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4. ЮРИДИЧЕСКАЯ ПРАКТИКА ДРУГИХ СТРАН РЕСПУБЛИКА ПОЛЬША
4.1. BANKRUPTCY PROCEEDINGS IN RELATION TO BOND ISSUERS IN POLAND
Rafai Adamus dr hab. associate professor of University of Opole, Head of the Division of Commercial Relations.
Place of employment: University of Opole.
adamus [email protected]
Annotation: The paper is devoted to the problem of the bankruptcy proceedings in relation to bond issuers in the Polish system of law. There are two main acts which refer to this matter. The first should be indicated the Act of the 28th February 2003 Law on Bankruptcy and Reorganization. The second to be mentioned is the Act of 29th June 1995 on Bonds. The bankruptcy proceedings in relation to some bond issuers are special bankruptcy proceedings which in many aspects differ from the general proceedings.
Key words: bankruptcy, bankruptcy proceedings, bond.
1. Preliminary issues
General remarks on bankruptcy law in Poland
Law on Bankruptcy and Reorganization, presently forcing in Poland, should be considered as a modern act regulating insolvency and pre-insolvency issues. The Act includes both procedural and substantial provisions. Law on Bankruptcy and Reorganization replaced two separate former Acts, on Bankruptcy and on Settlement Proceedings, both dating from 1934. The present Act has been seriously amended in 2009 and it is expected to be seriously changed in the nearby future.1 Nevertheless in a general view the present Act generally meets the crucial standards recommended in the Legislative Guide on Insolvency Law2,which consists of two elements: Part One.3 Designing the Key Objectives and Structure of an Effective and Efficient Insolvency Law and Part Two. 4 Core Provisions for an Effective and Efficient Insolvency Law.5
In the present shape the Polish law provides for unitary and flexible insolvency proceedings with a generally single commencement requirements resulting in reorganization or liquidation, depending on the circumstances of the concrete case. There are two types of the bankruptcy proceedings: bankruptcy with the possibility to make a settlement and bankruptcy involving liquidation of the debtor's assets. As a general rule if it is determined likely that under the settlement between the bankrupt and the creditors, the creditors will be satisfied to a higher degree than they would have been satisfied by liquidation of the bankrupt's assets, the bankruptcy court should declare bankruptcy with the possibility to make a settlement (art. 16 sec. 1
1 Rekomendacje Zespotu Ministra Sprawiedliwosci ds. Nowelizacji Prawa Upadtosciowego i Naprawczego, Warsaw 10th December 2012, p. 1 - 379, www.ms.gov.pl
2 New York 2005, p. 1 - 384
3 p. 9 - 37
4 p. 38 - 286
5 It should be added that the matter of the UNCITRAL Legislative Guide on Insolvency Law. Part three: Treatment of enterprise groups in insolvency. New York 2012, p. 1 - 116, up till now is only an element of the discussion not of legislation. See R. Adamus, Upadtosc cztonkow zgrupowania przedsi^biorcow. Uwagi de lege ferenda, Przeglqd Ustawodawstwa Gospodarczego 2013, No 2.
