Arrangement Approval Proceedings and Liquidation Arrangement for Distressed Companies | Poland

Karol emphasises that no company is too big to fail, and that restructuring or insolvency can be useful in cleaning up capital groups, liquidating subsidiaries, and investing in distressed assets. Tatara advises on the potential of these tools in facilitating easier, faster, and cheaper processes.

Tatara elaborates on different scenarios, including buying a company in distress (share deal) or purchasing specific assets (asset deal). He highlights the risks associated with unknown liabilities, poor balance sheets of distressed companies, and the challenges in negotiating with various stakeholders, including shareholders and creditors. He points out the risks of hostile actions by creditors, such as enforcement proceedings or bankruptcy petitions.

To mitigate these risks, Tatara suggests using arrangement approval proceedings (AAP), a quick, cost-effective restructuring tool in Poland. AAP provide protection against creditors, enforcement proceedings, bankruptcy, and the revoking of crucial contracts. They offer benefits such as handling unknown liabilities through a general haircut, tax benefits, and a majority rule in decision-making instead of unanimity, easing the restructuring process.

In asset deals, risks include the seller's insolvency, transaction avoidance claims, and liability for debts connected with the enterprise. Tatara advises against regular legal tools in these scenarios, recommending restructuring or insolvency tools instead. Also of interest is the pre-pack procedure, which involves buying assets from a trustee based on court decisions, providing benefits such as no risk of transaction avoidance and no investor liability towards creditors. However, post-2020 amendments have made this less favourable.

Tatara introduces the liquidation arrangement tool, effective in AAP, allowing the naming of asset acquirers in a restructuring process, decided by creditors. This approach limits transaction avoidance risks but lacks the execution sale effect. He also discusses the opportunity offered by the 2021 amendment of the Polish Restructuring Law, Article 323 of which allows for the sale of assets in remedial proceedings with an execution sale effect.

In conclusion, Tatara advises investors interested in distressed assets to avoid regular legal tools and instead take advantage of the restructuring and insolvency tools discussed – these offer safer, faster, and more cost-effective transaction processes.