Company restructuring proceedings – what is it and how long does it take?

Objectives of restructuring proceedings

Restructuring proceedings are a procedure whose main objective is to avoid the debtor being declared bankrupt and to enable the debtor to take all legal and practical steps aimed at improving their economic situation. In other words, the actions taken by the debtor within the framework of restructuring proceedings are intended to restore their ability to effectively fulfil their obligations. Restructuring proceedings initiated at the appropriate time also protect members of the company’s management board from incurring personal liability for the company’s obligations.

Under the provisions of the Restructuring Law, there are four types of restructuring proceedings, namely:

• Proceedings for the approval of an arrangement

The least formalised restructuring proceedings, under which the debtor retains a significant degree of control over its own business. These proceedings may be conducted in two modes – with a public announcement of the arrangement date or without such an announcement. The choice of one of the above modes of proceedings determines whether the debtor will be protected against the initiation and conduct of enforcement proceedings by creditors.

In the first procedure, the debtor is protected from the date of the announcement, but their management of the business is restricted – the debtor may only carry out acts of ordinary management, and those exceeding ordinary management may only be carried out with the consent of the arrangement supervisor. In the second procedure, however, the debtor is covered by this protection only from the moment the court issues a decision approving the arrangement, but their management of the enterprise’s assets is not restricted as it is in the first procedure.

Proceedings for the approval of the arrangement are initiated by entering into an agreement with the arrangement supervisor regarding the supervision of the proceedings and by making an appropriate announcement to that effect in the electronic system of the National Debt Register (hereinafter: ‘KRZ’). The proceedings are generally conducted out of court – solely under the supervision of the arrangement supervisor – and involve the debtor independently gathering votes in favour of the arrangement. The court becomes involved in the proceedings only once the debtor has filed an application for approval of the arrangement, in order to verify its legality.

• Accelerated arrangement proceedings and arrangement proceedings

Both of the above-mentioned restructuring procedures share many similarities; amongst other things, they commence upon the consideration of the debtor’s application and the issuance of a decision to open restructuring proceedings by the competent court. Furthermore, both accelerated arrangement proceedings and arrangement proceedings provide the debtor with protection against enforcement proceedings brought by creditors, whilst allowing creditors holding security in rem to pursue enforcement against the subject of the security. The debtor is also restricted in the management of their assets by the requirement to obtain the consent of the court-appointed administrator for any acts exceeding the scope of ordinary management.

The main difference between the two proceedings is that in accelerated arrangement proceedings, no vote is held on the arrangement, and the right to challenge the statement of claims – regarding the inclusion or omission of a particular claim in the statement or the amount of a claim included therein – is available only to the debtor (in composition proceedings, a creditor may also exercise this right).

• Reorganisation proceedings

Proceedings allowing for a thorough and multifaceted restructuring of the enterprise, under which all enforcement proceedings against the debtor are suspended. Furthermore, from the moment the reorganisation is opened, it is not possible to initiate new enforcement proceedings against the debtor’s assets or to establish security over them.

Restructuring measures include, amongst other things, the possibility of (i) withdrawing from unfavourable mutual agreements – regardless of their terms regarding termination, (ii) to dispose of assets classified as ‘non-essential’, which generate only costs for the debtor, and (iii) to dismiss ineffective employees in accordance with the rules applicable in insolvency proceedings.

It is worth noting that the initiation of each of the above proceedings is subject to the fulfilment of conditions specific to the particular type of restructuring proceedings. If you are wondering which type of proceedings would be suitable for your company, please contact us and we will be happy to provide comprehensive information on this subject.

How long does restructuring take?

The duration of restructuring proceedings depends on their type. Given the nature of the proceedings, the fastest is the arrangement approval procedure, i.e. a few months. The situation is different in the case of reorganisation proceedings, which, as the most complex form of restructuring proceedings, can last up to several years. The financial condition of the company in question also significantly influences the duration of the restructuring proceedings.

If your company is in financial difficulty and needs assistance with restructuring proceedings, please contact HWW Law Firm, which will provide you with professional support at every stage of the restructuring process.