A debtor’s greater protection in restructuring

Pursuant to Art. 256 of the Restructuring Law from the date of opening the accelerated arrangement proceedings to the date of its completion or the coming into force of the decision to discontinue the accelerated arrangement proceedings, the termination by the lessor or the lessor of the lease or tenancy agreement of the premises or real estate in which the debtor’s business is conducted, without the consent of the creditors’ council, is inadmissible. The Restructuring Law also provides for similar protection for credit, leasing, property insurance, bank account agreements, surety agreements, agreements covering licenses granted to the debtor, as well as guarantees or letters of credit. This regulation is intended to ensure enhanced protection of the debtor until all creditors make a decision as to the further fate of the debtor and the possible acceptance of the arrangement.

In practice, however, doubts have arisen as to whether such a closed catalog actually achieves the goals of the legislator and protects the debtor’s company from collapse – it is easy to imagine a different type of contract than those mentioned, which is necessary for the conducted activity.

In response to the difficulties that arise in practice, the legislator in the amendment, which will enter into force on December 1, 2021, additionally introduced the concept of the so-called essential contracts for the running of the debtor’s business, that is, the type of contracts that are absolutely necessary for the debtor’s business to continue. The list of such contracts – at his discretion – will be prepared by the court supervisor, who will then submit the list to the case files within three weeks from the date of opening the restructuring proceedings. Such regulation gives the court supervisor the right to assess which of the concluded contracts will be particularly protected against termination, following the indication that the duration of such a contract is necessary for the continued existence of the debtor’s enterprise.

Protection against dismissal is, of course, not unlimited. If, for example, the debtor does not fulfill obligations not covered by the arrangement after the opening of accelerated arrangement proceedings, then the restrictions on terminating the agreements specified in the act do not apply.

The introduced amendment has a double effect – on the one hand, it increases the protection of the debtor, and on the other – also the creditors themselves, at least those who would like to avoid the debtor’s bankruptcy and recover their debts.