Cross-border aspects of insolvency from a Polish perspective

Natalia Rutkowska, Junior Partner, legal counsel

Freedom of movement within the European Union gives new opportunities for those looking for a second chance in business. A new place of residence, new work or new business opportunities are for many a chance for a better tomorrow. Such a chance is more appealing where it is easier to leave behind a history of debt. Take as an example the vast Polish labor migration to the United Kingdom. Many economic migrants are interested in the discharge of debts with more favorable insolvency provisions than the Polish ones, if they meet the criteria of having a British centre of main interests (COMI). The most attractive advantage is a discharge after only one year from the commencement of bankruptcy under ss. 279 and 281 of the Insolvency Act 1986. However assuming that a debtor is able to prove his COMI is in the UK and in such a way apply for a discharge in the UK, it still might not be enough to cut him off from his debt in his country of origin. The matter of insolvency with cross-border elements is governed within the European Union by the Council Regulation (EC) No. 1346/2000 of the 29th May 2000 on insolvency proceedings. This Regulation enables the main insolvency proceedings to be opened in the Member State where the debtor has his centre of main interests. The problem arises when a debtor has left some assets in Poland, especially real estate. According to point 12 of the Preamble to the abovementioned Council Regulation, the main insolvency proceedings have universal scope and aim at encompassing all of the debtor’s assets. However private international rules of disposing of real estate are closely tied to the land where the property is located. Such real estate is usually subject to public enforcement. If a debtor had an establishment in his country of origin, the creditor could initiate secondary proceedings against him in the country of his origin, limited to the assets located in that country. An establishment according to Art. 2 (h) of the Regulation is any place of operations where the debtor carries out a non-transitory economic activity with human means and goods. Real estate as such does not constitute an establishment in the country of origin. Therefore secondary proceedings cannot be initiated and a Polish insolvency practitioner with Polish law governing the disposal of real estate cannot be appointed. A foreign insolvency practitioner having knowledge of real estate abroad and of foreign rules governing such a property, may only apply to the Polish court for recognition of the foreign bankruptcy proceedings upon Art. 397 of the Polish insolvency law. On the day when the pronouncement on the initiation of cross-border bankruptcy proceedings is recognised, Polish law applies to the effects of initiation of cross-border bankruptcy proceedings on the judicial, administrative proceedings and proceedings before administrative or conciliatory courts conducted in the Republic of Poland, taking into account the nature of the cross-border bankruptcy proceedings, and the extent to which the debtor was deprived of the right to administer his assets, as well as the extent to which the receivable debts are covered by the arrangement. As in all cross-border proceedings what is most important in terms of effectiveness is an exchange of information on insolvency. Poland is introducing an electronic central register of reorganisation and insolvency on 1st February 2018.

Natalia Rutkowska

Natalia Rutkowska

Junior Partner, legal counsel

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