Selected aspects of dealing with unprofitability of the economic activity of a Limited Liability Company (LLC) in Poland

Dealing with unprofitability of
the economic activity of a
Limited Liability Company (LLC)
in Poland

2© 2020 Deloitte Legal, Pasternak, Korba, Moskwa, Jarmul i Wspólnicy Kancelaria Prawnicza sp.k.
Ways of dealing with unprofitable economic activity of an LLC
COMPANY THREATENED
WITH INSOLVENCY
Company whose financial condition
indicates that it might become
insolvent in the near future
Restructuring
proceedings
INSOLVENT COMPANY
Company that meets the balance
sheet test or the liquidity test
(explained on the next slide)
Bankruptcy
proceedings
Restructuring
proceedings
SOLVENT COMPANY Company whose financial condition
indicates that it is not insolvent
or threatened with insolvency
Liquidation

Liability of management board members of an LLC in general
Members of the management board are jointly and
severally liable for the company’s liabilities only
when enforcement of the company’s assets
turns out to be ineffective.
A member of the management board could be
released from liability if he/she proves that:
• A bankruptcy petition was submitted not later than 30
days after the day on which the grounds for declaring
bankruptcy occurred;
• Within the deadline for filing a bankruptcy petition, a
ruling on opening of restructuring proceedings or, in the
case of the arrangement approval proceedings, a ruling
on the approval of an arrangement was issued;
• A failure to submit the bankruptcy petition
occurred for reasons other than his/her
fault; or
• A creditor has not sustained any damage
despite the fact that no bankruptcy petition
has been submitted and no restructuring
proceedings were initiated.

Liability of persons in charge
Corporate liability Criminal and quasi-criminal liability
• There is no liability of the shareholders for
the company’s liabilities.
• A member of the management board as
well as a liquidator is liable to the company for
damage caused by his/her actions or
omissions which were contrary to the
provisions of law or the company’s articles of
association, unless he/she is not at fault.
• Members of the management board may
be jointly and severally liable for the
company’s liabilities when enforcement of the
company’s assets turns out to be ineffective.
This also applies to liquidators other than
liquidators appointed by the court.
• There is no criminal or quasi-crimial
liability of the shareholders.
• Members of the management board as
well as liquidators may be subject to a fine,
a penalty of restriction of liberty or
imprisonment for up to one year in the case
of failing to file a bankruptcy petition of the
company despite the occurrence of
circumstances which gave grounds for the
company to file such petition.
• Members of the management board as
well as liquidators may be criminally liable,
for abusing the granted authority or failing
to fulfil the applicable duties, which inflict
substantial material damage to the
company.

Prerequisites of insolvency – obligations and liability of persons in charge
I N S O L V E N C Y
Liquidity
test
Balance
sheet test
The debtor is obliged to file for
bankruptcy or cause restructuring
proceedings to be opened no later
than within 30 days from the
day when either of the tests is
fulfilled. This obligation rests upon
each person who is authorised to
manage the debtor’s affairs
and represent it individually or
jointly with other persons in
accordance with the law or the
debtor’s articles of association.
Each person who is authorised to
manage the debtor’s affairs and
represent it individually or jointly
with other persons in accordance
with the law or the debtor’s articles
of association is obliged to
regularly monitor whether these
tests are fulfilled.

Insolvency tests:
Liquidity test:
A debtor is
insolvent if it loses
its ability to pay
its monetary
debts when due.
The Bankruptcy
Law provides for a
legal presumption,
according to which
a debtor is in fact
not able to pay its
monetary due
debts if a delay in
payment of its
monetary due
debts exceeds
three months.
Balance sheet test:
A debtor is insolvent if its monetary liabilities exceed the value of
its assets and this state continues for more than 24 months.
The Bankruptcy Law provides two specific rules concerning the
determination of balance sheet insolvency:
• The assets taken into consideration do not include elements
which are not part of the bankruptcy estate (e.g., assets
excluded from enforcement pursuant to the provisions of Civil
Procedure Code dated 17 November 1964, sums being part of
the debtor’s social benefit fund, receivables subject to
subparticipation agreement, etc.);
• The monetary liabilities subject to calculation do not include
future liabilities (including liabilities subject to a condition
precedent) and liabilities owed to a shareholder arising from
loan or other legal act having similar effects (e.g., supply of
goods with deferred payment date).
It is legally presumed that a debtor's monetary liabilities exceed
the value of the debtor's assets if the balance sheet liabilities
(excluding: (i) reserves to cover liabilities; and (ii) liabilities
owed to related entities) exceed the value of the debtor's assets
and this shortfall continues for more than 24 months.

