Restructuring proceedings are an opportunity for many companies to get out of a difficult situation. Its aim is to improve the company’s situation and avoid the need to declare bankruptcy. In principle, restructuring is also supposed to be more beneficial for creditors, but sometimes creditors react badly to its initiation. It is increasingly common to hear of creditors filing criminal notices in connection with the opening of restructuring proceedings.
Restructuring vs. bankruptcy
Restructuring is a procedure in which – in order to avoid bankruptcy – an arrangement is made with creditors. This proceedings may be conducted against a debtor who is insolvent or at risk of insolvency.
Bankruptcy proceedings are conducted if a debtor has become insolvent. The main aim of bankruptcy proceedings is to satisfy creditors’ claims to the maximum extent possible. It is often combined with the liquidation of the company.
Insolvency can be the basis for both an application for bankruptcy and the opening of restructuring proceedings. The debtor can therefore decide which type of application to file with the court. It should be borne in mind that in certain situations the failure to file an application on time is risky. This is because it may involve the liability of the debtor (or persons managing the company), including criminal liability.
Insolvency and criminal liability
In certain cases, driving a company into insolvency may involve criminal liability. Article 301 § 2 of the Penal Code provides for the criminalisation of bringing about bankruptcy or insolvency if the debtor has several creditors. Paragraph 3 provides for a more lenient liability in the case of recklessness in bringing about one’s bankruptcy or insolvency. The provision gives as examples of such recklessness the squandering of constituent parts of one’s assets, the assumption of obligations or the conclusion of transactions that are manifestly contrary to economic principles.
It should be emphasised that bringing a company to the risk of insolvency is not punishable.
In view of the above, when considering filing for restructuring, it is a good idea to first have a specialist analyse the financial state of the company. An auditor can determine whether it has reached a state of insolvency or threat of insolvency.
Such an opinion will, in the first instance, help the board to make the right decision. If dissatisfied creditors file a criminal notice, it will constitute important evidence in favour of the board in criminal proceedings.
Full article is available in Polish here.
