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Polish bankruptcy law obliges the debtor to file a petition for bankruptcy within 30 days of the day on which the grounds for declaring bankruptcy arose. 

If the debtor is a Polish limited liability company (sp. z o.o.), this obligation rests with each of its management board member

In practice it is sometimes difficult to determine the moment of occurrence of the circumstances underlying the bankruptcy and to determine the day from which to count the 30 days being the deadline for submitting the petition. Management board members are liable for damage caused by failure to file the petition on time, while filing the petition on time excludes liability of management board members for civil-law and public-law liabilities of the limited liability company. Thus, the correct determination of the day from which to calculate the deadline for filing a petition for bankruptcy of a limited liability company is important in terms of liability of management board members.

Legal grounds for bankruptcy

Pursuant to the Polish bankruptcy law, a debtor must be insolvent to be declared bankrupt . The law defines insolvency as a condition in which the debtor is no longer capable of meeting his financial obligations. This is the so-called liquidity criterion. 

Another condition which according to the bankruptcy law a limited liability company must meet apart from the liquidity criterion to be considered bankrupt, is the excess of the company's financial liabilities over its assets for more than 24 months. This is the so-called excessive indebtedness criterion which applies also to other legal persons and organisational units with no legal personality but with legal capacity (this criterion does not apply to partnerships in which at least one partner liable without limitations, with all his assets, for partnership's liabilities, is a natural person).

When does a limited liability company become unable to meet its financial obligations?

To assess whether the company has lost its capacity to meet its financial obligations we should look at the company's actual ability to pay. No cash in hand and at bank and also no option to obtain funds within a short time by selling assets or taking out a loan will usually mean that the limited liability company is no longer capable of meeting its financial obligations. To make the assessment easier, the bankruptcy law includes a presumption according to which the debtor is insolvent if he is late with payment for more than 3 months.

This should be used as guidance when calculating the deadline for filing a petition for bankruptcy of a Polish limited liability company. It should be assumed that at the end of those 3 months the 30-day deadline for filing a petition for bankruptcy by the management board members will start to run. 

However, as this is only a presumption, the debtor may refute it by proving that he is still capable of paying. He can do so by, for example, showing evidence that he is actually able to obtain funds sufficient for paying his liabilities.

When are we talking about the excessive indebtedness criterion?

To make it easier both for management board members and for creditors to determine the point at which the company has become insolvent, the bankruptcy law – similarly as in the case of the liquidity criterion – introduces a presumption for satisfying the excessive indebtedness criterion. The presumption is that the debtor is considered excessively indebted if according to his balance sheet his liabilities (except for provisions for liabilities and liabilities against related parties) exceed the value of his assets for more than 24 months. The debtor can refute this presumption by proving in particular that the actual (market) value of his assets is higher than their book value and therefore higher than the amount of his liabilities. Both the doctrine and the case law leave no doubt that to determine whether or not the excessive indebtedness criterion is met the value of the debtor's assets should not be assessed on the basis of the balance sheet value but on the basis of the actual (selling) value, assuming that the debtor will continue as a going concern.

What actions should the management board members take?

Members of the board of a limited liability company which is struggling with financial difficulties or generating balance sheet losses should constantly monitor the balance of due financial liabilities together with the delay in their payment, the value of the company's assets, and the amounts of its financial liabilities. 

Management board members should review the payments as soon as the company is for first time in delay with payment caused by shortage of funds. If they establish that at least two due and payable liabilities have not been paid on time and that 3 months have lapsed since the maturity date of the second one of them, the management board members should file a petition for bankruptcy within 30 days, unless they can obtain funds and pay the overdue liabilities.

As for the excessive indebtedness criterion, the management board members should first of all review the company's financial statements. This includes both the annual financial statements which the company must prepare under separate laws, and the financial statements compiled in the course of the company's financial year. If the statements – or specifically the balance sheet – show that liabilities exceed assets, the management board members should prepare a valuation of company's assets at their selling value (with the going concern assumption). If after such a valuation the company's liabilities still exceed its assets, the management board members should determine retroactively the point in which such circumstances materialised. The date established in this way is the date from which to count the 24 month-period for which the circumstances should last so as to meet the excessive indebtedness criterion and thus to provide grounds for bankruptcy. Then, the management board members should continuously monitor the balance of assets and liabilities of the company to establish whether or not there are grounds for filing a petition for bankruptcy due to the lapse of 24 months of the occurrence of excessive indebtedness. After the lapse of the 24th month of uninterrupted excessive indebtedness, the management board members have 30 days for filing a petition for company's bankruptcy.

If you would like to discuss details concerning the obligations of management board members in connection with corporate bankruptcy, Rödl & Partner experts in restructuring and bankruptcy proceedings will be happy to help you.

13.06.18