Scheme of Arrangement in Poland

A scheme of arrangement in Poland is a court-supervised restructuring mechanism that allows a distressed company to reach a binding agreement with its creditors, avoiding formal bankruptcy. Polish law provides several distinct arrangement procedures, each suited to different levels of financial distress and creditor complexity. This guide explains the legal framework, the step-by-step procedure, creditor rights, costs, and practical considerations for both debtors and their counterparties.

The scheme of arrangement in Poland is governed primarily by the Restructuring Law of 15 May 2015 (Prawo restrukturyzacyjne), which introduced a modern, EU-aligned framework replacing the older bankruptcy-with-arrangement track. The law created four distinct restructuring procedures, each with different levels of court involvement and creditor protection. Alongside this statute, the Bankruptcy Law of 28 February 2003 (Prawo upadłościowe) continues to govern formal insolvency proceedings where restructuring fails or is not attempted.

The central concept is the arrangement (układ) - a plan that modifies the debtor';s obligations to creditors, typically by reducing principal, extending repayment periods, converting debt to equity, or some combination of these. Once approved by the required creditor majority and confirmed by the court, the arrangement binds all creditors covered by it, including those who voted against it. This cramdown effect is one of the most commercially significant features of the Polish framework.

Polish law distinguishes between arrangement creditors (whose claims are subject to the plan) and excluded creditors (whose claims, such as certain secured claims or post-commencement obligations, may fall outside the arrangement). Understanding this distinction is essential before any restructuring strategy is designed.

Polish restructuring law offers four procedures, and selecting the right one is the first strategic decision for any distressed company.

The out-of-court arrangement approval procedure (postępowanie o zatwierdzenie układu, PZU) is the lightest-touch option. The debtor negotiates with creditors independently, without immediate court involvement, and then applies for court approval of the agreed arrangement. It is suitable where the debtor has already secured support from a majority of creditors and wants to formalise the deal quickly. A licensed restructuring adviser (doradca restrukturyzacyjny) must be appointed to supervise the process.

The accelerated arrangement procedure (przyspieszone postępowanie układowe, PPU) is designed for cases where the debtor';s disputed claims do not exceed fifteen percent of total claims. Court proceedings are initiated from the outset, but the procedure is streamlined to reach an arrangement vote within a few months. It offers a stay on enforcement actions, which is a key protection for debtors facing aggressive creditor action.

The arrangement procedure (postępowanie układowe, PU) applies where disputed claims exceed fifteen percent of total claims. It involves fuller court supervision, a more detailed creditor claims verification process, and typically takes longer than the PPU. It is appropriate for more complex creditor structures where claim disputes are significant.

The remedial procedure (postępowanie sanacyjne) is the most intensive option. It combines arrangement negotiations with operational restructuring powers - the court-appointed administrator can terminate onerous contracts, dismiss employees under simplified rules, and dispose of assets outside normal procedures. It is used where the business requires deep operational intervention alongside financial restructuring.

In practice, founders and investors should consider which procedure matches the actual creditor composition and the urgency of the situation. A common mistake is choosing the PZU when creditor support has not been genuinely secured, leading to a failed vote and wasted time.

Regardless of which procedure is chosen, the core process follows a recognisable sequence.

The debtor files an application with the competent district court (sąd rejonowy) in the commercial division. The application must include a preliminary restructuring plan, a list of creditors with claim amounts, a list of disputed claims, and financial statements. The court examines the application and, if satisfied that restructuring is feasible and that opening proceedings will not harm creditors, issues an opening decision. This decision is published in the Court and Commercial Gazette (Monitor Sądowy i Gospodarczy) and the National Debt Register (Krajowy Rejestr Zadłużonych).

Once proceedings are opened, a court supervisor (nadzorca sądowy) or administrator (zarządca) is appointed, depending on the procedure. In the PPU and PU, the debtor typically retains management control under the supervision of the nadzorca. In the sanacyjne procedure, the zarządca takes over management entirely. The supervisor';s role includes verifying the creditor list, preparing the arrangement plan, and convening the creditors'; meeting.