b.r.l.). The bankruptcy court may convert the manner of conducting the bankruptcy proceedings from liquidation proceedings into settlement proceedings or from settlement proceedings into liquidation proceedings (see art. 16, 17 b.r.l.).7 In some cases the bankruptcy court is obliged to convert the manner of conducting bankruptcy proceedings from settlement proceedings into liquidation proceedings, if the settlement has not been adopted by the majority of the creditors (art. 286 sec. 1 b.r.l.)8 or has not been approved by the bankruptcy court (art. 289 b.r.l.).9 Generally there are two types of the settlement : a restructuring settlement as basic type, and a liquidation settlement (art. 271 b.r.l.)10 as a particular type of the settlement. There are three kinds of the bankruptcy representatives. A court supervisor (“nadzorca s^dowy”) who is appointed in the case of declaration of bankruptcy with the possibility to make a settlement (art. 156 sec. 2 b.r.l.). An administrator (“zarz^dca”) who is appointed in the case of a declaration of bankruptcy with the possibility to make an arrangement as well, but when the bankrupt has been deprived of the right to administer the assets (art. 156 sec. 3 b.r.l.). A trustee (“syndyk”) who is appointed in the case of a declara-
6 F. Zedler, in: A. Jakubecki, F. Zedler, Prawo upadtosciowe i naprawcze. Komentarz, Warszawa 2010, p. 43, S. Gurgul, Prawo upadtosciowe i naprawcze. Komentarz, Warszawa 2010, p. 66, P. Zimmerman, Prawo upadtosciowe i naprawcze. Komentarz, Warszawa 2012, p. 36, R. Adamus, in: R. Adamus, H. Buk, D. Chraponski, P. Dragon, L. Guza, W. Klyta, S. Ociessa, A. Pokora, A. J. Witosz (editor), A. Witosz (editor), L. Zielinski, Prawo upadtosciowe i naprawcze, Warszawa 2012, p. 106
7 F. Zedler, in: Prawo..., p. 44, S. Gurgul, Prawo..., p. 67, P. Zimmerman, Prawo., p. 37, R. Adamus, in: Prawo., p. 111
8 F. Zedler, in: Prawo., p. 605, A. J. Witosz, A. Witosz, in : Prawo., p. 618, S. Gurgul, Prawo., p. 877, P. Zimmerman, Prawo., p. 630
9 F. Zedler, in: Prawo., p. 609, A. Witosz, in : Prawo., p. 622, S. Gurgul, Prawo., p. 885, P. Zimmerman, Prawo., p. 636
10 F. Zedler, in: Prawo., p. 578, S. Gurgul, Prawo., p. 848, P. Zimmerman, Prawo., p. 587, R. Adamus, Uktad likwidacyjny w post?powaniu upadtosciowym, in: Instytucje Prawa upadtosciowego i naprawczego, A. Witosza (editor), vol. II, Katowice 2008, p. 61
tion of bankruptcy by liquidation of the bankrupt's assets (art. 156 sec. 1 b.r.l.).11
Bankruptcy proceedings could be general and special. Presently there are six main special proceedings: bankruptcy proceedings opened after the death of an insolvent debtor, bankruptcy proceedings against banks (with bankruptcy proceedings against mortgage banks and with bankruptcy with respect to foreign banks, credit institutions and their branches), bankruptcy proceedings against insurance undertakings, bankruptcy proceedings against developers, bankruptcy proceedings against natural persons not conducting economic activity, and finally bankruptcy proceedings against bond issuers.
General bankruptcy proceedings apply to entrepreneurs (art. 5 b.r.l.).12 Natural persons not conducting economic activity may use only special bankruptcy proceedings.13 Bankruptcy cannot be declared in respect of the State Treasury, units of local governments, independent public health institutions, institutions and legal persons created by law, higher education institutions (art. 6 b.r.l.).
Entrepreneurs who are threatened with insolvency may submit to the bankruptcy court a statement on opening reorganization proceedings (art. 492 b.r.l.). There are special pre-insolvency proceedings.14
General remarks on bonds in Poland
A bond is a security issued in a series15 in which the issuer finds that the debtor is the owner of the bond (the bond holder) and is committed to it for a specific benefit (art. 5 sec. 1 a.b.). Regarding the sources of law as the principium divsionis there are two types of bonds in Poland. Firstly there are bonds issued under the Act on Bonds and secondly there are bonds issued by the State Treasury or the National Bank of Poland. Both the State Treasury and the National Bank of Poland have no bankruptcy capacity. The Act of Bonds allows to issue bonds to a couple of entities. In the first place there should be listed entities who do not have bankruptcy capacity: communities, districts and provinces, National Association of Credit Unions. Bond issuers to whom the bankruptcy law does not apply are outside interest in this paper.1 Bond issuing entities possessing bankruptcy capacity are the following: entrepreneurs having legal capacity (for example: a joint -stock company, limited company), mixed joint - stock and limited company (“spolka komandytowo - akcyjna”), banks, associations of credit unions, etc.