Bankruptcy vs. restructuring proceedings
Regular
bankruptcy
liquidation
Pre-pack Arrangement
approval
proceedings
Accelerated
arrangement
proceedings
Arrangement
proceedings
Remedial
proceedings
Restructuring
proceedings
Bankruptcy
proceedings

As a general rule, the debtor may choose the type of restructuring proceedings which is best tailored to its needs. The types
of restructuring proceedings mainly differ in the level of the court’s involvement in the debtor’s operations and in the level of
protection against the creditors.
Types of restructuring proceedings
Arrangement
approval proceedings
Least formalized and mostly out-of-
court type of restructuring
proceedings. The debtor remains in
possession, prepares arrangement
proposals and collects creditors’ votes
on the arrangement without the
involvement of the court. After the
arrangement is adopted, the court
decides whether to approve the
arrangement. Only a limited stay of
enforcement is introduced in the
period between when the court
approves the arrangement and until
the ruling becomes final.
Accelerated
arrangement
proceedings
It is a simplified and accelerated form of
an arrangement proceedings. As a
general rule, the debtor remains in
possession but under certain conditions
the court may revoke the debtor’s right
to administer its property and appoint
an administrator. If the debtor remains
in possession, its actions exceeding the
scope of ordinary business have to be
approved by the court supervisor.
Enforcement proceedings concerning
receivables covered by the arrangement
are suspended by the operation of law.
Arrangement
proceedings
Formalized type of in-court
restructuring proceedings. Unlike in an
accelerated arrangement proceedings,
the court may decide to secure the
debtor’s assets by appointing a
temporary court supervisor before the
arrangement proceedings are opened.
During the arrangement proceedings
the debtor remains in possession,
unless certain conditions are met and
the court decides to revoke the
debtor’s right to administer its
property. If the debtor remains in
possession, its actions exceeding the
scope of ordinary business have to be
approved by the court supervisor.
Enforcement proceedings concerning
receivables covered by the
arrangement are suspended by the
operation of law.
Remedial
proceedings
Most formalized in-court type of
restructuring proceedings. As a
general rule, the debtor loses the right
to administer its property. The court
appoints an administrator who takes
over the administration of the debtor’s
enterprise and has broader powers
than in other types of restructuring
proceedings. At the same time, the
debtor gains the widest scope of
protection against creditors.
01 02 03 04

Main phases of in-court restructuring*(1/2)
* The list covers the general phases of an accelerated arrangement,
arrangement and remedial proceedings. An arrangement approval
proceedings is a very simplified one, details of which are set out on the
previous slide.
01. 02. 03. 04. 05.
The company
becomes
insolvent, i.e.,
either of the
insolvency tests is
fulfilled or there is
a threat of an
upcoming
insolvency.
The debtor decides
which type of
proceedings is most
suitable for its situation
and prepares an initial
restructuring plan
(indicating the reasons
for difficult economic
situation and planned
restructuring measures,
related costs and
schedule). In an
accelerated
arrangement and
arrangement
proceedings, the debtor
also prepares
arrangement proposals
(describing the
proposed manner of
the debt restructuring).
The management
board of the
company files a
restructuring
petition to the
restructuring court (if
the company is
insolvent the petition
ought to be filed so
that the proceedings
open within 30 days
from the day that
either of insolvency
tests is fulfilled).
In proceedings other
than an accelerated
arrangement
proceedings, the
court can secure
the assets of a
debtor e.g., by
appointing a
temporary court
supervisor or
temporary
administrator
(his/her acceptance
is then required for
all management
board actions
exceeding the scope
of ordinary business)
The court decides
upon a petition in a
closed session (i)
within a week
(accelerated
arrangement
proceedings), or (ii)
within two weeks or,
if a hearing is
required, six weeks
(arrangement or
remedial
proceedings) from
the day the petition
was filed. The court
then appoints a court
supervisor/administr
ator.

Main phases of in-court restructuring (2/2)
06.
Publication of an
announcement of
opening of the
restructuring
proceedings in the
Court and Commercial
Journal.
Preparation of
a restructuring plan
by the supervisor/
administrator within
30 days (two weeks
in an accelerated
arrangement
proceedings) after
the proceedings are
opened. If the plan is
accepted by the
judge-commissioner,
it is put into action.
The supervisor/
administrator
prepares an inventory
of claims within
30 days (two weeks in
an accelerated
arrangement
proceedings) the
proceedings are
opened. The list is
published in the Court
and Commercial
Journal. Creditors can
file objections to the
list within two weeks
from its publication.
The judge-
commissioner then
accepts the final list.
The judge-
commissioner
summons a creditors’
meeting as soon as
possible.
The creditors’
meeting votes on
the arrangement.
The judge-
commissioner issues
a decision
confirming the
adoption of the
arrangement.
07. 08. 09. 10.
The
supervisor/administr
ator supervise the
execution of the
arrangement. The
court issues a
decision confirming
the arrangement’s
execution. The
company regains the
right to freely
administer its
assets.
11.

