March 2020

Covid-19 – Practical Tips from Penteris – Insolvency, Corporate, Support Measures

When does a company need to file for insolvency in Poland? Are there exceptions in the current situation?

According to Polish Bankruptcy Act, a company needs to file for bankruptcy within 30 days after one of the following prerequisites takes place:

(i) a company has delayed payment of its dues for longer than 3 months, or

(ii) the value of a company’s liabilities exceeds the value of its assets during a period of at least 24 months.

It is also possible to initiate a restructuring procedure for entrepreneurs who are already insolvent or who are threatened with insolvency.

Taking into consideration the above insolvency prerequisites (especially the 3-month period), the outbreak of Covid-19 may mean that the prerequisites of insolvency for entrepreneurs who were already financially distressed have been met. If the Covid-19 epidemic continues, other entrepreneurs should also start analysing the initiation of at least the restructuring procedure.

Polish law does not yet provide for exceptions to the current situation.

What liability risks are threatening management in Poland in the corporate crisis?

In general, members of management boards of Polish company are personally liable with all their estate for the civil and tax debts of the company if it does not have sufficient assets to cover these debts. The liability of members of the management board may be excluded if they are able to prove that:

(i) they have filed a petition for the bankruptcy of the company in due time, or

(ii) they were not at fault for failure to file a petition for bankruptcy in due time.

Consequently, management boards should closely monitor the financial performance of the company in order to be able to swiftly react to the crisis and file a petition for bankruptcy if necessary.

It is also important to note that the management board should ensure that the insolvent company or the company threatened with insolvency should not prioritize any creditors (this includes also taxes or employees). This means that if the company does not have sufficient assets to pay to all its creditors, it cannot decide to fully repay only certain creditors.

Are there any support measures/state aid for businesses in Poland due to the Corona crisis?

The Polish government announced a business support plan called the “Anti-crisis shield” on 18 March 2020. Its value is estimated at PLN 212 billion (10% of Poland’s GDP).

The key propositions include:

  • micro-loans (up to PLN 5,000) for micro-entrepreneurs;
  • financing of medium and large entrepreneurs through equity or bonds (PLN 6 billion of total financing available);
  • co-financing by the state of payment of interests on loans;
  • support of entrepreneurs who need to suspend operations or have other financial constraints through the co-financing of salaries and social security contributions;
  • the possibility to waive contractual penalties for delays in performance of investments covered by public procurement;
  • state guarantees for debt-financing available to SMEs;
  • postponing of deadlines for reporting and payment of taxes and social security contributions without any obligation to pay interest and prolongation fees;
  • possibility to fully utilise 2020 tax loss against 2021 tax profit.

The details of the Anti-crisis shield are not yet known as the Polish government plans to publish the first drafts of relevant new regulations from 23 March 2020.

What immediate measures should the management of a company in Poland take if it is affected by the Corona crisis?

We have the following tips for the management of Polish companies:

  • monitor the financial performance of the company in order to be able to file a petition for bankruptcy in due time (to exclude any personal liability);
  • monitor government measures aimed at securing sufficient financial liquidity of entrepreneurs affected by the Covid-19 crisis (financial support, co-financing of certain expenses, prolongation of deadlines for payment of taxes);
  • review contracts that bind company to identify areas of risks connected with the non-performance or improper/delayed performance of contracts. Such reviews should include, in particular, agreed liquidated damages, financial covenants and force majeure clauses;
  • monitor performance of contracts to be able to give a heads-up to clients/suppliers as soon as possible and try to work out the best business outcome before applying any contractual sanctions/restrictions.

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Originally published at: https://plus.digitorney.com/digitorney-crisis-navigator/