9 July 2020

Bankruptcy law during the COVID-19 pandemic

The subject of procedures related to bankruptcy and restructuring law turns out to be particularly important due to the COVID-19 pandemic – many domestic companies still struggling with the consequences of the crisis are expecting immediate help from the government to avoid definitive bankruptcy.

The draft amendment to the bankruptcy law prepared by the Committee for the Reform of Corporate Governance introduces, among other, changes regarding the significant deadline for applying to start the bankruptcy process. According to the legislators, proposed solutions will equalize the chances of Polish entrepreneurs relatively to other countries where similar legislative changes apply.

How have the bankruptcy laws changed, and what simplifications can domestic entrepreneurs expect?

Bankruptcy during the COVID-19 pandemic

The legal status before introducing the amendment required the submission of the bankruptcy petition within 30 days from the date of the premise for a bankruptcy occurs. The definitions of the grounds for filing for bankruptcy have not changed. The most common prerequisite is the state of insolvency, which occurs when:

• entrepreneur delays payments for more than three months, or
• for a minimum of 24 months straight, the debtor’s obligations are greater than the value of his assets.

Deadline for submitting the bankruptcy petition

Under the Anti-Crisis Shield 2.0, the content of the Act of April 16th, 2020, on special support instruments has changed in connection with the spread of the SARS-CoV-2 virus (article 15zzra par. 1).

According to the amendment: the deadline for submitting a bankruptcy petition referred to in art. 21 of Bankruptcy Law does not start, and begins to cease if the basis for the said petition arose:

• during the period of epidemic emergency state or epidemic state announced due to COVID-19, and at the same time
• insolvency was due to COVID-19.

In other words, the suspension of the deadline applies only to those companies that suffered during the crisis caused by the COVID-19 pandemic. The binding date is the date of the nationwide epidemic emergency declaration – March 13th, 2020.

Companies that have become insolvent before the coronavirus pandemic have a standard 30-day deadline for filing for bankruptcy.

Bankruptcy excludes from Anti-Crisis Shield protection

It is worth remembering that enterprises against which restructuring proceedings have been opened or declared bankrupt are not eligible for financial support introduced by the provisions of the Anti-Crisis Shield. It concerns the most favorable co-financing from:

• Industrial Development Agency JSC,
• Polish Development Fund.

Moreover, when a given company has already filed for bankruptcy or is in the process of restructuring, the financial support provided by the Anti-Crisis Shield provisions are suspended until the final judgement of the court.