Polish property in insolvency estate in the light of the Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings
Applicable regulations
The bankruptcy cases are regulated in Poland majorly by the Insolvency Act of 2003 (in Polish: Ustawa z dnia 28 lutego 2003 r. Prawo upadłościowe (t.j. Dz. U. z 2020 r. poz. 1228 z późn. zm.)) (later: ‘Insolvency Act of 2003’). Yet it is not the only applicable regulation. In cases of cross-border bankruptcy proceedings or cases where a Polish citizen is adjudged bankrupt in the territory of the Member State of the European Union or Ireland, the bankruptcy proceedings are regulated by the Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (OJ L 141, 5.6.2015, p. 19-72) (later: ‘Regulation 2015/848’).
The regulations concerning properties
Due to the fact, that art. 3 section 1 of the Regulation 2015/848 makes the jurisdiction for the main insolvency proceedings dependent on the place of the centre of the debtor’s main interests, it is possible for the property that is a part of the insolvency estate to be situated in the territory of another Member State. It has been similarly regulated for corporate entity, legal person, an individual exercising an independent business or professional activity and any other individual (art. 3 section 1). Art. 7, on the other hand, states, that save as otherwise provided in this Regulation, the law applicable to insolvency proceedings and their effects shall be that of the Member State within the territory of which such proceedings are opened.
The abovementioned means that for the property that is a part of the insolvency estate and that is situated on the territory of the Member State of the main insolvency proceedings, the applicable law is the law of this Member State.
However, as previously brought up, the property can be located on the territory of another Member State. In those cases, one should look at articles 19, 20 and 21 of the Regulation 2015/848. Art. 19 section 1 states that any judgment opening insolvency proceedings handed down by a court of a Member State which has jurisdiction pursuant to Article 3 shall be recognised in all other Member States from the moment that it becomes effective in the State of the opening of insolvency proceedings. There is no need to initiate separate proceedings in the Member State where the property is located – this is also highlighted by art. 20 section 1 of the Regulation 2015/848. This issue has also been brought up in the Supreme Court of Poland in Verdict II CSK 425/10: In order to respect the principle of trust, a decision of a court of a Member State concerning the opening of the insolvency proceedings should, firstly, be automatically recognised by all Member States, secondly, the decision should be recognised without examining, and thirdly, the decision takes effect in all Member States, the effects which are derived from the State of the opening of the proceedings (this thesis continues throughout the verdict).
When it comes to appointing a trustee – this aspect is regulated by art. 21 of the Regulation 2015/848. It gives the insolvency practitioner appointed by a court of the main insolvency proceedings the power to act on the territory of another Member State. Section 3, on the other hand, regulates the applicable law for exercising the powers of the appointed insolvency practitioner and states that the applicable law is the law of the Member State within the territory of which they [the insolvency practitioners] intend to take action.
Another important regulation is art. 14 of the Regulation 2015/848, that showcases that the effects of insolvency proceedings on the rights of a debtor in immoveable property […] subject to registration in a public register shall be determined by the law of the Member State under the authority of which the register is kept. When it comes to properties in Poland, they are subjected to registration in the land and mortgage registers, therefore this article is applicable.
The contract conferring the right to acquire or make use of immoveable property and the effects of the insolvency proceedings concerning them are regulated by art. 11 section 1 of the Regulation 2015/848, which states that the applicable law is solely […] the law of the Member State within the territory of which the immoveable property is situated.
The territorial insolvency proceedings
Art. 3 sections 2-4 of the Regulation 2015/848 create a possibility to initiate the territorial insolvency proceeding. It is initiated in a different Member State than the Member State of the main insolvency proceedings and is restricted to the assets of the debtor situated in this Member State. Moreover, the recognition of the insolvency proceedings, as regulated by art. 19 of the Regulation 2015/848, shall not preclude the opening of the proceedings referred to in Article 3(2) by a court in another Member State (section 2) and the effects of the proceedings referred to in Article 3(2) may not be challenged in other Member States (art. 20 section 2). For real properties situated in Poland one can therefore initiate a territorial insolvency proceeding, regulated by Polish laws.
Third parties’ rights
Regulation 2015/848 takes also into consideration, in limited capacity, third parties’ rights in rem. Of special importance in this issue are art. 8 and art. 17. Art. 8 section 1 states that the opening of insolvency proceedings shall not affect the rights in rem of creditors or third parties in respect of tangible or intangible, moveable or immoveable assets, both specific assets and collections of indefinite assets as a whole which change from time to time, belonging to the debtor which are situated within the territory of another Member State at the time of the opening of insolvency proceedings. When concerning properties, the main focus will fall upon the right to dispose of assets or have them disposed of by virtue of a mortgage.
When it comes to the protection of the third-party purchasers of properties, the Regulation 2015/484 states, in art. 17, that when concerning the acts of disposal of the property concluded after the opening of insolvency proceedings, the validity of that act shall be governed by the law of the State within the territory of which the immoveable asset is situated or under the authority of which the register is kept. For properties situated in Poland, the applicable law will be the Polish law.
Other regulations
Art. 29 section 1 of the Regulation 2015/848 is also important, when considering properties. It concerns the obligation to enter the information about opening of the insolvency proceedings into a public register of a Member State, where the law of a Member State in which an establishment of the debtor is located and this establishment has been entered into a public register of that Member State, or the law of a Member State in which immovable property belonging to the debtor is located requires such information. In those cases, the insolvency practitioner or the debtor in possession is obligated to ensure such registration.
United Kingdom
Following the withdrawal of the united Kingdom from the European Union, the cases of cross-border insolvency cases became more complicated.
Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community2019/C 384 I/01 (OJ C 384I , 12.11.2019, p. 1–177) (later: ‘Agreement’) in art. 67 concerning jurisdiction, recognition and enforcement of judicial decisions, and related cooperation between central authorities, in section 3 letter c stated that in the United Kingdom, as well as in the Member States in situations involving the United Kingdom, the following provisions shall apply as follows: […] Regulation (EU) 2015/848 of the European Parliament and of the Council ( 78) shall apply to insolvency proceedings, and actions referred to in Article 6(1) of that Regulation, provided that the main proceedings were opened before the end of the transition period. Those insolvency proceedings, on the other hand, aren’t regulated by The Insolvency (Amendment) (EU Exit) Regulations 2019 (4(2) of this Act). It means, that for the insolvency proceedings opened up until the 31st of December 2020 (art. 126 of the Agreement), the Regulation 2015/848 is still in force.
As for the proceedings opened from the 1st of January 2021, the insolvency cases will no longer be regulated by the regulation 2015/848. In those cases, the recognition of British adjudications – and the adjudications of Member States’ courts in United Kingdom – will be regulated by state laws. In cases of some Member States (Poland, Slovenia, Greece and Romania), the regulations based on the UNCITRAL Model Law on Cross-Border Insolvency may also apply [1].
Sources:
[1] https://www.nortonrosefulbright.com/en/knowledge/publications/fc0fb698/impact-of-brexit-on-insolvency [2] the Insolvency Act of 2003 (in Polish: Ustawa z dnia 28 lutego 2003 r. Prawo upadłościowe (t.j. Dz. U. z 2020 r. poz. 1228 z późn. zm.) [3] Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (OJ L 141, 5.6.2015, p. 19–72) [4] the Supreme Court of Poland in Verdict II CSK 425/10 [5] Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community2019/C 384 I/01 (OJ C 384I , 12.11.2019, p. 1–177) [6] The Insolvency (Amendment) (EU Exit) Regulations 2019