Bonds may not take the form of a document, if the bond issuer so chooses. Rights of non-documentary bonds are due at the moment to write to the special record and it is
11 F. Zedler, in: Prawo..., p 385, S. Gurgul, Prawo..., p. 578, P. Zimmerman, Prawo., p. 325, I. Gil, Sytuacja prawna syndyka masy upadtoéci, Warszawa 2007, p.1
12 F. Zedler, in: Prawo., p 25, R. Adamus, in : Prawo., p. 44
13 R. Adamus, Consumer bankruptcy in Poland, International and Comparative Law Review, Olomouc 2011, vol. 11, no. 2, p. 107
14 R. Adamus, The Reorganization Law in Poland, Acta Universitatis Danubius. Juridica, Vol 8, No 1/2012, p. 103
15 Securities issued in the series means the securities representing the right to property divided into a number of equal units (art. 5 sec. 1 “a” a.b.).
16 Act on Bonds allows issuing bonds to other entities possessing
legal capacity authorized to issue bonds on the basis of other laws. The Act of 23th November 2002 on the Restructuring of the Obligations of Concession Operators of Fixed Public Telephone
Networks refers to entities generally possessing bankruptcy capacity. On the other hand on the Act of 15 April 2005 on Public Assistance and Restructuring of Independent Public Health Institutions refers to entities to whom the bankruptcy law does not apply
the person designated as the holder of such bonds (art. 5 “a” sec. 1,2 a.b.). Not all bond - issuers may issue dematerialized bonds but only those identified in the Act on Bonds. Bonds may be registered or bearer (art. 14
a.b.). Bonds may be secured on the assets of the issuer. Bonds may not be issued prior to the safeguards provided for in the terms of issue (art. 15 a.b.).
As a general rule the bond issuer is responsible with all its assets for obligations arising from the bonds (art. 8 sec. 1 a.b.). In the case of revenue bonds the bond issuer may reduce the content of its responsibility for the bond obligations of the bonds to the amount of income or the value of the assets of the project, to which the bondholder has the right priority (art. 8 sec. 2 a.b.). If the issuer fails to meet the deadline, in whole or in part, the obligations arising from bonds, debentures shall, at the request of the bondholder, immediate redemption in part, in which they provide a cash (art. 24 sec. 2 a.b.).
Special bankruptcy proceedings against bond issuers
General remarks
There are three different legal regimes in case of the bankruptcy of a bond issuer. First is the special bankruptcy proceedings regulated in articles 483 - 491 b.r.l. with the scope precisely described in art. 483 b.r.l. Second is the special regulation of the Act of Bonds for revenue bonds if in the bond the issuer has limited his liability to the amount of revenue or the value of the project's property. In fact obligations deriving from such revenue bonds are satisfied outside the procedure of bankruptcy. Finally the third regime there are ordinary rules of the general bankruptcy proceedings for bonds not secured on the assets of the issuer. There is one thesis which should be directly expressed: any kind of bankruptcy could be announced against a bond issuer.
2.1. Scope of application of the special bankruptcy proceedings in relation to bond issuers
There are two general rules which appoint the scope of application of the special bankruptcy proceedings in relation to bond issuers. Under the first rule, special bankruptcy proceedings apply in the case of a declaration of bankruptcy of a bond issuer if bonds have been secured on the assets of the issuer (art. 483 sec. 1 b.r.l.)17 In other words these proceedings are not applicable to bonds not secured on the assets of the issuer. Under the second rule special bankruptcy proceedings shall not apply in the case of a declaration of bankruptcy of an issuer of revenue bonds when in the bond the issuer has limited his liability to the amount of revenue or the value of the project's property. The funds assigned to satisfy the rights of the bondholders from the mentioned bonds shall not be included in the bankruptcy estate and the bond holders' claims shall not be satisfied in the bankruptcy proceedings (art. 483 sec. 2 b.r.l.).18
2.2. Separate bankrupt estate
As a general rule on the date of the declaration of bankruptcy the debtor's assets shall become the bankrupt estate. The bankrupt estate consist of assets belonging to the debtor on the date of the declaration of bankruptcy and
17 A. Jakubecki, in: Prawo., p. 912, S. Gurgul, Prawo., p. 1239, P. Zimmerman, Prawo., p. 979
