A key issue that raises many questions is whether a person must retain their status as a consumer for the duration of the insolvency proceedings. Must a person filing for consumer insolvency retain this status until the proceedings are concluded? Is it possible to resume business activities during the insolvency proceedings, and if so, what are the legal consequences?
Conducting business after the declaration of consumer bankruptcy
The Bankruptcy Law Act of 28 February 2003 (hereinafter referred to as the “BL”) does not contain a prohibition on the bankrupt person conducting business activities, nor does it provide for any negative consequences – provided that no prohibition on conducting business activities has been imposed on the bankrupt person. This position is well-established in the case law of the common courts; for example, it was expressed in the decision of the Regional Court in Szczecin of 9 January 2019, file ref. no.: VIII Gz 215/18, according to which:
“(…) it cannot be assumed that in a situation (as in the present case) where bankruptcy has been declared against a person not conducting business activity pursuant to Article 491(1) et seq. of the Bankruptcy Law, and that person has subsequently commenced business activity, it is necessary to discontinue the ongoing bankruptcy proceedings. In such a situation, a state of affairs would arise in which a person who was able to obtain and did obtain a decision declaring so-called consumer bankruptcy would, in reality, be deprived of the opportunity to benefit from the advantages of that institution.”
It should be borne in mind, however, that conducting business activity after the declaration of consumer bankruptcy will be hindered to a certain extent. Pursuant to Article 62 of the Bankruptcy Act, “The bankruptcy estate comprises assets belonging to the bankrupt on the date of the declaration of bankruptcy and those acquired by the bankrupt in the course of the bankruptcy proceedings, subject to the exceptions set out in Articles 63–67a.” This means that a business established after the date of the declaration of consumer bankruptcy becomes part of the bankruptcy estate.
The administrator of the estate during the insolvency proceedings is the insolvency practitioner, and the insolvent party is deprived of both the management of the assets and the right to use and dispose of the components of the estate. During the insolvency proceedings, the insolvency practitioner has the status of an indirect representative of the insolvent party, i.e. acts in their own name but on behalf of the insolvent party. In summary, it is the liquidator, not the bankrupt, who will have the right to enter into contracts relating to the business. If the bankrupt enters into such a contract during the bankruptcy proceedings – without the liquidator’s involvement – the contract will be absolutely void.
A bankrupt consumer who intends to commence business activities following the declaration of bankruptcy should immediately inform the trustee of these intentions. Failure to fulfil this obligation may lead to the discontinuation of the bankruptcy proceedings on the grounds of non-compliance with the obligations under Article 57 of the Bankruptcy Act.
In the case of an entrepreneur’s bankruptcy, the primary objective of the trustee’s actions should be to realise the assets of the bankruptcy estate and satisfy the bankrupt’s creditors; however, under Article 312 of the Bankruptcy Law, the debtor’s business may continue to operate in two exceptional cases: (i) if it is possible to enter into an arrangement with creditors; or (ii) if it is possible to sell the bankrupt’s business in its entirety or in organised parts.
In such a situation, the liquidator is entitled to continue the operations of the bankrupt’s business without the need to obtain the consent of the creditors’ committee (or the judge-commissioner, if no creditors’ committee has been established) for a maximum period of three months (Article 206(1)(1) of the Bankruptcy Law). If the liquidator, the bankrupt or the creditors’ committee considers that continuing the business will contribute to increasing the level of satisfaction of creditors, any of them may propose composition arrangements aimed at reaching an agreement with creditors within the bankruptcy proceedings. However, if the liquidator considers that it is not possible to sell the business in whole or in part, nor to reach a composition with the creditors, the obligation to continue the business is lifted.
Conducting business after the conclusion of bankruptcy proceedings
Bankruptcy proceedings usually conclude with the court establishing, and the bankrupt party subsequently implementing, a repayment plan for creditors. Importantly, once the court has issued a ruling on the implementation of the repayment plan and the discharge of liabilities, it is not permissible to initiate enforcement proceedings regarding claims arising prior to the date the repayment plan was established – exceptions to this rule include, for example, maintenance claims which are not subject to discharge during bankruptcy proceedings. This means that the debtor’s sole obligation following the conclusion of the insolvency proceedings is to implement the repayment plan for creditors in a timely and reliable manner, which allows them to conduct business activities and generate income from such activities that will not be seized by the bailiff.
If you are considering starting a business after being declared a consumer bankrupt, contact HWW Law Firm, which will provide you with professional support at every stage of the bankruptcy proceedings.
She gained experience in providing day-to-day legal services to individuals and entrepreneurs at a number of law firms in Warsaw specializing in corporate law and family law. At the firm, she provides services to entrepreneurs and individual clients in the field of contract and business law. As part of her professional practice, among other things, she analyzes, reviews and creates civil law contracts, prepares legal opinions in the field of civil and business law, and drafts and prepares corporate documents,…
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