The concept of insolvency in Polish law has significant legal consequences. Insolvency is closely related to the necessity of filing a petition for bankruptcy by the obliged and determines the declaration of bankruptcy by the court. There are also serious consequences for certain entities related to the lack of timely filing of a bankruptcy petition.

Thus, each entrepreneur should monitor the condition of his company on an ongoing basis in order to respond to the state of insolvency in a timely and appropriate manner. Recently, as a result of the amendment to the bankruptcy and reorganisation law, which entered into force on 1 January 2016, the provisions on insolvency have changed quite significantly.

Bankruptcy is declared against a debtor who has become insolvent (Article 10 of the Polish Insolvency Law). Therefore the state of insolvency is a state which obliges the entrepreneur to file for bankruptcy. Pursuant to Article 21(1) of the Polish Insolvency Law, the debtor is obliged, not later than within thirty days from the date on which the basis for declaring bankruptcy occurred, to file a motion for declaring bankruptcy to the court.

Pursuant to Article 11(1) of the Polish Insolvency Law, a debtor is insolvent if he has lost the ability to fulfil his chargeable pecuniary obligations. A presumption has been introduced according to which the debtor is presumed to have lost the capacity to perform his chargeable pecuniary obligations if the delay in the performance of the pecuniary obligations exceeds three months.

Pursuant to Article 11(2), a debtor who is a legal person or an organisational unit without legal personality, to which a separate act grants legal capacity, shall also be insolvent if its pecuniary obligations exceed the value of its assets and this state of affairs persists for a period exceeding twenty-four months.

1. Failure to fulfil chargeable monetary obligations (liquidity)

The first criteria that apply to all debtors is the loss of the debtor's ability to fulfil its chargeable pecuniary obligations.

It is worth noting that insolvency relates only to pecuniary obligations. Therefore, as Piotr Zimmerman points out in his commentary, "A debtor who fails to perform obligations of a non-pecuniary nature on time is not insolvent until such obligations become pecuniary by contract or action of the creditor, even if he is in delay in performing them for more than 3 months". (Prawo upadłościowe. Komentarz. Piotr Zimmerman. Wydawnictwo C.H. Beck, Warszawa 2016, komentarz do przepisu art. 11, system informacji prawnej Legalis).

Monetary liabilities must be chargeable. As pointed out by the Supreme Court in the judgment of 22 March 2001, V CKN 769/00 "In doctrine and judicature, the chargeability of a debt is defined as the state in which the creditor has the legal possibility to demand satisfaction of his debt to which the creditor is entitled. This is a potential, objective state, whose beginning coincides with the activation of the debt ( see the justification of the Supreme Court's judgment of 12 February 1991, III CRN 500/90, OSNCP 1992, no. 7-8, item 137). The beginning of due date cannot be summarised as a single rule applicable to all legal relations, as it depends on the nature of the obligations and their properties. Only chargeability in relation to obligations of a timely nature is uniformly recorded. It is then assumed that the claim is due if the deadline for performance has come, as from that date the creditor may demand fulfilment of the performance that the debtor has to fulfil. The issue of maturities in respect of indefinite obligations is different (...). In this case, it is not acceptable to adopt a position identifying the due dates and performance, since Article 455 of Kodeks Postępowania Cywilnego (the Polish Civil Code), which defines the date of performance as "immediate" after being called by the creditor". According to the above, monetary obligations become chargeable on the date set as the payment date, provided that this date has been set correctly. On the other hand, indefinite pecuniary obligations become chargeable immediately after the creditor has been called upon to fulfil them. For example, when the debtor is unable, despite being due, to meet its obligations, it should consider filing a petition for bankruptcy. Entrepreneurs or members of the Management Board of the Company should be aware of the current financial condition of the Company, and thus the possibility of satisfying the debts.

A practical problem in determining the loss of ability to fulfil chargeable obligations is whether there must be more than one creditor unsatisfied. The literature assumes that there must be at least two creditors. Polish Insolvency law is intended to establish joint enforcement by creditors (Article 1(1) of the Polish Insolvency Law) and therefore does not address the situation where there is only one creditor.

As regards the nature of the obligations, that is, whether or not they are linked to the business, the reasons why the obligations are not fulfilled, or whether the obligations are of a public or private nature, it must be concluded that all these factors remain irrelevant for the possibility of establishing insolvency.

As indicated above, in order to facilitate the creditor's situation, a presumption has been introduced according to which a debtor is presumed to have lost the capacity to fulfil his pecuniary obligations if the delay in the performance of the pecuniary obligations exceeds three months. However, this presumption is a rebuttable presumption. The debtor can therefore prove that he has not lost the capacity to fulfil the pecuniary obligations that have fallen due and that the non-fulfilment of the obligations is of a temporary nature.