18 A. Jakubecki, in: Prawo., p. 916, S. Gurgul, Prawo., p. 1242, P. Zimmerman, Prawo., p. 979
as well as those acquired by the bankrupt in the course of bankruptcy proceedings (art. 61, 62 b.r.l.).19
Under article 488 sec. 1 b.r.l. the collateral securing rights arising from bonds shall comprise a separate bankrupt estate designed for the satisfaction of the bond holders' rights.20 These provisions create a separate bankrupt estate. It means that in the bankruptcy proceedings there are two bankrupt estates: “general” and “special”. In fact a separate bankrupt estate is the most remarkable institution in the whole regulation of the special bankruptcy proceedings. There could be defended the idea that a separate bankrupt estate is formed by the virtue of art. 488 sec. 1 in both liquidation and restructuring bankruptcy because the mode of bankruptcy could be changed. It should be beyond any dispute that significant role for a separate bankruptcy estate is reserved in case of liquidation bankruptcy. The separate bankrupt estate is liquidated by the trustee (art. 488 sec. 2 b.r.l.).21 The trustee shall immediately take possession of the bankrupt's assets which are the separate bankrupt estate, administrate them, secure them against destruction, deterioration or appropriation by third parties and initiate the process of liquidation of the assets. If the object of the bond security is an enterprise or its organized part, a real property, perpetual usufruct right, co-operative ownership right to premises and sea vessel registered in the register of vessel it should be sold by the tender or auction under bankruptcy law. The creditors' committee may consent to the unrestricted sale of the mentioned assets. A curator has a position of a witness of the trustee's actions. Finally the trustee is obliged to prepare a distribution scheme for the creditors who are the bond owners. From the separate bankrupt estate the following shall be satisfied, in priority to other, the costs of liquidation of this estate, which shall also include the remuneration of the curator. Secondly the amounts due to the bond holders at their face value. Finally interest or coupons (art. 489 b.r.l.).22
If the separate bankrupt estate is not sufficient enough to satisfy the amounts due to the bond holders, those amounts not satisfied shall be subject to satisfaction from the general bankrupt estate's funds (art. 490 b.r.l.).23 The claims of the bond holders should be satisfied in the fourth class (art. 342 sec. 1 point 4).24
19 D. Chraponski, Wytqczenia z masy upadtosci, Warszawa 2010, p.
21
20 A. Jakubecki, in: Prawo..., p. 918, S. Gurgul, Prawo..., p. 1249, P. Zimmerman, Prawo., p. 978
21 A. Jakubecki, in: Prawo., p. 919, S. Gurgul, Prawo., p. 1249, P. Zimmerman, Prawo., p. 978
22 A. Jakubecki, in: Prawo., p. 919, S. Gurgul, Prawo., p. 1250, P. Zimmerman, Prawo., p. 979
23 A. Jakubecki, in: Prawo., p. 920, S. Gurgul, Prawo., p. 1251, P. Zimmerman, Prawo., p. 980
24 There are five classes in the distribution scheme under art. 342 sec. 1. The first category - f.e. the costs of the bankruptcy
proceedings, alimony payments and disease - related pensions, workers’ compensation, disability or death benefits and benefits for conversion of a right to a lifetime annuity into a lifetime pension for a
period referring to the time after the bankruptcy, amounts due to
unjust enrichment of the bankruptcy estate, amounts resulting from agreements concluded by the bankrupt before the declaration of
bankruptcy, the performance of which has been requested by the trustee, claims arising from the operations of the bankrupt performed after the declaration of bankruptcy, for which the consent of the court supervisor was not required or which were performed upon his consent. The second category - referring to the time before the
bankruptcy claims from the employment relationship, farmer's claims arising under agreements for the supply of products from their agricultural farms, alimony payments, disease related payments workers' compensation, disability or death benefits and benefits for
2.3. Curator to represent the rights of the bond holders
The bankruptcy court shall appoint a curator to represent
the rights of the bond holders. The curator may also be a bank with whom the bankrupt concluded a contract for the representation of the bond holders in relation to the issuer (art. 484 b.r.l.).25 The curator shall bear the same responsibility for damages as a trustee.
