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What is Restructuring?
According to Act No.7/2005 Coll. on Bankruptcy and Restructuring, restructuring is a process aimed at revitalisation of indebted business entity. It is an alternative to bankruptcy proceedings which ends the business activity, as restructuring gives entrepreneurs an opportunity to continue carrying out business activities when following stipulated conditions.
Who is restructuring suitable for?
Restructuring is intended for natural persons – entrepreneurs and legal entities that are already in decline or under a threat of bankruptcy and are interested in debt elimination and keeping their operation in the future. Decline refers to insolvency – an inability to pay at least two 30 days overdue liabilities to more than one creditor; or an extension – a condition when the value of liabilities exceeds the value of assets and at the same time a situation when a debtor has more than one creditor.
In situations when an entity is obliged to file for bankruptcy due to extension (under the sanction of a rise of criminal and civil liability), restructuring can be an alternative solution to bankruptcy.
What are the advantages of restructuring?
The main advantage of restructuring is the revitalisation of a business entity on the basis of debt reduction. On one hand, an entity which enters restructuring proceedings is granted a protection by court against its creditors (enforcement proceedings and security rights execution are stopped); on the other hand, one restructuring condition is that creditors’ claims are satisfied to a higher extent than in the case of bankruptcy. An important advantage of restructuring is also the fact that a debtor does not lose its legal and economic personality. Although there is an administrator appointed within the proceedings, coordinating and approving all the debtor’s legal acts, he neither becomes a debtor’s statutory body, nor does the right to dispose of debtor’s property transfer to him as it occurs during bankruptcy.
When does a court allow restructuring?
The first step to a successful restructuring is preparation of restructuring expertise, in which restructuring is recommended. The expertise is elaborated by an (insolvency) administrator chosen by a debtor from administrators enlisted in the list of administrators. Subsequently, a petition for restructuring has to be filed, based on which the court constitutes restructuring proceedings.
The court allows restructuring not later than 30 days after the beginning of restructuring proceedings under the condition that the following requirements stipulated by law are met:
- the restructuring expertise elaborated by the administrator shall meet all legal requirements
- the expertise content shall be explicit and clear
- the expertise shall be prepared by an administrator who is registered in the list of administrators and his office is located in the district of the bankruptcy court of appeal where the respective court resides
- at the time of petition filing, an expertise shall not be older than 30 days from its preparation
- the administrator who was assigned the elaboration of an expertise recommends restructuring, and his conclusion will state that necessary requirements were met.
What is the result of restructuring?
The result of restructuring is consolidation of debtor’s liabilities, continuation of business activities and at the same time satisfaction of creditors to a higher extent than during bankruptcy. Due to restructuring, an entrepreneur can continue his business activities, and part of liabilities that are owed to his creditors due to his insolvency can be returned from the turnovers resulting from new business deals with a revitalised debtor.
Are you planning to restructure? Do not hesitate to contact us. We are pleased to help.
