Restructuring to support entrepreneurs in the fight against coronavirus

A simplified restructuring procedure helps entrepreneurs affected by the pandemic recover. If the problems are deeper, it is worth considering remediation.

The first, and most likely not the last, year has passed for entrepreneurs to deal with the effects of the pandemic. It was a time of constant changes, restrictions and the introduction of new regulations that were to support business in difficult times. The pandemic negatively affected the financial situation of many entrepreneurs, which is why the legislator took steps to mitigate the effects of subsequent lockdowns.

Advantages of the new procedure

Many entrepreneurs who so far had problems with financing their current operations had to close the company. On the other hand, those who did slightly better were forced to introduce various types of restrictions, including in terms of planned investments or the costs of running a business. They also implemented organizational changes, such as switching to remote work or online sales.

In general, the situation of many companies is difficult today. As many as 26% of micro-entrepreneurs and 39% of small entities indicate that despite the introduction of many changes in their operations and the obtained funding, their financial situation will worsen this year – according to the “Research on Polish entrepreneurship in 2020”, conducted by ARC Rynek i Opinia, on behalf of inFakt.

However, companies are not left to themselves – the government has provided for some support instruments for them. An entrepreneur who has reduced the costs of its operations and subsequent lockdowns resulted in a decrease in its revenues by 50-70%, may even use the aid provided for under Anti-Crisis Shield 4.0. It introduced the so-called simplified restructuring, which allows for the dismissal and partial cancellation of the entrepreneur’s debt. Additionally, for the duration of the proceedings, the enforcement proceedings are suspended. Creditors are also prevented from instituting new enforcement actions. It is also unacceptable to execute an order securing the claim or ordering securing the claim. What’s more, contractors cannot say, inter alia, rental, lease or leasing agreements. Duration is also a big advantage of simplified restructuring. It is a maximum of four months from the date of the publication of the notice in Monitor Sądowy i Gospodarczy about the use of this type of restructuring.

However, it is worth remembering that the entrepreneur may take advantage of simplified restructuring only once. The legislator in the Anti-Crisis Shield predicted that it would be possible until June 30, 2021. However, everything indicates that the simplified restructuring will become the Polish legal order permanently. This is envisaged in the draft act submitted to the Sejm in March on amending the act on the National Register of Debtors and some other acts. This is good news as the procedure is of great interest to troubled companies. In 2020, 392 simplified restructurings were opened, which accounts for 49% of all restructuring proceedings.

Or maybe sanation?

Either way, before a company takes advantage of restructuring, it should carefully analyze its financial situation. It is necessary to verify that the current revenues will be sufficient to cover current liabilities and to perform the arrangement. If the analysis shows that debt restructuring alone is insufficient, it is worth considering another solution. The restructuring of the company as part of the rehabilitation procedure may be a rescue.

The advantage of the remediation is that, in addition to being able to reach an agreement with creditors, it gives the entrepreneur time to reorganize the business so that it can continue to function on the market. Moreover, as in the case of simplified restructuring, creditors cannot lead or initiate enforcement proceedings or terminate contracts. Additionally, the manager appointed in the case may withdraw from unprofitable contracts which have a negative impact on the financial results of the restructured company. He also has the option to lay off workers who are covered by protection.

Both simplified restructuring and remediation can help entrepreneurs solve their debt repayment problems that arise from the coronavirus pandemic. However, it is important to remember that the sooner the entrepreneur decides to restructure, the better the results will be. Properly reacting also gives him a better chance of survival.