               2. The predominance of liabilities over assets (over-indebtedness)

For legal persons ( for example limited liability companies, joint-stock companies) or organizational units without legal personality, to which a separate act grants legal capacity, there is an additional, independent prerequisite for declaring bankruptcy. As mentioned above, pursuant to Article 11(2), a debtor who is a legal person or an organisational unit without legal personality, whose legal capacity is granted by a separate act, shall be deemed insolvent even if its financial obligations exceed the value of its assets and this condition persists for a period exceeding twenty-four months. However, this premise does not apply to partnerships specified in the Commercial Companies Code in which at least one partner responsible for the company's obligations without limitation is a natural person ( for example, a limited partnership in which a natural person is a general partner).

Thus, an obligated entity must not only monitor the issue of timely payment of chargeable obligations, but also monitor the relationship between the liabilities and the value of assets.

The law establishes the principles helpful in determining whether monetary liabilities exceed the value of assets.

First of all, the assets do not include components that are not part of the bankruptcy mass. As Piotr Zimmerman points out in his commentary, this applies in particular to components as obviously excluded from the mass as leased, rented or leasehold objects, but also to objects owned by other entities on the basis of, for example, the reservation of ownership rights to the seller until the full price has been paid  (Prawo upadłościowe. Komentarz. Piotr Zimmerman. Wydawnictwo C.H. Beck, Warszawa 2016, komentarz do przepisu art. 11, system informacji prawnej Legalis).

Secondly, pecuniary obligations do not include future obligations, including obligations under a suspensive condition and obligations towards a partner or shareholder under a loan or other legal transaction with similar effects, as referred to in Article 342(1)(4). These obligations are treated as uncertain obligations.

Thirdly, also on the occasion of this condition, the legislator provided for a legal presumption facilitating the creditor's situation. A debtor's pecuniary obligations shall be presumed to exceed the value of his assets if, according to the balance sheet, his liabilities, excluding provisions for liabilities and liabilities to affiliated entities, exceed the value of his assets, and this condition persists for a period exceeding twenty-four months. Creditors will therefore be able, on the basis of an analysis of the balance sheet, to assess the situation as to whether there is a presumption of over-indebtedness in a particular case. However, as it follows from the above, provisions for liabilities and liabilities towards related parties will not be taken into account in the assessment of the balance of liabilities. Therefore, the legal science indicates that disputed receivables will not be taken into account, as they are included in the balance sheet as "provisions for liabilities". However, this presumption is a rebuttable presumption. A debtor may therefore point out that, taking into account whether monetary obligations exceed the value of assets, his off-balance sheet assets, for example, estimated on the basis of market prices, should also be taken into account.

              Ewa Kosowska-Czapla

Polish Attorney-at-law, Licensed Receiver

The concept of insolvency in Polish law has significant legal consequences. Insolvency is closely related to the necessity of filing a petition for bankruptcy by the obliged and determines the declaration of bankruptcy by the court. There are also serious consequences for certain entities related to the lack of timely filing of a bankruptcy petition.

Thus, each entrepreneur should monitor the condition of his company on an ongoing basis in order to respond to the state of insolvency in a timely and appropriate manner. Recently, as a result of the amendment to the bankruptcy and reorganisation law, which entered into force on 1 January 2016, the provisions on insolvency have changed quite significantly.

Bankruptcy is declared against a debtor who has become insolvent (Article 10 of the Polish Insolvency Law). Therefore the state of insolvency is a state which obliges the entrepreneur to file for bankruptcy. Pursuant to Article 21(1) of the Polish Insolvency Law, the debtor is obliged, not later than within thirty days from the date on which the basis for declaring bankruptcy occurred, to file a motion for declaring bankruptcy to the court.

Pursuant to Article 11(1) of the Polish Insolvency Law, a debtor is insolvent if he has lost the ability to fulfil his chargeable pecuniary obligations. A presumption has been introduced according to which the debtor is presumed to have lost the capacity to perform his chargeable pecuniary obligations if the delay in the performance of the pecuniary obligations exceeds three months.

Pursuant to Article 11(2), a debtor who is a legal person or an organisational unit without legal personality, to which a separate act grants legal capacity, shall also be insolvent if its pecuniary obligations exceed the value of its assets and this state of affairs persists for a period exceeding twenty-four months.

1. Failure to fulfil chargeable monetary obligations (liquidity)

The first criteria that apply to all debtors is the loss of the debtor's ability to fulfil its chargeable pecuniary obligations.

It is worth noting that insolvency relates only to pecuniary obligations. Therefore, as Piotr Zimmerman points out in his commentary, "A debtor who fails to perform obligations of a non-pecuniary nature on time is not insolvent until such obligations become pecuniary by contract or action of the creditor, even if he is in delay in performing them for more than 3 months". (Prawo upadłościowe. Komentarz. Piotr Zimmerman. Wydawnictwo C.H. Beck, Warszawa 2016, komentarz do przepisu art. 11, system informacji prawnej Legalis).