The curator has special prerogatives in the proceedings. Firstly the curator is entitled to demand of the trustee, court supervisor and receiver all necessary information. The curator has a right to examine the bankrupt's books and documents (art. 486 sec. 1 b.r.l.). This bundle of rights could be described as the right to information. Secondly the curator shall submit to the bankrupt estate the total nominal sum of bonds unredeemed prior to the date of the declaration of bankruptcy of the bond issuer, whose payment period falls due prior to this date as well as the total sum of unpaid interest arising from these bonds (art. 487 sec. 1 point 1 b.r.l.).26 The curator shall submit to the bankrupt estate the total sum of bonds as well as of interest which fall due after the date of the declaration of bankruptcy (art. 487 sec. 1 point 2 b.r.l.). It is required of the curator to list in the submission the contents of the issuer's estate on which the rights of bond holders' were secured (487 sec. 2 b.r.l.).27 Thirdly the curator has the right to attend the creditors' meeting, The curator has the right to vote at the creditors' meeting (art. 486 sec. 1 b.r.l.). It should be considered that the right of voting is limited to those matters, which may affect the rights of the bond holders (art. 486 sec. 1 b.r.l.). At the conclusion of the reorganization settlement the curator should vote by the sum of the bond holders' claims which are not satisfied from the separate bankrupt estate, being authorized to one vote for each amount resulting from the division of sum of all other claims entitled to vote by the number of creditors who represent those claims (art. 486 sec. 2 b.r.l.).28 Fourthly the curator is entitled to participate in the liquidation of the separate bankrupt estate which is managed by the trustee (art. 488 sec. 2 b.r.l.). In the case of issuing of the approval by the creditor's committee or by the judge commissioner for the free-hand sale of property included in the separate bankrupt estate, the sale requires additional approval of the curator (art. 488 sec. 3 b.r.l.).29
2.4. Redemption of the bankrupt's bonds
conversion of a right to a lifetime annuity into a lifetime pension for a period of the last two years preceding the declaration of bankruptcy together with interest and execution costs. The third category - taxes and other public levies and other receivables from social security contributions, plus interest and costs of enforcement. The fourth category - other receivables, if not subject to satisfying the fifth category, together with interest for the last year before the date of bankruptcy, liquidated damages, the cost of the process and execution. The fifth category - interests that do not belong to a higher category in the order in which they shall be subject to satisfaction of the capital, as well as judicial and administrative fines and charges for donations and legacies
25 A. Jakubecki, in: Prawo., p. 916, S. Gurgul, Prawo., p. 1244, P. Zimmerman, Prawo., p. 974
26 A. Jakubecki, in: Prawo., p. 918, S. Gurgul, Prawo., p. 1248, P. Zimmerman, Prawo., p. 977
27 A. Jakubecki, in: Prawo., p. 918, S. Gurgul, Prawo., p. 1248, P. Zimmerman, Prawo., p. 977
28 A. Jakubecki, in: Prawo., p. 917 , S. Gurgul, Prawo., p. 1248, P. Zimmerman, Prawo., p. 976
29 A. Jakubecki, in: Prawo., p. 918 - 919, S. Gurgul, Prawo., p. 1249, P. Zimmerman, Prawo., p. 978
Under general rules of the Act of Bonds the Issuer may only purchase its own bonds for redemption. The issuer may not purchase its own bonds after the deadline for the fulfillment of all obligations of the bond, as defined in the Terms of Issue. Finally issuer being in default with the implementation of the obligations of the bond may not purchase its own bonds (art. 25 a.b.). Under the bankruptcy law bonds issued by the bankrupt and remaining in the bankrupt's ownership may not be brought into circulation. Such bonds shall be subject to redemption (art. 491
b.r.l.).30
General bankruptcy proceedings against bond issuers
Bankruptcy of the revenue bonds issuer
Revenue bonds may grant the bondholder the right to satisfy its claims with priority over other creditors of the bond issuer:
1. all or part of the income or the whole or part of the assets of the projects that have been financed with funds raised from the issuance of bonds, or
2. all or part of the revenues from other activities specified by the issuer (art. 23 “a” a.b.).
