Publication date: October 25, 2023
Article 361 of the Polish bankruptcy law provides for an order for the court to discontinue bankruptcy proceedings as soon as the conditions listed exhaustively in this provision occur (resolution of the Regional Court in Szczecin of December 23, 2015, VIII Gz 236/15, LEX No. 1964121). The court issues a decision ex officio, which does not exclude an appropriate request for information from the trustee.
The decision on discontinuation refers to the stage of the so-called proper bankruptcy proceedings, and not the proceedings ending with the decision to announce bankruptcy.
Pursuant to Art. 29a of the Polish Bankruptcy Law, consumer bankruptcy cannot be dismissed if it leads to harm to creditors.
As indicated in the justification for the draft amendment to the Bankruptcy Law, introduced on January 1, 2016, the change introduced by Art. 29a solves the significant problem of creditors submitting applications of a purely debt collection nature, aimed at forcing the debtor to fulfill an obligation that is, moreover, sometimes controversial. After obtaining satisfaction of the debt, the creditor usually withdraws the application, and even if he does not do so, the court dismisses the application due to the applicant’s lack of standing to further support the application. This practice harms other creditors.
This regulation should be considered special in relation to the provision of Art. 203 § 4 of the Polish Code of Civil Procedure, which states that the court may consider the withdrawal of a claim, waiver or limitation of a claim inadmissible only if the circumstances of the case indicate that the above-mentioned activities are contrary to the law or the principles of social coexistence or aim to circumvent the law.
The legislator narrowed the limits of the inadmissibility of withdrawing a bankruptcy petition to the existence of negative evidence of harm to creditors. The above means that the prohibition on withdrawing an application cannot be based on the premise of illegality or intention to circumvent the law – in accordance with the principle of lex specialis derogat legi generali.
The inability to discontinue proceedings that result in harm to creditors is also related to Art. 49110 para. 3 of Bankruptcy Law. The provision of Art. 49110 is a specific provision for consumer bankruptcy, which regulates the issue of discontinuation of proceedings in place of the excluded Art. 361. However, this general provision applies appropriately when bankruptcy was announced solely as a result of the creditor’s application being granted.
This provision indicates that the court does not discontinue the proceedings if discontinuing the proceedings could result in harm to creditors.
This view is confirmed by the latest court jurisprudence, for example the judgment of the Regional Court in Łódź of June 6, 2023, reference number XIII Gz 124/23. The case concerned a debtor against whom enforcement proceedings were initiated to recover amounts due to creditors. The debtor then filed for consumer bankruptcy. Due to this, the bailiff’s previous actions were suspended and the enforcement proceedings were discontinued. At the same time, creditors lost the opportunity to quickly satisfy their claims and were forced to wait for the liquidation proceedings to be completed. After two years of the trustee’s actions, the case was coming to an end. The debtor then filed an application to discontinue the bankruptcy proceedings. Pursuant to the provisions of bankruptcy law, the court decides to terminate the liquidation procedure at the request of the interested party. However, this cannot be done in a situation where creditors would be harmed as a consequence of this decision.
The debtor filed an appeal against the above decision of the Court. The debtor believed that the ruling violated Art. 49110 para. 3 of the Bankruptcy Law by incorrectly assuming that the discontinuation of bankruptcy proceedings will result in harm to creditors in a situation where neither all nor a significant part of the debtor’s assets have yet been liquidated, and there are legal instruments that will limit the complainant’s ability to freely dispose of the amount from the bankruptcy estate, which would return to the debtor after the proceedings were discontinued.
In the conclusion to the objection formulated in this way, the complainant requested that the contested decision be amended and the bankruptcy proceedings be discontinued, or alternatively, that the contested decision be repealed and the case be referred back to the Court of First Instance for reconsideration. However, the Regional Court found that the bankrupt’s complaint did not deserve to be accepted.
According to the Regional Court, discontinuing the proceedings may harm creditors in a situation where, although the assets were not liquidated as part of the enforcement proceedings, such proceedings were ongoing, the bailiff took steps to sell the assets, in particular, he described and estimated the real estate, and a deadline was set for an auction, regardless of whether an auction took place or not. In such a case, submitting an application for bankruptcy resulted in the discontinuation of the enforcement proceedings and, as a result, prevented the creditors from obtaining satisfaction thereunder. A subsequent request to discontinue the bankruptcy proceedings, which were pending for a specific, usually short period of time, would significantly postpone the creditors’ ability to obtain satisfaction under enforcement proceedings, which would have to be initiated again. The bankrupt’s behavior in such circumstances suggests delaying and trying to postpone the sale of assets, which should certainly be considered unfavorable from the creditors’ point of view. Moreover, harm to creditors may also be considered in a situation where significant funds were accumulated in bankruptcy proceedings, e.g. from the seizure of remuneration for work or other types of income of the bankrupt, which could be used to satisfy creditors, and in connection with the discontinuation of the proceedings, they would have to be paid to the bankrupt.
As a result of the debtor’s action (filing a bankruptcy petition), the creditors were then deprived of the opportunity to satisfy their claims. Such actions should be considered harmful to creditors, as stated by the Regional Court.
Both the doctrine and case law indicate that a waiver from establishing a repayment plan, and therefore a waiver from an important stage of bankruptcy proceedings, should be exceptional, objectively justified by the state of health, illness and incapacity for work of the bankrupt person – in a situation where available sources of income allow only to meet the current needs of the bankrupt and his dependents, and there are no grounds to assume that this situation could change during the longest possible repayment plan.
According to art. 49116 para. 1 of the Bankruptcy Law, the court discharges the bankrupt’s obligations without establishing a creditor repayment plan if the personal situation of the bankrupt clearly indicates that he is permanently unable to make any repayments under the creditor repayment plan. It is true that the purpose of consumer bankruptcy is to relieve the debtor of the debt, but while maintaining the principles of equity and humanity (Article 491(4) of the Bankruptcy Law) in order to provide him with a decent life during the debt repayment period and not lead to major financial problems.
Therefore, the only condition for the application of this provision is the personal situation of the bankrupt. The amount of unsatisfied liabilities, the reason for the bankrupt’s difficult personal situation or other circumstances are irrelevant. Moreover, if, despite the bankrupt’s earning capacity, any of his liabilities are at a level so significantly exceeding these capabilities that he will not be able to implement any repayment plan to creditors within the period planned for the implementation of this plan (3 years), then in such situation there can apply Art. 49116 para. 1 of the bankruptcy law – that is, the court’s discharge of the debtor’s obligation without establishing a repayment plan for creditors, if the personal situation of the bankrupt clearly indicates that he is permanently unable to make any repayments under the creditor repayment plan.
The essence of discharge of an obligation in consumer bankruptcy is neither the fulfillment of the obligation by the debtor nor the remission of the obligation to the debtor pursuant to the sovereign decision of the creditor, but takes place pursuant to a judgment of the bankruptcy court.