In anticipation of entering the European Union (EU) in 2004, Poland enacted a new Law on Insolvency and Restructuring in 2003 to replace the previous Bankruptcy Law of 1934. The new law was intended to bring Poland's regime into closer alignment with EU regulations. The 2003-2004 Insolvency Law Assessment Project commissioned by the European Bank for Reconstruction and Development's (EBRD) assigns Poland's insolvency legislation an overall "medium" score on compliance with international standards established by international organizations, including the World Bank. The EBRD's 2006 publication "Commercial Law of Poland" reaffirms the conclusions of the Insolvency Law Assessment Project regarding the level of compliance of Poland's insolvency regime with the international standards but expresses concern whether any of the positive attributes of the insolvency regime can be implemented. The report cites the conclusions of the 2004 EBRD Legal Indicator Survey which examined the "effectiveness" of the insolvency regimes. The results of the Survey revealed that with regard to the practical application of the Insolvency Law, both creditor and debtor initiated insolvencies can be problematic. The 2006 EBRD report acknowledges that Poland is not alone in the region as far as the need for improved professional training for insolvency professionals and recommends a reform of the legal sector to promote the rescue of fundamentally healthy companies.

General Overview

Writing in 2004 for the European Bank for Reconstruction and Development (EBRD) assessment project, authors R. Harmer and N. Cooper found Poland's insolvency law and creditor rights regime to be, overall, in "medium compliance" (p. 9) with international standards established by international organizations, including the World Bank. The authors stipulate that their study deals only with the content of the law, not with any consideration of practical application or effectiveness. Poland rated "high" on the subject of Creditor Treatment and Involvement, "medium" for the categories Commencement and Effect of Proceedings, Assets of Estate, and Recovery Process; and "very low" for the category of Terminal Process. The EBRD's 2006 publication "Commercial Law of Poland" reaffirms the conclusions of Harmer and Cooper regarding the level of compliance of Poland's insolvency regime with international standards and expresses the concern that any of the positive attributes of the insolvency regime can be implemented. The report cites the results of the 2004 EBRD Legal Indicator Survey which examined the "effectiveness" of the insolvency regimes. The Survey revealed that, with regard to the practical application of the Insolvency Law, creditors are "likely to run into serious barriers to access and undue formality" (p. 11). This report noted the ease with which debtors can engage in delaying tactics and the low level of confidence held by creditors in the professional skills of administrators appointed to handle their proceedings. The 2006 EBRD report acknowledges, however, that Poland is not alone in the region in needing to improve the professional training of insolvency professionals. With regard to the practical effect of the new Law from the debtor perspective, the 2006 EBRD report notes that "there is often little practical protection for debtors" (p. 12), adding that predictability and coherence in the way that the judiciary handles cases is sometimes lacking. The EBRD concludes that "reform in this area is needed to help create a legal regime that tries to limit the disruption that insolvencies cause by promoting the rescue of fundamentally healthy companies" (p. 12).

According to the 2005 report by PricewaterhouseCoopers (PwC), Poland's core insolvency legislation is the Law on Insolvency and Restructuring of 2003, which was enacted just prior to Poland's 2004 accession to the European Union and sought to bring the national insolvency law into line with European Union standards. The new law replaces the 1934 Bankruptcy Law. An in-depth discussion of the provisions of this new Law is provided by the World Bank on its Global Insolvency Law Database (GILD) website. The PwC report offers a disclaimer, however, noting that there has not been enough time to accumulate statistics - for example, on restructurings and creditor recovery ratios - that would permit an assessment of the practical effect of the new law. PwC notes that observers tend to perceive the new law to favor company rescue over improved creditor recoveries, driven by concerns about Poland's high (18% in 2005) unemployment rate. PwC adds that "court-supervised insolvency proceedings can become relatively lengthy."

Nonetheless, PwC notes that creditor rights have been improved in a number of ways. The creditor meeting is now able to make binding decisions as to the type of proceeding to be followed and can impose their preferred composition plan on the debtor. PwC notes that the Law permits two options: a bankruptcy proceeding leading to either liquidation or composition, or a simplified recovery procedure that "is basically carried out by the debtor itself." Only solvent debtors are eligible for the second option, and it is generally the optimal choice for both debtors and creditors, it is rarely used because, according to PwC, few debtors recognize the depth of their financial distress prior to becoming insolvent. The 2005 Country Commercial Guide by the U.S. Department of Commerce (DoC) agrees with other observers' reports in asserting that the 2003 Law offers increased creditor-rights protections. The DoC report singles out for mention the creation of a "creditors preliminary assembly" that allows creditors to assert influence over the bankruptcy proceedings. Early in the process, this assembly is empowered to determine the possibility of a settlement agreement, or it can opt for liquidation. The PwC report finds that, at base, Poland's insolvency law seeks to be "reasonable and fair," but notes that internal errors in the draft have rendered some provisions "inoperative" and has had other negative implications. There is, for example, a lack of clarity in the prioritization of interest on new money, ambiguities as to the tax status of real estate purchased from the debtor, and vague and inconsistent provisions regarding "cram downs." PwC reports that these deficiencies are under review, and an amendment is planned to correct them in the future.

PwC notes that Poland recognizes EU Regulation 44/2001, whereby court judgments rendered by fellow members of the EU. It is also a party to the 1958 New York Convention on the Recognition and Enforcement of Arbitration Awards, requiring recognition of such claims by other Convention signatories. Finally, Poland will recognize foreign judgments and awards issued by countries with which Poland holds appropriate treaty agreements. The 2008 World Bank GILD website adds that Poland's Law on Insolvency and Restructuring incorporates the provisions concerning cross-border insolvency proceedings based on the Model Code on Cross Border Insolvency developed by the United Nations Commission on International Trade Law.

According to the World Bank's "Doing Business in Poland 2008," the resolution of a bankruptcy can be analyzed according to three indicators - time and cost of the procedure, plus the recovery rate - in order to disclose legislative weaknesses as well as procedural and administrative bottlenecks in the process. For purposes of comparison, the World Bank provides similar indicator data for the region as well as the average results achieved by the member states of the Organization for Economic Cooperation and Development (OECD). In Poland, it takes an average of 3 years to resolve a bankruptcy proceeding, at a cost of 22% of the debtor estate. For the region, the average is 3.2 years and the cost is 13.7%, whereas for OECD states the average is 1.3 years and the average cost is 7.5%. Recovery rates for creditors average 27.8 cents on the dollar in Poland, compared to 28.9 cents in the region and 74.1 cents for OECD members.