Time limit for filing a petition for bankruptcy – amendments connected to the SARS-CoV-2 pandemic (COVID-19)

Bankruptcy and restructuring law

April 14 2020/ k-admin

1. Time limit for filing a petition for bankruptcy – current situation

Art. 21(1) of the Act of 28 February 2003 Bankruptcy law (ustawa Prawo upadłościowe), hereinafter referred to as: “b.l.”, stipulates an obligation to file a petition for bankruptcy no later than thirty days from the date when the grounds to declare bankruptcy (i.e. insolvency) occurred. On 9 April 2020, the lower house of the Parliament (Sejm) passed the Act on special support instruments in connection with the spread of the SARS-CoV-2 virus (ustawa o szczególnych instrumentach wsparcia w związku z rozprzestrzenianiem się wirusa SARS-CoV-2), hereinafter referred to as: the “Act”, called in the media the anti-crisis shield 1.1., or the anti-crisis shield 2.0. The Act was forwarded to the higher house of the Parliament (Senat). It provides for in Art. 72 amendments to the previous anti-crisis shield (the Act of 2 March 2020 on special solutions related to the prevention, counteracting and combating of COVID-19, other infectious diseases and crisis situations caused by them, ustawa o szczególnych rozwiązaniach związanych z zapobieganiem, przeciwdziałaniem i zwalczaniem COVID-19, innych chorób zakaźnych oraz wywołanych nimi sytuacji kryzysowych), including the addition of Art.15 zzra. The new provisions aim at postponing the deadline for filing a petition for bankruptcy. This is intended to enable entrepreneurs whose situation has suddenly deteriorated due to the ongoing pandemic to save their businesses. The solutions contained in the Act will give them more time to improve their financial situation and return to solvency.

2. The new provisions

Art. 15 zzra in sec. 1 states that if the grounds for declaring a debtor insolvent arose during a state of epidemiological emergency or a state of epidemic declared due to COVID-19 and the state of insolvency arose due to COVID-19, the time limit for filing a petition for bankruptcy is not commenced and if it has already commenced, it is interrupted. After that period, the time limit runs again. In addition, the Act introduces a presumption that, if an insolvency arose during a state of epidemiological emergency or a state of epidemic declared because of COVID-19, it is presumed to have arisen because of COVID-19. In this context, it should be pointed out that the state of epidemiological emergency was in force from 14 March 2020 to 20 March 2020 and the state of epidemic has been in force from 20 March 2020 until further notice.

Article 15 zzra sec. 2 provides for the extension of the periods stipulated by b.l. for which the date of filing a petition for bankruptcy is relevant, by number of days between the date of filing the petition for bankruptcy under the rules set out above and the last date on which the petition should be filed under the general rules.

3. Summary

The new rules are in principle evaluated positively. They have the potential to reduce the number of bankruptcies of entrepreneurs whose problems were triggered by a pandemic and who can recover their lost liquidity. Similar regulations are being introduced in many countries. However, it is worth noting the following potentially questionable issues:

  1. The Act introduces a rebuttable presumption that the insolvency occurred because of COVID-19. On the one hand this presumption protects creditors who can demonstrate that the insolvency was unrelated to a pandemic. On the other hand, however, it may lead to filing for bankruptcy under general principles, for fear of rebutting the presumption, which may result in personal liability.
  2. The extension of the time limits (art 15 zzra sec. 2) is to take place after the date on which a petition for bankruptcy should be filed under the general rules. In practice, setting an exact day can often be very difficult. Some suggest the use of an unequivocal deadline, such as the introduction of a state of epidemic emergency.
  3. Postponing the time limit for filing a petition for bankruptcy might not be sufficient. Taking into consideration that the time limit will start immediately after termination of a state of epidemic, it is likely that before the financial situation of a given entrepreneur improves, he will be required to file a petition for bankruptcy.

Posted by