Wave of bankruptcies among Polish companies: An opportunity for bargain-hunters?

Acquiring assets through a bankruptcy proceeding may be more beneficial for the buyer—and not only for purely economic reasons.

The number of companies declared bankrupt in Poland has been growing for several years, including in the manufacturing sector. The clear majority of proceedings involve the liquidation of the debtor’s assets. Only about a fifth of bankruptcies provide for the opportunity of debt restructuring through an arrangement with creditors and ongoing continuation of the debtor’s business.

One of the main goals of a bankruptcy involving liquidation of the debtor’s assets is for the bankruptcy trustee to sell the debtor’s enterprise as a whole, ideally while it is still up and running. Only when no buyer is found for the entire enterprise will the trustee attempt to sell an organised part of the debtor’s enterprise or sell off separate assets. The proceeds are then used to satisfy the debtor’s creditors under the rules set forth in the Bankruptcy Law.

When a liquidating bankruptcy is declared, it generally means that the debtor’s enterprise is entering the end stage of its life. There are not many cases in which the type of bankruptcy is converted from liquidation to reorganisation, or where all of the creditors’ claims are satisfied in full and the bankruptcy estate has assets left over enabling the debtor to stay in business after the close of the bankruptcy proceeding. For some market players, however, a liquidating bankruptcy may offer a unique opportunity to purchase a valuable enterprise, an organised part of the enterprise, or specific assets at an attractive price. An interested buyer should approach the trustee appointed to administer the bankruptcy estate, whose tasks include sale of the debtor’s enterprise.

Purchasing assets in bankruptcy may be beneficial for the buyer not only for purely economic reasons, in the sense of the modest price, which is generally lower than would be the case if it were not a forced sale. The Bankruptcy Law also includes regulations protecting the buyer of assets of a debtor in bankruptcy against liability for obligations arising out of the debtor’s operations (including tax obligations), and enabling purchase of the assets free of liens. (This is the rule pursuant to Bankruptcy Law Art. 313 and 317(2), with certain exceptions—for example, a servitude for necessary access to a public road is not extinguished, nor is a servitude for transmission of utilities or a servitude established in connection with crossing the boundaries of the property when erecting a structure or other fixtures, and in some cases the right of usufruct or a life estate.) These transactions are therefore free of major risk factors that exist for unforced sales of business assets. Moreover, sales of real estate and movables that are the property of the debtor are exempt from the tax on civil-law transactions (2% of the value of the assets).

With the heightened interconnectivity of the world today, it is therefore worthwhile to be alert for information about which businesses have gone bankrupt and what assets the debtors hold. An opportunity may then arise to acquire an interesting enterprise, organised part of an enterprise or specific assets of the debtor at a price that just a few years ago would have been hard to negotiate.

Karol Czepukojć, Bankruptcy and Restructuring Practice Group, Wardyński & Partners