Poland's parliament recently adopted a new restructuring law (the “Bill”) which will substantially change the country’s economic environment.
After lengthy works, the draft of new restructuring law was finally adopted by the Polish parliament on 9 April 2015. The Bill now requires only the signature of the President.
The Bill provides for its entering into force on 1 June 2015, except for certain regulations that are to enter into force on 1 September 2015.
Current Polish bankruptcy and insolvency environment
Poland’s Supreme Court in a recent ruling found a grant of security for parallel debt to be invalid.
On 9 October 2009, a three-judge panel of the Supreme Court issued a judgment (file no. IV CSK 145/09), in which it ruled that the Polish legal system provides for the possibility to secure claims under a parallel debt (created under foreign law).
Facts of the case
According to article 11 of Poland’s Bankruptcy and reorganisation law as of 28 Feb-ruary 2003 (Journal of laws 2009, No. 175, position 1361, as amended), a debtor who is a legal person (including, in particular, a limited liability company) is considered to be insolvent when the value of its liabilities exceeds the value of its assets, even if the debtor continues to pay its liabilities (balance sheet insolvency).
In Elektrim SA (In Bankruptcy) v Vivendi Universal (& Ors) [2008] EWHC 2155 (Comm) the claimant and defendant companies had entered into an investment agreement governed by Polish law, which contained an arbitration clause providing for arbitration in London. It was common ground that unlike the rest of the investment agreement , the arbitration agreement was governed by English law. In 2003, Vivendi commenced arbitration proceedings in London which were still ongoing on 21 August 2007 when Elektrim was declared bankrupt by an order of the Warsaw court.
Tax treatment in the hands of the creditor
Polish tax regulations provide three major methods for obtaining a tax deduction for irrecoverable debt: waiver or forgiveness of debt, debt write-off and revaluation write-off.
On June 13, 2016, the U.S. Supreme Court upheld lower court rulings declaring unconstitutional a 2014 Puerto Rico law, portions of which mirrored chapter 9 of the Bankruptcy Code, that would have allowed the commonwealth’s public instrumentalities to restructure a significant portion of Puerto Rico’s bond debt (widely reported to be as much as $72 billion). In Commonwealth v. Franklin Cal. Tax-Free Tr., 2016 BL 187308 (U.S.
On May 3, 2017, the Financial Oversight and Management Board for Puerto Rico (the “Oversight Board”), acting on behalf of the cash-strapped Commonwealth of Puerto Rico (the “Commonwealth”), filed for bankruptcy protection in the District Court for the District of Puerto Rico. The Commonwealth’s Title III Petition for Covered Territory or Covered Instrumentality (the “Petition”) was filed in accordance with Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), codified at 48 U.S.C. § 2161, et seq.
Puerto Rico is in the midst of a financial crisis. Over the past few years, its public debt skyrocketed while its government revenue sharply declined. In order to address its economic problems and to avoid mass public-worker layoffs and cuts in public services, the unincorporated U.S. territory issued billions of dollars in face value of municipal bonds. These bonds were readily saleable to investors in the United States due to their tax-exempt status and comparatively high yields.