As part of its efforts to alleviate the negative economic impact of the COVID-19 epidemic, Poland passed the Act of 16 April 2020 on Special Support Instruments in Connection with the Spread of SARS-CoV-2 Virus. This is an addition to the package of measures provided for in the Act of 2 March 2020 on Special Measures to Prevent, Counter and Combat COVID-19, Other Infectious Diseases and the Related Crisis Emergencies (the Act of 2 March 2020 further as the “Act”). The amendment to the Act introduces, among other things, important modifications to the provisions regulating bankruptcy and restructuring proceedings.

Deferred deadline for bankruptcy petitions

In terms of bankruptcy law, the new legislation provides for an interruption of the time limit for filing a bankruptcy petition specified in Article 21(1) of the Bankruptcy Law of 28 February 2003 (the "Bankruptcy Law"). As a reminder, the Bankruptcy Law requires the debtor to file for bankruptcy within 30 days of the date when grounds for declaration of bankruptcy arose, i.e. when the debtor became insolvent. The amendment introduces Article 15zzra(1) of the Act, according to which the above time limit will be interrupted or, if not already started, will not begin to run during the COVID-19 related state of epidemic emergency or of epidemic. Afterwards, the time limit will begin anew, which means that it will generally end 30 days after the state of epidemic emergency or of epidemic ceases.

Importantly, this "deferral" applies only if the grounds for bankruptcy arose during the state of epidemic emergency or of epidemic and the debtor became insolvent because of COVID-19 or related measures. In addition, under the new law, insolvency is presumed to have been caused by COVID-19 if it arose during the state of epidemic emergency or of epidemic.

The above "deferral" is automatic and does not depend on whether the debtor actually takes any steps towards restructuring its debt, whether in court or out of court, such as by commencing an applicable restructuring proceeding.

Importantly, under Article 15zzra(2) of the Act, if a bankruptcy petition is filed in accordance with the new timing rules, and the petition had not been filed before, any time limit provided for in the Bankruptcy Law, which starts running from the date the petition is filed, will be extended by the number of days that passed between the date on which the petition should have otherwise been filed under the general rules (i.e. Article 21(1) or, for management-in-succession, Article 21(2a) of the Bankruptcy Law) and its actual filing date.

These provisions seem to apply in particular to time limits related to the ineffectiveness of the bankrupt company's juridical acts (see Articles 127 to 135 of the Bankruptcy Law; for example, under Article 127(1), certain juridical acts done within one year before the filing of the bankruptcy petition are voided). Therefore, the periods during which these regulations protect the bankruptcy estate (so-called hardening periods) are effectively extended by the amount of time between the last day of the regular 30-day time limit for filing a bankruptcy petition and the actual filing date. As such, the Act is designed to prevent a situation where creditors would become worse off if the duration of the state of epidemic emergency or of epidemic (and, a as a consequence, of the related "grace period" for filing bankruptcy petitions) was long enough to exceed the hardening periods. At the same time, the regulation aims to discourage debtors from stripping assets or engaging in similar transactions in the hopes of avoiding sanctions that would otherwise apply to them pursuant to Articles 127 to 135 of the Bankruptcy Law.

Subject to the above, the "deferral" of deadlines for filing for bankruptcy by debtors are relevant for their creditors. It should be recalled that a failure to timely apply for bankruptcy (within the statutory deadline or otherwise in "due time") triggers significant sanctions against the debtor or certain of its directors or officers, including:

• Civil liability (Article 21(3) of the Bankruptcy Law, Article 299 of the Code of Commercial Companies and Partnerships ("CCCP"),
• Criminal liability (Article 586 CCCP, see also important bans on conducting business activity under Article 373 of the Bankruptcy Law), and
• Administrative (fiscal) liability (Article 116 of the Tax Code).

Where debtors meet the above requirements, the "deferral" of the time limit for filing bankruptcy petitions combined with the presumed causation between insolvency and COVID-19 (which shifts the burden of proving the contrary onto the creditor) will therefore hinder or completely prevent creditors from, in particular, pursuing their claims against such debtors' representatives.

However, the Act does not restrict the right to file for bankruptcy, whether for debtors or other parties. It merely gives debtors (their representatives) an option to postpone doing so. Thus, creditors will still be able to file for the bankruptcy of their debtors, although in light of other COVID-19 restrictions (see here), these petitions may well remain unprocessed until the state of epidemic emergency or of epidemic is called off.

Changes to restructuring law

As regards restructuring law, the amendment to the Act expands the list of “matters of urgency” by adding point 17 to Article 14a(4) to cover recognizing restructuring motions, as defined in the Restructuring Law of 15 May 2015 (the “Restructuring Law”). As a reminder, the list of urgent matters is crucially important as – among other things – such matters are excluded from the suspension of procedural and court deadlines provided for in civil cases, including restructuring proceedings (see the Act, Article 15zzs(1)-(2)). Accordingly, procedural and court deadlines in the proceedings to recognize restructuring motions continue to run.

This is the lawmakers’ attempt to correct an oversight in their previous amendments to the Act, which left cases started by restructuring motions (i.e. proceedings to open restructuring proceedings) out of the list of urgent matters. At the time, such cases could only be considered as urgent on an exceptional basis under Article 14a(9) of the Act (in particular based on a premise of a potentially serious harm to the public interest).

The wording of the new Article 14a(4)(17) of the Act implies that the category of urgent matters will only include cases regarding the commencement of restructuring proceedings (i.e. expedited composition proceedings, composition proceedings or reorganization proceedings) and proceedings to approve a composition adopted (see Article 7(2) of the Restructuring Law). Accordingly,restructuring proceedings already pending will not fall under the new Article 14a(4)(17).

As said, where a case is treated as a matter of urgency, one of the important consequences is that the applicable procedural deadlines are not suspended but continue to run their normal course during the COVD-19-related state of epidemic emergency or of epidemic. This applies to all deadlines, whether fixed by statute or by court, for any action to be taken in relevant proceedings, including deadlines to file an appeal or other briefs (see Article 15zzs(1)-(2) of the Act).

Urgent matters are also exempted from the general ban on public (open-court) hearings and trials during the state of epidemic emergency or of epidemic (Article 15zzs(6) of the Act). Accordingly, it is possible to set a hearing to recognize a motion to open the composition proceedings or the reorganization proceedings (Article 270(2) and Article 288(1) of the Restructuring Law). This is of little significance, however, because restructuring motions are usually heard in closed court.

Most of the new rules came into effect on April 18, 2020.

Please let us know if you have any further questions on how the COVID-19 epidemic may affect bankruptcy or restructuring cases.