There are four categories of entities authorized to issue revenue bonds possessing bankruptcy capacity (art. 23 “a” sec. 2 points 2-5 a.b.). It should be listed a joint-stock company or a limited liability company in which the local government unit, the relationship of local government units, the capital city of Warsaw, has the number of shares or the shares, which gives it more than 50% of the total number of votes at the general meeting or the general meeting of shareholders, provided that the only activity of the company is to meet the needs of local communities or to carry out the public. Secondly there is a joint-stock company or a limited liability company whose sole business is to carry out the public under an agreement with a local government, local government compound and the capital city of Warsaw and who will perform these tasks at least for a period equal to the period of maturity of bonds. Thirdly it should be listed a joint-stock company, which is based on statutory authorization or under a license or permit will perform tasks related to public or provide services in the field of transport and communications, maintenance and development of transport infrastructure and transport at least for a period equal to the period of maturity of bonds. Finally there is the licensee referred to in the Act of 27 October 1994 on Toll Motorways and the National Road Fund.
The issuer of revenue bonds cannot sell or encumber the assets of the project, except when done in the proper disposal of the economy without causing a significant decrease in the value of the project (art. 23 “a” sec. 7 a.b.). What is important, in case the bond holders have the right to satisfy their claims from the proceeds of a particular project, all revenue from such projects should affect the bank account designed exclusively for the collection and to make payments (art. 23 “b” sec. 1 a.b.). As a general rule, the revenue bond issuer cannot disburse funds from the account for any purpose other than to satisfy the claims of the bondholders (art. 23 “b” sec. 2 a.b.). The funds accumulated in the bank account of bond issuer are not subject to execution conducted from the account of the issuer to the amount of the issuer's obligations to bondholders (art. 23 “b” sec. 4 a.b.). In the case of executions carried out by the project assets, the
30 A. Jakubecki, in: Prawo., p. 920, S. Gurgul, Prawo., p. 1251, P. Zimmerman, Prawo., p. 980
occupation is not subject to the amount required to satisfy the claims of the bondholders. This amount is transferred to the bank account and cannot be paid for purposes other than to satisfy the claims of the bondholders (art. 23 “b” sec. 5 a.b.).
The funds accumulated in a bank account are excluded from the bankruptcy estate of issuers. With the declaring of bankruptcy or liquidation of the entity which is the issuer of revenue bonds obligation revenue bonds shall become immediately due and payable. Satisfy the claims of holders of the revenue bonds are made from the assets of the project, in priority to other creditors of the bankrupt (art. 23 “c” sec. a.b.).
Bonds not secured on the assets of the bond issuer
In case of bankruptcy of the bond issuer, if bonds are not secured on the assets of the bond issuer there are applied general rules of the bankruptcy proceedings. In case of restructuring bankruptcy the settlement includes debts incurred prior to the debtor's bankruptcy (art. 272 sec. 1
b.r.l.). Consequently the settlement includes debts from bonds issued prior to the bonds' issuer bankruptcy. The restructuring should equally concern monetary and nonmonetary obligations. However, if the creditor at the time of submitting the claims has not agreed to the restructuring of its debt as non-monetary claims or because of the nature of non-cash debt restructuring is not possible, the claim that changes in monetary claim (art. 279 sec. 5 b.r.l.). It is important that after approving the list of claims the judge - commissioner may decide that the creditors shall vote on the settlement in separate groups. Bond holders may constitute a separate groups for voting (art. 278 b.r.l.). The settlement does not affect the rights of the creditor against the guarantor and co-debtor or rights under the mortgage, lien, pledge and maritime mortgage, if such rights were set up on the property of a third party (art. 291 sec. 1 b.r.l.). In case of liquidation bankruptcy of the bond issuer the claims of bond holders are satisfied in the fourth class. Liquidation bankruptcy does not affect the obligations of the guarantor of the co-debtor.
Conclusions
This short text presents a complex matter of bankruptcy of the bond issuers. As it was shown above the Polish legislator adopted a differential regulation. By the analysis of the Bankruptcy and Reorganization Law it is possible to make some conclusions of the legal safety of the particular kinds of bonds (economical safety depends on the value of the security). There is a relatively strong legal protection of revenue bonds. In fact revenue bonds are not common in commercial circulation. The bond issuers of such type of bonds are limited as well. Bonds secured on the assets of the bond issuer should be regarded as legally safe securities.
