Insolvency proceedings against companies

Bankruptcy is declared in respect of a company/partnership which has become insolvent, except where, despite its insolvency, assets are insufficient to cover the costs of insolvency proceedings or are sufficient only to cover such costs.

A company/partnership is insolvent if it is no longer able to meet its payable monetary obligations. A company/partnership is presumed to have lost the ability to meet its payable monetary obligations if the delay in meeting monetary obligations exceeds three months. A company/partnership is also insolvent when its monetary obligations exceed the value of its assets and this status quo persists for a period exceeding twenty-four months. A company’s monetary obligations are presumed to exceed the value of its assets if, according to the balance sheet, its liabilities, excluding provisions for liabilities and liabilities payable to affiliated undertakings, exceed the value of its assets and that status quo persists for a period exceeding twenty-four months.

Insolvency proceedings in respect of a company/partnership is opened at the request of the company/partnership or at the request of a creditor with a claim due on the date of submission of the petition for bankruptcy, which as a rule is submitted through the IT system of the National Register of Debtors (hereinafter: the National Debt Register (KRZ); a petition may be submitted without using the National Debt Register (KRZ) by a creditor who is entitled to payments under employment relationship, except for claims for the remuneration of the insolvent company’s representative or the remuneration of a person carrying out activities relating to the administration or supervision of the debtor’s business, and for pension that is to serve as compensation for sickness, incapacity, invalidity or death, and pension arising from the conversion of rights under life estate into life annuity). The court rejects a petition for bankruptcy lodged by a creditor if the company/partnership proves that the claim is in dispute in its entirety and that the dispute between the parties arose prior to the filing of the petition for bankruptcy. In insolvency proceedings, a participant in the proceedings may submit an application for approval of the terms and conditions for the sale of the debtor’s business or of its organised part or assets representing a substantial part of the business to the buyer.

Bankruptcy cannot be declared between the opening of the restructuring proceedings and the completion of the restructuring proceedings or its final and binding dismissal. In the latter case, the petition is to be rejected.

From the date of the declaration of bankruptcy, the assets of the insolvent company/partnership become the insolvency estate, which serves to satisfy the creditors of the insolvent company/partnership. The liquidation of the insolvent company’s/partnership’s assets is effected by an insolvency administrator (syndyk) appointed by the court. As of the date of the declaration of bankruptcy, the insolvent company/partnership loses the right to manage and the ability to use and dispose of assets included in the insolvency estate.

In the case of bankruptcy, the company/partnership is dissolved after the insolvency proceedings is ended, at the moment when the company/partnership is removed from the register. An application for removal from the register is submitted by the insolvency administrator.

Liquidation of companies

1. Dissolution of a commercial law company/partnership

The dissolution of a company/partnership takes place when it is removed from the Register of Entrepreneurs of the National Court Register. The dissolution of a commercial law company/partnership means that it ceases to exist in a legal sense.

Reasons for dissolution of a company/partnership

1. the reasons set out in the articles of association or in the statute;
2. a resolution of the company’s shareholders or the partnership’s partners;
3. dissolution of the company/partnership by the court as a result of an action for dissolution or dissolution of the company/partnership by the court acting on its own motion;
4. the end of insolvency proceedings of the company/partnership.

In addition, in the case of partnerships, the reason for the dissolution of the partnership may be:

1. death of a partner;
2. a declaration of bankruptcy of a partner;
3. a situation in which only one of the partners has the right to exercise a liberal profession.

In the case of companies, the reason for the dissolution of the company may be that:

1. the objects of the company’s activities as defined in the articles of association or the statute are unlawful;
2. the articles of association or the statute of the company do not include provisions on business name, objects of the company, share capital or contributions;
3. not all persons who entered into the articles of association or executed the statute had the capacity to effect acts in law at the time of such execution.

If the dissolution of the company/partnership is justified (i.e. there are reasons to dissolve it), the company/partnership will, as a rule, enter into liquidation.

NB: The occurrence of any of the reasons justifying the dissolution of the company/partnership does not mean that the company/partnership will automatically cease to exist. Such a company/partnership enters into liquidation unless legal regulations provide for the possibility of dissolution of the company/partnership without liquidation.

The liquidation is opened when:

1. the judgment on dissolution of the company/partnership issued by the court becomes final and non-appealable;
2. the partners or the general meeting adopt(s) a resolution on the dissolution of the company/partnership;
3. another reason for the dissolution of the company/partnership arises.

