A remedial proceeding is a special type of restructuring procedure. It gives the debtor more possibilities than the other types. In remedial proceedings, a debtor may not only avoid bankruptcy but also improve the situation of his enterprise. Yet, he must face significant limitations that not everyone is willing to accept. What is the essence of this type of restructuring procedure? Who can use it? You will find the answers in the article below.
Table of Contents
- Remedial proceeding – what is it?
- What are the responsibilities of a court administrator in remedial proceedings?
- Who can use remedial proceedings?
- Remedial proceeding – what is it?
- Selected actions within the remedial proceedings
Remedial proceeding – what is it?
Before we move on to the advantages of the remedial proceeding, it is necessary to emphasize one of its biggest drawbacks i.e. its formalism. As you will find out from the article, an intrinsic feature of this procedure is its far-reaching interference with the rights of both debtors and creditors. It allows, e.g. to withdraw from unfavourable contracts even if they do not provide for such a possibility. The same concerns the dismissal of employees during the protective period.
Nevertheless, everything comes with its price. Such far-reaching actions involve interference of the court in the company’s management. The interference may include operations of the court administrator and state authorities. So, as the proceeding opens, the administrator will make key decisions in the company. First of all, he will take over the management of the remedial estate, which includes:
- property used by the debtor to conduct the business,
- property owned by the debtor.
From the opening of the remedial proceedings, the above assets become the remedial estate.
What are the responsibilities of a court administrator in remedial proceedings?
The administrator is appointed when the court opens the remedial proceeding. The administrator’s responsibilities include in particular:
- immediate takeover of remedial estate management
- managing of the remedial estate,
- preparing an inventory,
- development and implementation of a restructuring plan,
- preparing a table of claims,
- an assessment of the arrangement proposals, including advice on the changes to the proposals to ensure compliance with the law and the possibility of their implementation,
- attending creditors’ assembly meetings,
- submission of an opinion on the possibility of the realisation of the arrangement.
Who can use remedial proceedings?
To benefit from the remedial procedure, the debtor must meet certain conditions. These are as follows:
- the debtor must have a status of an entrepreneur,
- there occurs an insolvency or probability of insolvency.
The status of an entrepreneur means that a debtor conducts a business or professional activity on his own. Yet, the remedial proceedings may be conducted only in capital companies, with the exception of a joint-stock company. Remedial proceedings may be also used by partners in commercial partnerships. This applies when the partners are liable for the company’s obligations with all their assets. Moreover, the solution may also be used by partners in limited liability partnerships.
A debtor is assumed to be insolvent if he has lost the ability to perform his due cash liabilities. In Polish law, there is a presumption that a debtor lost this ability if the delay in the performance of liabilities exceeds three months.
Moreover, remedial proceedings can also be conducted against a debtor threatened with insolvency. The threat of insolvency means that a debtor may soon become insolvent.
Remedial proceeding – what is it?
The goal of remedial proceedings is to “heal” the enterprise. An alternative name for this type of restructuring is sanation proceeding. The original, Latin word sanatio means exactly healing. What is it about?
First of all, in a remedial proceeding, a debtor can enter into an arrangement with his creditors. Such arrangements may include:
- postponement of performance of the liabilities,
- spreading out payments for the debt into instalments,
- reducing the value of liabilities,
- conversion of debt into shares or stocks,
- change, replacement or revocation of the right that secures a specific debt.
This will enable the debtor to perform his liabilities to the creditor in a way that is available for him at a given moment.
Selected actions within the remedial proceedings
Remedial actions are legal and factual actions in the course of the proceedings. They aim at improving the economic situation of the debtor. Their purpose is to restore the debtor’s ability to fulfil his obligations and to protect him from execution.
Remedial measures concerning employment
Remedial measures include, among other things, changes in employment at the debtor’s company. In this regard, the initiation of remedial proceedings has the same effects as bankruptcy or liquidation.
This means that the protective provisions regarding termination or dissolution of employment are not applied in connection with the remedial proceedings. For example, the entrepreneur may terminate the contract of an employee who is in the pre-retirement protection period or is on his leave.
If the entrepreneur is planning redundancies, he must indicate their details in the restructuring plan. In particular, he should specify:
- the principles of redundancy,
- the number of employees to be made redundant,
- the proposed criteria for the selection of employees for dismissal, as well as
- the time limit when such redundancies will take place.
Remedial measures concerning agreements
Under this proceeding, the debtor may withdraw from a contract that is not profitable. This can occur, even if the contract does not provide such a possibility. The administrator evaluates whether the contract is favourable for the debtor. He may terminate it with the consent of the judge-commissioner. It is worth noting that the judge-commissioner takes into account the purpose of the remedial proceedings. Moreover, he takes into account the important interest of the other contracting party. The restructuring plan must indicate from which contracts the entrepreneur intends to withdraw.
Remedial proceedings and executive proceedings
The enforcement proceedings on the property included in the remedial estate are suspended by virtue of law. This happens on the date of opening of the remedial proceeding. Yet, there are exceptions. They include enforcement of alimony payments, pensions due to compensation for causing illness, inability to work, disability or death.
Yet, it is worth noting that creditors can start new enforcement proceedings for claims that are subject to inclusion in a table of claims.
If it is necessary for the continuation of the business, the judge-commissioner may revoke the seizure of the item belonging to the remedial estate. This applies to seizures made before the date of the opening of remedial proceeding.
The financial condition of your business is not very good? Are you looking for solutions that will allow you to pay your debts and, at the same time, keep your business well? The remedial proceeding may be a good solution for you. Experts from our law firm have assisted many entrepreneurs in the remedial proceedings. If you still have doubts whether this solution is for you, or you are wondering what should be your first step, feel free to contact us!