Creditors are divided into groups for voting purposes. Grouping must follow objective criteria - for example, secured creditors, unsecured creditors, and related-party creditors are typically placed in separate groups. The arrangement proposal is put to a vote at the creditors'; meeting or, in the PZU, by correspondence. Approval requires a majority in number of creditors in each group and a two-thirds majority by value of claims in each group. If these thresholds are met, the court confirms the arrangement, and it becomes binding on all creditors in the covered groups.

The timeline varies significantly by procedure. The PZU can be completed in as little as three to four months if creditor support is pre-arranged. The PPU typically takes four to six months from filing to court confirmation. The PU and sanacyjne procedures can take twelve to twenty-four months or more in complex cases.

Many underestimate the importance of the creditor list preparation. Errors in listing creditors or claim amounts can lead to disputes that delay the vote or invalidate the arrangement. A non-obvious requirement is that the debtor must also list contingent and disputed claims, even where their existence is contested.

Creditors have defined rights at each stage of the procedure, and understanding these rights is essential for any party holding claims against a Polish debtor in restructuring.

Upon the opening of proceedings, a stay on enforcement actions (wstrzymanie egzekucji) takes effect automatically in the PPU, PU, and sanacyjne procedures. This prevents individual creditors from enforcing judgments or security during the restructuring period. Secured creditors retain their security interests but cannot enforce them without court permission. This stay is one of the primary incentives for debtors to use the formal procedures rather than informal workouts.

Creditors may challenge the arrangement proposal by objecting to their group classification, the treatment of their claims, or the feasibility of the plan. Objections are filed with the court and examined before confirmation. The court can refuse to confirm the arrangement if it finds that the plan is not feasible, that creditors in a dissenting group would be worse off than in bankruptcy, or that the plan violates mandatory legal provisions.

The cross-class cramdown mechanism - introduced in line with the EU Directive on Preventive Restructuring Frameworks (Directive 2019/1023), implemented in Poland through amendments to the Restructuring Law - allows the court to confirm an arrangement even if one or more creditor groups vote against it, provided certain conditions are met. These include that the plan is fair, that dissenting creditors receive at least as much as they would in liquidation, and that at least one group of creditors that would receive a distribution in liquidation has voted in favour.

A common mistake among foreign creditors is failing to file a proof of claim within the deadline set by the court. Missing this deadline can result in the claim being excluded from the arrangement vote, leaving the creditor bound by the arrangement without having participated in the approval process.

If you hold claims against a Polish debtor in restructuring and need guidance on protecting your position, contact us at info@vlolawfirm.com. We can assist with documents and filings.

The costs of a scheme of arrangement in Poland fall into several categories: court fees, the remuneration of the court-appointed supervisor or administrator, and professional advisory fees.

Court fees for filing restructuring applications are set by statute and are relatively modest compared to the overall cost of the process. However, they are not the dominant cost item. The supervisor';s or administrator';s remuneration is determined by the court and is based on the size and complexity of the case, typically calculated as a percentage of the debtor';s assets or liabilities. In mid-sized cases, this remuneration can reach the mid-to-high tens of thousands of Polish zloty per month, and in large cases it can be substantially higher.

Legal advisory fees depend on the complexity of the creditor structure, the number of disputed claims, and whether cross-border elements are involved. For a straightforward PPU with a cooperative creditor base, professional fees might start from the low tens of thousands of EUR. For a complex sanacyjne procedure with multiple creditor groups and contested claims, total advisory costs can reach six figures in EUR.

A non-obvious cost is the cost of the restructuring plan itself. The plan must include a financial model, operational analysis, and feasibility assessment. Preparing a credible plan typically requires financial advisory input alongside legal work. Many debtors underestimate this cost and the time required to produce a plan that will withstand creditor scrutiny.

The debtor must also budget for ongoing operational costs during the procedure, including maintaining the business, paying post-commencement creditors in full, and funding the supervisor';s work. Post-commencement obligations are not subject to the arrangement and must be paid as they fall due.

In practice, founders should consider whether the company has sufficient liquidity to sustain the restructuring process through to arrangement confirmation. A company that runs out of cash mid-procedure may be forced into bankruptcy, negating the restructuring effort.

Polish restructuring proceedings have cross-border significance for international groups with Polish subsidiaries or creditors in multiple jurisdictions.

