcy. As a result, in order to avoid negative consequences and possible liability for damages, or possible tax or criminal liability in the event of failure to file the bankruptcy petition for declaration of bankruptcy on time – the persons obliged to file them should have filed such a petition with the court within 30 days following the occurrence of the state of insolvency.

The contents of amendments  

In the light of new art. 15zzra item 1, if:

  • the ground for declaration of debtor’s bankruptcy has occurred during the period of announced epidemic risk or epidemic due to COVID-19,

and

  • the insolvency has occurred due to COVID-19,

the run of the period fixed for filing the bankruptcy petition, referred to in art. 21 of The Bankruptcy Law, does not begin, and where such a period has begun to run, it is subject to termination. After the period of risk of epidemic or epidemic, the 30-day period for filing the bankruptcy petition starts from the beginning.

The period fixed for filing the bankruptcy petition is not subject to termination if the insolvency has occurred before the announcement of the epidemic risk due to COVID-19 or if the insolvency has not been caused by the COVOD-19 epidemic. Thus, if the company was in bad financial condition before 13 March 2020, the amendment to the “anti-crisis shield” cannot have an impact on the run of the period provided for filing the bankruptcy petition. In turn, the cause and effect relationship between the COVID-19 and the insolvency should be interpreted broadly. Following that approach, such a relationship would exist in the majority of the cases in which the ability to satisfy due and payable cash obligations was lost due to, e.g. a drastic drop in the value of orders during the period of epidemic risk or epidemic, an absence of performance of obligations on the part of  commercial partners, or due to a loss of production capacity caused by e.g. breaking the chain of supplies or absence of employees at work due to quarantine or due to need to take care of the children.

The act provides for the assumption that the insolvency has occurred during the period of epidemic risk or epidemic announced due to COVID-19. This means that in the event of a dispute, the burden of proving the cause-and-effect relationship between COVID-19 and the insolvency during the period of epidemic risk or epidemic will be that of the person negating that relationship.

The evidence issues

The solution adopted in the provisions is aimed at limiting the number of petitions filed for bankruptcy during the period of epidemic, and serves as a kind of incentive for management board members to take restructuring actions without fearing liability. However, it is worth taking into account the risks as follows:

  1. The moment the epidemic and the epidemic risk cease to exist to insolvent companies, the run of the 30-day period for filing the petition for bankruptcy will begin automatically. Therefore, in many cases, the solution adopted will not give the management board members sufficient time for undertaking a real attempt at improving the company’s condition and putting its business back on track;
  2. In the event the company was burdened with due and payable cash obligations prior to 13 March 2020, the management board members should take into account the risk of determination that the insolvency occurred before the period of epidemic risk was introduced, or that the insolvency was caused by other circumstances than COVID-19, which would exclude the possibility of terminating the run of the period as in art. 21 of the Bankruptcy Law.

Hence, it may be crucial – from both the debtor’s and creditor’s perspectives – to have the evidence collected and secured right now, which in the event of a court dispute could serve as a proof whether the insolvency occurred during the period of epidemic risk or epidemic, as well as that the insolvency was caused by COVID-19.

Applications for restructuring – matter of urgency

Filing a bankruptcy petition is not the only manner of avoiding by management board members of the liability for company debts. A management board member may avoid liability if restructuring proceedings are open in respect of the company on the basis of the Restructuring Law or if arrangements are approved in respect of the company in the proceedings for approval of arrangements.  In this context it is worth mentioning that the aforementioned law has introduced a provision under which the catalogue of urgent matters specified in art. 14a, section 4 of the Law was broadened by adding matters for recognition of the application for restructuring in the meaning of the Restructuring Law. So, the legislator has now made some attempt at introducing an additional incentive for making use of the court restructuring procedures.

Bankruptcy or court restructuring cuts off the financial shield

It should be remembered that in accordance with art. 2.3 of the Act of 16 April 2020 on Special Support Instruments in Connection with the Spread of the SARS-CoV-2 Virus, the Act does not apply to entrepreneurs with bankruptcy declared in respect of them and entrepreneurs with restructuring proceedings opened in respect of them. As regards entrepreneurs with bankruptcy or restructuring petition filed vis a vis them, until the final recognition of the petition, the procedure of providing support is suspended.

By the same token, entrepreneurs in bankruptcy or undergoing the procedure of court restructuring cannot use the so-called financial shield as an instrument offered by the Industry Development Agency in connection with COVID-19. At such cases a possibility of obtaining financing as part of the financial shield solution from the Polish Development Fund is excluded either.

 

Contact:

 

 

Marcin Robenek

managing associate, adwokat

m.robenek@gessel.pl 

 

 

Paweł Kwiatkowski

managing associate, adwokat

p.kwiatkowski@gessel.pl

 

 

Jakub Brzeski

starszy prawnik, adwokat

j.brzeski@gessel.pl