A company/partnership in liquidation retains:

• its legal personality if it is a company;
• its legal capacity if it is a partnership.

The rules of the company’s/partnership’s operation are changed, because from that moment its objects are to undergo liquidation proceedings and be removed from the register. First and foremost:

• the rules governing the management and representation of the company/partnership are changed – the powers of the company’s bodies in companies or of the company’s partners in partnerships are taken over by liquidators;
• the company/partnership retains its business name with the words ‘w likwidacji’ (‘in liquidation’) added;
• the registered commercial power of attorney expires and no new registered commercial power of attorney can be granted;
• the assets of the company/partnership cannot be distributed among shareholders/partners.

The appointment of liquidators does not result in the expiry of the mandates of supervisory bodies, if any, in companies.

2. Dissolution of a company/partnership preceded by liquidation

The main purpose of liquidation proceedings is to bring the company/partnership to an end, i.e. close its current business, collect its debts, pay off its liabilities and liquidate its assets.

The process of dissolving the company/partnership via liquidation proceedings consists of several stages:

1. Appointment of liquidators
2. Notification of the opening of liquidation to the National Court Register (KRS)
3. Drawing up a liquidation balance sheet
4. Liquidation actions
5. Division of assets
6. Summary of liquidation
7. Application for removal of the company/partnership from the National Court Register (KRS)

Appointment of liquidators

Regardless of the type of commercial law company, only a natural person with full capacity to effect acts in law may be the liquidator of a company/partnership. Liquidators may be appointed in, for example, the articles of association, in the resolution of shareholders/partners or, if the company is dissolved by court, in a court judgment. Liquidators may exercise their function on the basis of, for example, an appointment or a contract of employment or a contract of mandate.

The following persons serve as liquidators:

• in general partnerships, professional partnerships, limited partnerships – all partners representing the partnership; the partners may appoint only some of the partners, as well as other persons, as liquidators but a resolution to this effect requires unanimity (unless the articles of association provide otherwise);
• in limited liability companies, joint-stock companies, simple joint-stock companies and limited joint-stock partnerships – members of the body that conducts the company’s affairs and represents it externally.

Notification of the opening of liquidation to the National Court Register (KRS)

The liquidation is opened at the moment when a condition for the dissolution of the company/partnership is fulfilled, for example when the partners of a partnership, or the shareholders’ meeting in the case of a limited liability company, adopt(s) a resolution on the dissolution of the company/partnership and on the opening of its liquidation.

Liquidators are obliged to report the entry of the company/partnership into liquidation to the National Court Register (KRS) within 7 days of the opening of liquidation by submitting an application for a change of data in the National Court Register (KRS).

Application for removal of a company/partnership from the National Court Register (KRS)

Liquidators close the liquidation and submit an application for removal of the company/partnership from the National Court Register (KRS). The registry court, having satisfied itself that the liquidation has been properly completed, will issue a decision to remove the company/partnership from the register. When the decision to remove the company/partnership from the register becomes final and non-appealable, the company/partnership is dissolved and ceases to exist in a legal sense.

3. Dissolution of a partnership without liquidation

There is no obligation to conduct liquidation proceedings for a general partnership, professional partnership and limited partnership.

However, the liquidation is mandatory if the reason for the dissolution of the partnership is the termination of the articles of association by a partner’s creditor. In this case, the liquidation is mandatory.

If there are reasons justifying the dissolution of a partnership, the partners may, instead of the time-consuming liquidation proceedings, terminate the partnership in another way, as long as they take such a decision unanimously. Such a procedure saves time and reduces costs, due to the fact that, among other things, it is not necessary to draw up balance sheets as at the dates of liquidation opening and closing.

Another way of terminating the partnership may involve:

• one or several partners taking over the assets of the partnership;
• selling all the assets of the partnership and paying off its debts.
• The settlement of all affairs of the partnership through the process of its dissolution without liquidation, in particular the repayment of its debts, entitles the partnership to apply to the National Court Register (KRS) for its removal from the Register of Entrepreneurs.

4. Dissolution of a simple joint-stock company without liquidation proceedings

Under the so-called simplified procedure, a simple joint-stock company may be dissolved without being subject to liquidation proceedings, by means of the assets of the company being taken over by the acquiring shareholder, who becomes obliged to satisfy the company’s creditors and the claims of other shareholders.