Consequences of in-court restructuring instigation
• The management board of the debtor may
lose or loses (in a rehabilitation proceedings)
its right to administer the property included in
the arrangement/rehabilitation estate;
• The debtor’s assets become part of the
arrangement/rehabilitation estate;
• Neither the debtor nor the
supervisor/administrator may perform the
debtor’s obligations arising from the claims
which are included in the arrangement;
• Any provision of an agreement to which the
debtor is a party that prevents or hinders the
achievement of the purpose of the
restructuring proceedings becomes ineffective
with respect to the arrangement/rehabilitation
estate;
As a result of the opening of restructuring
proceedings:
• Enforcement proceedings concerning
a claim included in an arrangement,
initiated prior to the opening of the
restructuring, are suspended;
• In rehabilitation proceedings the
administrator gains a right to withdraw
from certain contracts concluded by the
debtor, if the objective of the proceedings
supports such action (e.g., he/she can
withdraw from contracts which are
unfavorable for the debtor).

Consequences of declaration of bankruptcy
As a result of declaration of bankruptcy:
• the management board of the company loses its
right to administer, use and dispose of the
property constituting the bankruptcy estate;
• all assets of the company are disclosed and
handed over to the receiver appointed by the
court (as well as all documents related to the
company’s activity);
• under certain conditions the receiver may
withdraw from contracts binding on the
company;
• the company’s assets become part of the
bankruptcy estate for the purpose of
satisfaction of the creditors’ claims;
• all monetary liabilities of the company become
immediately due;
• all non-monetary liabilities are transformed by
virtue of law into monetary liabilities and
become immediately due.

Main phases of bankruptcy proceedings (1/2)
01. 02. 03. 04. 05.
The company
becomes
insolvent, i.e.,
either of the
insolvency tests is
fulfilled.
The Management
Board of the
company is obliged
to file a
bankruptcy
petition to the
bankruptcy court
within 30 days from
the day that either
of the insolvency
tests is fulfilled.
The court can secure
the assets of a
debtor e.g., by
appointing a
temporary court
supervisor (his/her
acceptance is then
required for all
management board
actions exceeding
the scope of ordinary
business).
The bankruptcy
court decides upon
a bankruptcy
petition in a closed
session within 2
months from the
day the petition has
been filed (please
note that this term
is merely instructive
to the court; in
practice it may be
extended and often
is). The court
appoints a receiver.
Publication of an
announcement of
insolvency in the
Court and
Commercial Journal,
summoning the
creditors to report
claims against the
company within 30
days from the date
of the publication of
the announcement.

Main phases of bankruptcy proceedings (2/2)
06.
Preparation of an
inventory of assets,
valuation of the
bankruptcy estate, a
liquidation plan and
financial statement
prepared by the
receiver within 30
days following the
declaration of
bankruptcy.
Submission of claim
reports by the
creditors (within 30
days from the date
of the publication of
the announcement in
the Court and
Commercial Journal).
The receiver
prepares a list of
claims within two
months from the
closing of the time
period for reporting
claims. The list is
published in the
Court and
Commercial Journal.
The creditors can
file objections to the
list within 2 weeks
Liquidation of the
company’s assets.
Preparation of
a plan of distribution
of the bankruptcy
estate’s assets
among the creditors
by the receiver. The
creditors can file
objections to the
plan within 2 weeks
07. 08. 09. 10.
The judge-
comissioner
accepts the
distribution plan.
The plan is
executed. Once the
plan is executed, the
bankruptcy court
orders the
termination of the
bankruptcy
proceedings.
11.

Liquidation vs. bankruptcy (1)
Liquidation proceedings Bankruptcy proceedings
Proceedings initiated in relation to a solvent company. Proceedings initiated in relation to an insolvent
company.
The principal purpose of liquidation proceedings is to wind
up the operation of the company, collect debts, fulfil
obligations and liquidate the assets. The contracts binding
upon the company on the day of the initiation of the
liquidation should be rescinded or terminated under the
general provisions of law and the appropriate provisions of
the contracts.
The principal purpose of bankruptcy proceedings is to
satisfy, to the extent possible, the claims of the
creditors.
Usually, members of the management board are appointed
as liquidators unless the articles of association or a
resolution of shareholders provide otherwise.
Natural persons having full legal capacity, who have not
been convicted in a final and binding judgment for offences
under chapters XXXIII-XXXVII of the Criminal Code dated 6
June 1997 and Article 585, Article 587, Article 590 and
Article 591 of the Code of Commercial Companies, may act
as liquidators.
In the process of liquidation, the liquidator is obliged to act
on behalf of the company. It is the liquidator who has the
right to manage the affairs of the company and represent it
during the liquidation proceedings.
A competent court will appoint a receiver.
A natural person having full legal capacity and holding
a debt restructuring adviser license may be appointed as
a receiver. A commercial company or partnership may
also serve as a receiver if its shareholders, partners
(who are fully liable for the partnership’s debts) or
management board members hold such license.
The basic tasks of the receiver are to take over the
assets of the insolvent company, manage them, secure
them against destruction, deterioration or appropriation
by third parties and proceed with their liquidation.