Poland is a member of the European Union, and Polish restructuring proceedings are subject to the EU Insolvency Regulation (Regulation 2015/848 on insolvency proceedings). This regulation determines which EU member state has jurisdiction to open main insolvency proceedings based on the debtor';s centre of main interests (COMI). If the Polish entity';s COMI is in Poland, Polish proceedings will be recognised automatically in all other EU member states, and foreign creditors are entitled to participate on equal terms with Polish creditors.

For groups with entities in multiple jurisdictions, the interaction between Polish proceedings and proceedings in other countries requires careful coordination. The EU Insolvency Regulation provides mechanisms for cooperation between insolvency practitioners in different member states, but in practice this coordination can be complex and time-consuming.

A practical scenario: a German parent company holds a significant claim against its Polish subsidiary that is entering PPU proceedings. The German parent should file its claim in the Polish proceedings and engage Polish counsel to monitor the process. The arrangement, once confirmed, will be automatically recognised in Germany under the EU Insolvency Regulation, binding the German parent in the same way as Polish creditors.

A second practical scenario: a Polish operating company with assets in Poland and a branch in the Czech Republic enters sanacyjne proceedings. The Polish court has jurisdiction as the COMI is in Poland. The administrator must notify Czech authorities and creditors, and the Czech branch assets fall within the scope of the Polish proceedings. Coordinating asset management across two jurisdictions adds complexity and cost.

Foreign investors acquiring distressed Polish assets should also consider whether the target company is in, or approaching, restructuring proceedings. Acquiring assets from a company in sanacyjne proceedings may require court approval, and transactions concluded in the period before proceedings were opened may be subject to avoidance actions (bezskuteczność czynności) if they were made at undervalue or to the detriment of creditors.

What happens if the debtor cannot pay its post-commencement obligations during the restructuring procedure?

Post-commencement obligations - debts incurred after the opening of restructuring proceedings - must be paid in full as they fall due and are not subject to the arrangement. If the debtor fails to pay them, the court may terminate the proceedings and the debtor may be forced into bankruptcy. This is a significant practical risk, because the restructuring process can take many months and the debtor must maintain sufficient liquidity throughout. Creditors holding post-commencement claims have priority over arrangement creditors in the event of subsequent bankruptcy. Debtors should prepare a detailed cash flow forecast before filing to confirm they can sustain the procedure.

How long does the scheme of arrangement process typically take, and what drives the timeline?

The timeline depends heavily on the procedure chosen and the complexity of the creditor base. The PZU, where creditor support is pre-arranged, can be completed in three to four months. The PPU typically takes four to six months from filing to court confirmation of the arrangement. The PU and sanacyjne procedures routinely take twelve months or more, and complex cases can extend to two years. The main drivers of delay are disputed claims requiring court adjudication, creditor objections to the arrangement proposal, and operational complexity in sanacyjne cases. Court workload in the relevant district also affects timing, and some courts are significantly faster than others.

Can a foreign creditor participate in Polish restructuring proceedings, and how are their claims treated?

Foreign creditors have the same rights as Polish creditors in restructuring proceedings. They must file a proof of claim with the court supervisor within the deadline specified in the opening decision, which is typically one to three months from the opening of proceedings. Claims denominated in foreign currencies are converted to Polish zloty for voting purposes at the exchange rate on the date of the opening decision. Foreign creditors should engage Polish legal counsel to ensure their claims are correctly filed and classified, as errors in the filing can result in the claim being disputed or excluded from the vote. Under the EU Insolvency Regulation, EU-based creditors are specifically entitled to receive notice of the proceedings.

The scheme of arrangement in Poland offers a structured, court-supervised path for distressed companies to restructure their obligations and avoid bankruptcy. The four-procedure framework provides flexibility for different levels of distress and creditor complexity, and the EU-aligned cramdown mechanism gives the process real binding force. Both debtors and creditors need to engage early, understand their rights and obligations, and plan for the full duration and cost of the process.

VLO Law Firms advises international clients on bankruptcy and restructuring matters in Poland. We can assist with procedure selection, creditor claim filings, arrangement plan preparation, cross-border coordination, and court representation. To request a consultation, contact: info@vlolawfirm.com