ACKNOWLEDGEMENT OF A FOREIGN JUDGMENT OPENING BANKRUPTCY PROCEEDINGS AND SECONDARY BANKRUPTCY PROCEEDINGS

Publication date: January 10, 2024

Recognition of the judgment to initiate foreign bankruptcy proceedings does not constitute an obstacle to the initiation of bankruptcy proceedings by a Polish court. However, if the judgment to initiate the main foreign bankruptcy proceedings has been recognized, the bankruptcy proceedings initiated in the Republic of Poland are secondary bankruptcy proceedings.

Secondary bankruptcy proceedings

Secondary bankruptcy proceedings are regulated by Art. 405 section 1 of the Polish Bankruptcy Law. According to its content, the recognition of a judgment on the initiation of foreign bankruptcy proceedings does not constitute an obstacle to the initiation of bankruptcy proceedings by a Polish court. However, if the judgment to initiate the main foreign bankruptcy proceedings has been recognized, the bankruptcy proceedings initiated in the Republic of Poland are secondary bankruptcy proceedings.

The rule is that only one bankruptcy proceeding can be conducted against one debtor. This is relatively simple when it comes to a debtor based in Poland and not conducting business in the territory of other countries, or conducting business only within the Polish headquarters. The situation becomes more complicated whenever a foreign court declares bankruptcy of an entity against which bankruptcy proceedings are already being conducted in Poland. Similarly, when bankruptcy is announced by a company based abroad and the proceedings are to be conducted in another country. In such cases, the provisions governing secondary bankruptcy proceedings come into play.

Secondary bankruptcy proceedings are incidental to the main bankruptcy proceedings, which result from the recognition by a Polish court of a bankruptcy decision issued by a foreign court. However, if foreign bankruptcy proceedings are recognized in Poland as side proceedings, the Polish proceedings are the main proceedings and are conducted on general principles.

Secondary bankruptcy proceedings are initiated at the request of:

– a creditor who has his place of residence, registered office or main center of basic business in Poland;

– a creditor whose receivables result from the debtor’s economic activity conducted in Poland;

– a creditor who is entitled to receivables from the debtor secured on the debtor’s property located in Poland by a mortgage, pledge, treasury pledge, registered pledge, maritime mortgage or transfer to secure goods, receivables or other property rights.

Thus, secondary bankruptcy proceedings facilitate, above all, creditors who want to recover their receivables from their debtors against whom bankruptcy proceedings are conducted abroad. Such solutions allow for the recovery of receivables as if bankruptcy proceedings were conducted in the Republic of Poland. Thanks to secondary bankruptcy proceedings, creditors can benefit from Polish law and contact the relevant proceedings authorities in Polish.

Effects of initiating secondary bankruptcy proceedings

The provisions on secondary bankruptcy proceedings provide for two basic consequences related to their initiation, namely:

– the management of the bankrupt’s assets located in the Republic of Poland, previously performed by a foreign administrator or the debtor who was left to manage his own assets, is taken over by the trustee appointed in secondary bankruptcy proceedings;

– the trustee joins court, enforcement, administrative, court and administrative proceedings and arbitration proceedings conducted by a foreign administrator or a debtor who is left to manage his own assets.

The provisions on secondary bankruptcy proceedings do not give priority to actions taken in Poland over those carried out by foreign bankruptcy authorities. However, the foreign administrator or the debtor is obliged to voluntarily hand over the property to the Polish trustee.

One of the most important issues related to secondary bankruptcy proceedings is the issue of concluding an arrangement and its effects. All the more so because in Polish circumstances, a bankruptcy arrangement is the exception rather than the rule. It is worth emphasizing here that:

– if an arrangement has been concluded in recognized main foreign bankruptcy proceedings, the content of which is not grossly inconsistent with Polish law, the court sets a date for the meeting of creditors to vote on the recognition of the effectiveness of the foreign arrangement;

– the provisions on the meeting and voting on the arrangement in bankruptcy proceedings shall apply accordingly to the meeting of creditors and voting;

– if an arrangement is to be concluded in secondary bankruptcy proceedings and the liquidation of the bankrupt’s assets is to be concluded in foreign main bankruptcy proceedings, the arrangement may only be of a liquidation nature.

Therefore, the fact that an arrangement was concluded as part of the main bankruptcy proceedings does not mean that it automatically applies to creditors participating in secondary bankruptcy proceedings. If it is grossly inconsistent with Polish law, the court is obliged to allow creditors to comment on its validity. A decision in this respect – taken by the appropriate majority of creditors – may affect the further course of secondary bankruptcy.