Arrangements in restructuring proceedings

Every restructuring aims to avoid bankruptcy by enabling an arrangement with creditors. What is this central institution marking success? The legislature supplies no definition. Scholarship and case law offer many, none officially adopted:

1. A special legal act requiring three legally different elements: an expression of will in proposals by the debtor or another entitled person; formal voting by sufficient creditors; and judicial approval[1].
2. A complex act combining a civil agreement altering debtor–creditor substantive relations and an authoritative court approval essential for validity and effectiveness[2].
3. Despite differing scholarly views, unquestionably an agreement between debtor and creditors combined with authoritative judicial approval[3].

Broadly, it is an agreement under judicial supervision about restructuring liabilities. Yet its scope, nature and effects exceed ordinary contracts or court settlements.

Claims

Which claims participate? Restructuring law includes:

1. personal claims against the debtor arising before opening, unless otherwise provided;
2. interest accruing from opening;
3. conditional claims where the condition is fulfilled during performance;
4. claims under reciprocal contracts unperformed wholly or partly before opening, but only where counterperformance is divisible and to the extent supplied before opening without reciprocal payment.

Some require creditor consent:

1. employment claims;
2. claims secured on debtor property by mortgage, pledge, registered or tax pledge, or maritime mortgage, to the extent covered by collateral value.

An exception permits secured claims to be included by law if proposals provide full satisfaction.

Other claims are absolutely excluded:

1. maintenance and annuities for illness, incapacity, disability or death, and conversion of lifetime-support rights into an annuity;
2. claims for return of property or cessation of infringements;
3. debts from an inheritance acquired after opening, once it enters the arrangement or remedial estate.

Proposals

Proposals define restructuring terms for creditor acceptance. Usually the debtor submits them, but the creditors’ council, supervisor or administrator, or creditors holding over 30% of total claims excluding non-voting creditors, may also do so.

Methods include:

1. deferring performance;
2. instalments;
3. reducing obligations;
4. debt-to-equity conversion;
5. amending, replacing or cancelling security.

The list is illustrative: any lawful proposals may be adopted[4], combining methods. Some liabilities have strict limits. Social security, Labour Fund, Guaranteed Employee Benefits Fund, Bridging Pensions Fund, the debtor’s own social and health insurance contributions and other Social Insurance Institution liabilities, including interest, enforcement and reminder costs and surcharges, may only be deferred or paid in instalments.

Creditors may be grouped by interests, reflecting differences in proposed satisfaction. Grouping is generally optional except for secured creditors[5]. Examples are:

1. employees consenting to inclusion;
2. farmers owed payment for products from their own farms;
3. consenting creditors secured by mortgage, pledges or maritime mortgage, or security transfers of ownership, claims or rights;
4. shareholders holding at least 5% of votes, even with claims in the preceding categories.

This is an open list[6].

Terms should be equal for all creditors or within each voting class unless a creditor expressly accepts worse treatment. An exception permits better terms for post-opening finance essential to the arrangement, including credit, bonds, bank guarantees, letters of credit or other instruments.

Voting

Creditors vote by claim value, generally at a meeting. If numbers make a meeting difficult, the judge-commissioner may order exclusively electronic voting for restructuring applications filed after 1 December 2022, or correspondence voting for earlier applications.

Adoption

A meeting resolution adopts the arrangement:

1. with a majority of validly voting creditors holding at least two-thirds of voting claims;
2. in classes, with that majority and two-thirds value in each class;
3. despite dissenting classes, if two-thirds of all voting claims support it and dissenting classes receive at least bankruptcy recovery.

The judge-commissioner issues an adoption order containing the terms. It cannot annul the adoption resolution. Participants may lodge written objections, but those filed after one week or failing pleading requirements are disregarded.

Approval

The court reviews legality and must refuse where:

1. the arrangement breaches law, particularly unlawful state aid;
2. non-performance is obvious;
3. disputed voting claims exceed 15% in arrangement approval or accelerated arrangement proceedings. If discovered after adoption in accelerated proceedings, approval remains possible if the debtor did not know and disputed creditors receive at least bankruptcy recovery.

It may also refuse terms grossly prejudicing dissenters who objected. Grounds are exhaustive.

If compliant, the court approves and includes terms in the order. A hearing is mandatory and cannot occur earlier than one week after the adopting meeting ends.

An interlocutory appeal is available within two weeks.

Effects

Far-reaching effects demonstrate the arrangement’s unique nature.

It binds creditors whose claims are covered by law even if omitted from the list and regardless of voting. But creditors neither disclosed by the debtor nor participating are not bound.

Rights against sureties, co-debtors and third-party mortgage or pledge security remain intact. Only debtor–creditor relations change. Others remain liable for original amounts, dates and performance terms.

Security on debtor property also remains unaffected unless the secured creditor consents. On consent, security continues but covers the claim amount and payment terms as modified.

The final approval order supports entries in land and other registers.

On finality, security and enforcement for covered claims are automatically discontinued. Authorities must return attached property rights and funds, including court deposits not distributed because of suspension.

Existing enforcement titles for covered claims automatically lose enforceability. A declaratory action may establish this.

Amendment

Terms may change under statutory circumstances.

A lasting increase or reduction in business income permits applications by the debtor, performance supervisor, another authorised performer or supervisor, or a creditor.

Where the debtor retained management, the supervisor or creditor may seek appointment of a designated manager and performer if:

1. even unintentional unlawful management harmed or may harm creditors;
2. management plainly does not guarantee the restructuring plan and arrangement;
3. the debtor obstructs supervision.

A separate amendment procedure includes a new vote. Claims equal original voting amounts less payments or other satisfaction. Previously disputed claims subsequently confirmed by final judgments or administrative decisions may participate. Fully paid creditors cannot.

If amendment fails or approval is refused, proceedings end and the original remains until performed, annulled or expired. If adopted and finally approved, performance resumes on new terms.

Annulment or expiry

The court may annul on application by a creditor, debtor, supervisor or another authorised person where terms are not performed or non-performance is obvious. Failure to meet post-approval obligations creates a presumption of obvious non-performance. No other grounds are allowed.

The arrangement expires automatically if bankruptcy is finally declared during performance or a bankruptcy application is refused during that time.

Creditors may then pursue original amounts, crediting payments received. On bankruptcy, the trustee automatically includes listed claims, adjusted for payments or other satisfaction.

Partial arrangements

Arrangement approval and accelerated proceedings permit partial arrangements concerning selected liabilities essential to continued business. Selection must use objective, unambiguous, economically justified criteria relating to the underlying debtor–creditor relationships.

Conclusion

No statutory definition exists, and the unique institution fits neither ordinary substantive nor procedural categories. For present purposes it is a court-supervised agreement on restructuring liabilities. It modifies debts, discontinues enforcement and removes existing titles’ enforceability. It may be amended and performed on revised terms, or annulled or expire, restoring original claims less payments received.

[1] S. Gurgul, Prawo upadłościowe. Prawo restrukturyzacyjne. Komentarz, 12th ed., Warsaw 2020.

[2] Supreme Court resolution of 20 July 1995, III CZP 87/95, OSNC 1995, no. 11, item 162.

[3] Supreme Court judgment of 21 May 1997, II CKN 144/97, OSNC 1997, no. 11, item 177.

[4] P. Zimmerman, Prawo upadłościowe. Prawo restrukturyzacyjne. Komentarz, 8th ed., Warsaw 2024.

[5] Ibid.

[6] B. Groele in P. Filipiak, A. Hrycaj (eds.), Prawo restrukturyzacyjne. Komentarz, 2nd ed., LEX/el. 2020, Article 161.