Let’s come to some sort of an arrangement...

How to go bankrupt after January 1st? We tried to answer this question on November 18th during a business breakfast at the Polonia Palace hotel in Warsaw. Our contents partner was law firm Galt, which is involved in the legal as well as the financial and accounting side of restructuring and bankruptcy

Restructuring, bankruptcy, a trustee in the reorganisation – these are words that engender mixed feelings and negative connotations in Poland. Real estate companies are no exception, because they are often in a worse legal and financial situation than those in other sectors. The new
‘Restructuring Law’ act will introduce entirely new restructuring institutions, partly based on practices from other markets. Of course, there are certain gaps in the new law, as the market representatives participating at our event agreed.

The lively discussion was attended by lawyers, representatives of banks, developers, investors, consultancies, trustees in reorganisation and financiers, as well as people who advised legislators on the new bankruptcy law. “The old law mostly ended up in the liquidation of an enterprise, whereas it was possible to avoid this in the majority of cases. Hence the need to change the law to make life easier for companies,” argued Marianna Kokowska, a legal attorney at Galt. Interestingly, all the procedures are to take a maximum of 18 months.
“This is a significant change, since so far they have taken a few or a dozen or so years,” pointed out Adam Miłosz, a partner at Galt. In order to de-stigmatise the entire process, trustees will now become restructuring advisers. There will also be more motivation for them – including financial motivation – to make restructuring the main option rather than selling off the assets. “The fact that the inland revenue will no longer be the first organisation to be paid is a revolutionary reform. It will now be the second in line,” Adam Miłosz of Galt stressed, before going on to add that so far the tax office did not have to concern itself with how successful the restructuring turned out to be, because it always got the money anyway. There will also be other effects – mostly for the investment market. “There will be considerably more space for mezzanine funds,” said Marcin Juszczyk, a board member and investment director of Capital Park. Lenders will also have more reasons for satisfaction. “There will be more options for financing something that makes sense, in line with the law and the predefined rules,” concluded Robert Mazurek, the director of restructuring and debt collection for the small and medium-sized enterprise sector at BGŻ PNP Paribas bank. The panellists pointed out that it is good that there will be less bankruptcy blackmail by tenants, but maybe other forms of pressure will be developed to replace it. “The market should become more civilised. There might be fewer cases of tenants moving out at night,” predicted Tomasz Ożdziński, the director of the real estate market transactional tax team at EY. “Until now it has sufficed to have two unpaid invoices. Now this is to change,” emphasised Galt’s legal counsel Adam Miłosz.

Importantly for the real estate market, it was also possible to apply for bankruptcy when your liabilities exceeded your assets at any given point. Now this will have to be the case for at least 24 months. “The most important thing is the reform of the entire process – to change the emphasis from bankruptcy to coming to an arrangement,” remarked Jerzy Sławek, a licensed trustee in reorganisation and the chairman of the National Board of Trustees. “These are all good changes. It will be possible to rescue many more companies. But only practice will show what it will be like in reality,’ said Robert Falkowski, the president of the board of WXM Investment.