Monetary liabilities must be chargeable. As pointed out by the Supreme Court in the judgment of 22 March 2001, V CKN 769/00 "In doctrine and judicature, the chargeability of a debt is defined as the state in which the creditor has the legal possibility to demand satisfaction of his debt to which the creditor is entitled. This is a potential, objective state, whose beginning coincides with the activation of the debt ( see the justification of the Supreme Court's judgment of 12 February 1991, III CRN 500/90, OSNCP 1992, no. 7-8, item 137). The beginning of due date cannot be summarised as a single rule applicable to all legal relations, as it depends on the nature of the obligations and their properties. Only chargeability in relation to obligations of a timely nature is uniformly recorded. It is then assumed that the claim is due if the deadline for performance has come, as from that date the creditor may demand fulfilment of the performance that the debtor has to fulfil. The issue of maturities in respect of indefinite obligations is different (...). In this case, it is not acceptable to adopt a position identifying the due dates and performance, since Article 455 of Kodeks Postępowania Cywilnego (the Polish Civil Code), which defines the date of performance as "immediate" after being called by the creditor". According to the above, monetary obligations become chargeable on the date set as the payment date, provided that this date has been set correctly. On the other hand, indefinite pecuniary obligations become chargeable immediately after the creditor has been called upon to fulfil them. For example, when the debtor is unable, despite being due, to meet its obligations, it should consider filing a petition for bankruptcy. Entrepreneurs or members of the Management Board of the Company should be aware of the current financial condition of the Company, and thus the possibility of satisfying the debts.

A practical problem in determining the loss of ability to fulfil chargeable obligations is whether there must be more than one creditor unsatisfied. The literature assumes that there must be at least two creditors. Polish Insolvency law is intended to establish joint enforcement by creditors (Article 1(1) of the Polish Insolvency Law) and therefore does not address the situation where there is only one creditor.

As regards the nature of the obligations, that is, whether or not they are linked to the business, the reasons why the obligations are not fulfilled, or whether the obligations are of a public or private nature, it must be concluded that all these factors remain irrelevant for the possibility of establishing insolvency.

As indicated above, in order to facilitate the creditor's situation, a presumption has been introduced according to which a debtor is presumed to have lost the capacity to fulfil his pecuniary obligations if the delay in the performance of the pecuniary obligations exceeds three months. However, this presumption is a rebuttable presumption. The debtor can therefore prove that he has not lost the capacity to fulfil the pecuniary obligations that have fallen due and that the non-fulfilment of the obligations is of a temporary nature.

               2. The predominance of liabilities over assets (over-indebtedness)

For legal persons ( for example limited liability companies, joint-stock companies) or organizational units without legal personality, to which a separate act grants legal capacity, there is an additional, independent prerequisite for declaring bankruptcy. As mentioned above, pursuant to Article 11(2), a debtor who is a legal person or an organisational unit without legal personality, whose legal capacity is granted by a separate act, shall be deemed insolvent even if its financial obligations exceed the value of its assets and this condition persists for a period exceeding twenty-four months. However, this premise does not apply to partnerships specified in the Commercial Companies Code in which at least one partner responsible for the company's obligations without limitation is a natural person ( for example, a limited partnership in which a natural person is a general partner).

Thus, an obligated entity must not only monitor the issue of timely payment of chargeable obligations, but also monitor the relationship between the liabilities and the value of assets.

The law establishes the principles helpful in determining whether monetary liabilities exceed the value of assets.

First of all, the assets do not include components that are not part of the bankruptcy mass. As Piotr Zimmerman points out in his commentary, this applies in particular to components as obviously excluded from the mass as leased, rented or leasehold objects, but also to objects owned by other entities on the basis of, for example, the reservation of ownership rights to the seller until the full price has been paid  (Prawo upadłościowe. Komentarz. Piotr Zimmerman. Wydawnictwo C.H. Beck, Warszawa 2016, komentarz do przepisu art. 11, system informacji prawnej Legalis).

Secondly, pecuniary obligations do not include future obligations, including obligations under a suspensive condition and obligations towards a partner or shareholder under a loan or other legal transaction with similar effects, as referred to in Article 342(1)(4). These obligations are treated as uncertain obligations.

Thirdly, also on the occasion of this condition, the legislator provided for a legal presumption facilitating the creditor's situation. A debtor's pecuniary obligations shall be presumed to exceed the value of his assets if, according to the balance sheet, his liabilities, excluding provisions for liabilities and liabilities to affiliated entities, exceed the value of his assets, and this condition persists for a period exceeding twenty-four months. Creditors will therefore be able, on the basis of an analysis of the balance sheet, to assess the situation as to whether there is a presumption of over-indebtedness in a particular case. However, as it follows from the above, provisions for liabilities and liabilities towards related parties will not be taken into account in the assessment of the balance of liabilities. Therefore, the legal science indicates that disputed receivables will not be taken into account, as they are included in the balance sheet as "provisions for liabilities". However, this presumption is a rebuttable presumption. A debtor may therefore point out that, taking into account whether monetary obligations exceed the value of assets, his off-balance sheet assets, for example, estimated on the basis of market prices, should also be taken into account.

              Ewa Kosowska-Czapla

Polish Attorney-at-law, Licensed Receiver