Liquidation vs. bankruptcy (2)
Liquidation proceedings Bankruptcy proceedings
The costs of the initiation of liquidation proceedings
include:
• costs of drawing up a resolution of the shareholders'
meeting on dissolution of the company in the form of a
notarial deed - approx. PLN 750 (i.e., approx. EUR
180),
• the court fee for the liquidation notification submitted to
the the National Court Register - PLN 250 (i.e., approx.
EUR 60),
• the fee for placing an announcement on the opening of
the liquidation of an LLC in the Court and Commercial
Journal – PLN 100 (i.e., approx. EUR 25),
• the cost of an application regarding the deletion of the
company from the register of entrepreneurs held by the
National Court Register – PLN 300 (i.e., approx. EUR
70),
• the fee for placing an announcement on removal of an
LLC from the National Court Register in the Court and
Commercial Journal – PLN 100 (i.e., approx. EUR 25).
The costs of the initiation of bankruptcy proceedings
include:
• the court fee for the bankruptcy petition in the amount of
PLN 1000 (i.e., approx. EUR 230),
• advance payment towards the costs of proceedings
concerning declaration of bankruptcy, in an amount equal to the
average monthly salary in the corporate sector (without
bonuses), in the third quarter of the prior year, published by the
President of the Central Statistical Office of Poland – as at
February 2020, the advance payment amounts to PLN 5148,07
(i.e., approx. EUR 1200).
• the costs of proceedings include expenses directly related to
the security, management and liquidation of the bankruptcy
estate, in particular the remuneration of a receiver and an
assistant receiver, the remuneration of persons employed by the
receiver, and liabilities in respect of social insurance
contributions paid on their salaries, the remuneration and
expenses of members of the council of creditors, expenses
associated with the meeting of creditors, the costs of archiving
documents of the bankrupt, correspondence, announcements,
taxes and other public levies associated with the liquidation of
the bankruptcy estate.

Liquidation (of a solvent company)
Shareholders may at any time decide to
dissolve a limited liability company by
adopting a resolution, which must be
recorded in the minutes drawn up in a
notarial deed.
Adoption of the resolution initiates the
procedure of the liquidation of a company,
in course of which it retains its legal
personality. During its liquidation, a company
is managed by liquidators and operates
under its previous business name with the
additional words “in liquidation”.
Liquidation aims at closing the business of
a company by collecting its receivables,
paying debts and liquidating its assets.

01. 02. 03. 04. 05.
Main phases of liquidation proceedings (1/2)
Adoption of
shareholders’
resolutions on
dissolution of
a company and
opening of its
liquidation and
appointment of
liquidators.
Filing a motion to
registry court to
disclose the
information on
opening of the
liquidation in the
register of
entrepreneurs.
Publication of an
announcement in the
Court and
Commercial Journal
on opening of the
liquidation of the
company and
summoning its
creditors to report
claims against the
company within
three months of the
date of the
publication of the
announcement.
Preparation by the
liquidators of a
balance sheet as of
the opening of the
liquidation.
Submission of claim
reports by the
creditors (within
three months from
the date of the
publication of the
announcement in the
Court and
Commercial Journal).

Main phases of liquidation proceedings (2/2)
06.
Liquidation of the
company’s assets and
liabilities (collection of
receivables, payment
of debts, liquidation of
assets).
Distribution among
shareholders of the
assets remaining
after the creditors
have been satisfied
or secured (no
sooner than six
months after the
publication of the
announcement on
the opening of the
liquidation and
summoning the
creditors).
Preparation of the
liquidation report.
Approval of the
liquidation report
by the
shareholders’
meeting.
Filing a motion to
the registry court to
remove the
company from the
register of
entrepreneurs.
07. 08. 09. 10.
Removal of the
company from the
register of
entrepreneurs (the
company is dissolved).
11.

Prepared liquidation (pre-pack)
A prepared liquidation consists of the sale
of a debtor’s enterprise, or an organized part
or asset components constituting a significant
part of the enterprise, on terms (price, buyer,
etc.) specified in advance in the application
attached to the bankruptcy petition.
The court will consider a motion for
acceptance of the terms and conditions of
the sale concurrently with a bankruptcy
petition. An approved sale will operate as an
enforced sale (i.e., it will exclude
encumbrances) and a buyer will not be held
liable for the debtor’s pre-bankruptcy
obligations.

Contact:
Agnieszka Ziółek
Partner
Legal advisor
+48 22 166 71 33
M: +48 601 199 868
E-mail: aziolek@deloitteCE.com

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