More than five years have passed since the introduction of the Act on restructuring law. During this time we have had time to take advantage of the new conditions and, as our experience has grown, to look at the resolution with a detached eye. Is our domestic restructuring law effective? Is it entrepreneur-friendly?
The best in Europe?
The Polish restructuring law, introduced in 2015, looks very modern compared to other European countries.
It provides for 4.5 different proceedings that can be tailored to specific situations and the needs of the debtor. Half, in this case, serves as a simplified restructuring procedure and is a slightly modified procedure for approval of an arrangement.
Time works to our advantage here. To a large extent, Polish restructuring regulations are already a kind of implementation of the so-called Second Chance Directive before it enters into force. Although they still require some adjustment, it can be said that we already have over five years of experience in applying specific legal solutions. While some Member States have just started implementing such solutions.
In second place France
Each Member State has restructuring regulations to a different extent. And Polish regulations are one of the more advanced, as well as properly applied.
The French recruitment of restructuring judges from among entrepreneurs is also an interesting solution. To judge and supervise the complex restructuring process, it is recommended in French law to have experience in running a business.
The Polish path to becoming a judge is quite different. It does not require any business experience, which may to some extent make it difficult to supervise efficiently in managing the company and helping it to recover.
What experience has taught us
Of course, we should not rest on our laurels. The other Member States will be able to catch up quickly, and here we still have many issues to discuss.
Experience in applying restructuring law shows that one of the most important issues is to develop a system for obtaining new financing for entrepreneurs during the restructuring process. Trying to obtain finance is necessary to ensure the liquidity of debtors in restructuring proceedings. And organizational and formal difficulties strongly limit the possibilities of entrepreneurs to act.
In addition, regulations allowing, among others, financial institutions to enjoy special privileges in the course of restructuring must be discussed and amended. Without such a privileged position, no one will agree to invest in a company under restructuring. This is because it is almost certain that the investment, in this case, will not bring any benefits.
It becomes equally important to implement Early Warning Tools. This tool analyzes bankruptcy risks. They can detect circumstances connected with the high probability of debtor’s insolvency. They signal the necessity of taking the necessary countermeasures, thus helping the debtor take more control over his finances.
Second Chance for debtors
Increasing or making available the possibility of financial improvement is the first step to improve the Polish restructuring law.
Legislative work on the full implementation of the Second Chance Directive is currently underway in our country. Poland has notified the European Commission on the extension of the implementation deadline, so we expect the amended regulations no later than in 2022.
The most important objective to be met by the Second Chance Directive is to improve the functioning of the internal market. The second major issue is the elimination of obstacles to the exercise of fundamental freedoms (movement of capital and establishment) resulting from differences between national laws and proceedings concerning restructuring in the broad sense.
This incomplete harmonization creates uncertainty and a lack of confidence among foreign investors. Additionally, this situation makes it even more difficult to obtain financing from foreign entities in the event of financial problems.
From Poland’s perspective, one of the most important elements of the Directive will be the implementation of the early warning mechanisms mentioned above.