Publication date: February 21, 2024

An important issue in the restructuring process, practical for creditors from the point of view of making decisions in restructuring and bankruptcy proceedings, is the valuation of the assets of the entity subject to restructuring, taking into account individual classes of assets. We may be dealing with a valuation of the entire enterprise or individual components. In Poland, company valuation and the process related to it have not been legally regulated. At the restructuring stage, the bankruptcy trustee or liquidator – depending on the form of proceedings – estimates the components of the bankruptcy estate, and may use experts to that purpose.

The composition of the bankruptcy estate is determined by the trustee by preparing an inventory. Together with the inventory, the assets included in the bankruptcy estate are estimated, i.e. the market value of each asset included in the inventory is determined.

In Poland, the issue of valuation in enforcement or bankruptcy cases is not dealt with by the creditor (pledgee), but by the trustee or bailiff. These entities are tasked with assessing the objective value of assets and often act not necessarily for the benefit of creditors, because this is supposed to be an objective assessment.

The number of difficulties with security on shares in Poland depends on the formalization of the security on shares itself before the occurrence of financial problems of the enterprise.

In Poland, it is standard that in order to avoid doubts, the parties formalize the guarantee of share transactions (security on shares in capital and partnership companies) with the procedure of entering the pledge in the register of pledges in court.

This is an alternative way of formalizing security in relation to a normal contract in which the pledge is not entered in the pledge register. However, the register provides greater security.

Generally, there are three ways to satisfy the pledgee (i.e. the entity that benefits in the event of problems with the security):

  1. Enforcement of the pledged item;
  2. Taking ownership of the pledged item;
  3. Sale by bailiff/notary.

Therefore, when considering the issues of preferential repayment and creditor security, the question should be answered whether we are dealing with a standard, and therefore more formalized, security on shares or stock, i.e. when the pledge is entered in the state register. In the Polish system, there is a mechanism to sell shares, yet firstly there must take place the entry of the identification as the owner of the share – these are special contractual clauses of a registered pledge. In a sense, this is a limitation because one firstly has to go through the procedure of disclosing as the owner of the shares.

The registered pledge agreement contains a provision according to which the pledgee may take ownership of the pledged item, as indicated in Art. 22 of the Polish Act on registered pledge and pledge register and that this pledge has been effectively established. Under the Polish Act on registered pledge, the pledgee must first take ownership of the pledged shares and only then may sell them. In other cases, the sale (and therefore also the valuation of the pledged shares) is handled by the enforcement authority, and not the pledgee himself. The bankruptcy of an entity does not generally constitute an obstacle to taking ownership of pledges on shares. Polish law states that if an item included in the bankruptcy estate is encumbered with a registered pledge, for which the right of takeover or disposal is provided for in the pledge agreement, the pledgee may exercise this right in bankruptcy proceedings.

The issues of priority in satisfying the pledgee from the subject of the pledge in bankruptcy proceedings should also be analyzed from the perspective of tax and employee claims and from the perspective of the internal structure of the entity that issues a given security in the form of a share or stock on which the pledge is established.

A registered pledge, i.e. the only type of pledge that allows the subject of the pledge to be taken over and its subsequent sale by the pledgee himself, enjoys priority of satisfaction also over a fiscal pledge if the registered pledge was established earlier, and, in turn, does not enjoy such priority if it was established later – this is stated in Article 46(3) of the Polish Tax Ordinance. So, in the case of a registered pledge, it can be said, in principle, that the private creditor is more important than state debts, such as taxes – of course in terms of satisfying the debt arising from this particular security.

There are no other property rights enjoying priority over the registered pledge, unless these limited property rights have been established earlier. The Act on the Protection of Employee Claims in the Event of Employer’s Insolvency also does not contain any provisions under which the settlement of the lien would be in any way delayed or excluded by these claims. It is only necessary to meet the procedural requirements.

In essence, the settlement of the pledge is subject to VAT. This also applies to the acquisition of shares or stock, because the essence of the delivery of goods is the transfer of the right to dispose of the goods as the owner. In the content of art. 7 section 1 of the VAT Act, this is the type of activity that gives the recipient of the goods the right to treat them as the owner. Therefore, taking control over shares in the company – giving the possibility of disposing of them as an owner – should also be considered subject to VAT.

Therefore, the tax issue is another difficulty in considering whether it is worth to hold the security in the form of a lien, but our law firm knows how to circumvent this problem and find practical solutions.

Subjectively, however, the takeover in this case must take place from an entity that is a VAT payer and an entity that is engaged in the business of taking out loans and pledging its shares. According to the interpretation of the Director of the Polish National Tax Chamber: only activities that can be identified and included in the professional level of an individual should be considered as activities giving rise to obligations in the tax on goods and services. However, the taxpayer in such a situation will be the pledgor, not the pledgee. Taking ownership of a pledge is not subject to tax on civil law transactions.

Due to the transfer of ownership of the subject of the registered pledge to the pledgee, the trustee does not collect remuneration from the value of the pledge.