Formal deficiencies in restructuring

One of the frequent deficiencies that I observe in my practice is the defectiveness of the ballot papers.

Where the specimen ballot papers provided to creditors by the supervisor of the arrangement contain formal deficiencies, the consequence may be that the votes are invalid and the restructuring procedure must be cancelled or the arrangement refused.

Pursuant to Article 213 paragraph 1(1) of the Restructuring Act, the ballot paper shall contain: the name and surname of the debtor or its name and the identity number or the number in the National Court Register, and in the absence thereof - other data enabling its unambiguous identification, the company under which the debtor operates, its place of residence or registered office, address, and if the debtor is a partnership, a legal person or another organisational unit without legal personality to which a separate act grants legal capacity - the names and surnames of its representatives, including liquidators, if appointed, and the identity numbers or numbers in the National Court Register of the representatives, and where there are none - other data enabling their unequivocal identification, and additionally in the case of a partnership - names and surnames or business name, identity numbers or numbers in the National Court Register, and where there are none - other data enabling their unequivocal identification, and the place of residence or registered office of the partners liable for the company’s obligations without limitation with all their assets.

In my practice, I come across situations where the content of the ballot paper provided in a particular restructuring procedure lacks, for example, the indication of all the representatives (members of the management board) of the debtor, the identity number of the members of the management board, or the manner of representation of the company.

The shortcoming, consisting in the widespread absence of the identity number of the debtor’s representatives, is probably due to the automatic duplication of the ballot template provided for by the provisions of the Regulation of the Minister of Justice on the determination of the ballot template in the proceedings for approval of the arrangement of 17 December 2015.

Meanwhile, the model ballot paper provided for by the Regulation does not take into account the amendment to the Restructuring Act, which entered into force on 1 December 2021 (Article 213(1)(1) as amended by the Act of 6 December 2018, Journal of Acts 2019, item 55, as amended by Journal of Acts 2020, item 1747, as amended by Journal of Acts 2021, item 1080).

As the Act is a hierarchically higher normative act than the Regulation and, in addition, the relevant amendment of the Restructuring Act is later than the norms of the implementing regulation, it is the duty of the debtor and the supervisor of the arrangement to make available such a model ballot paper that takes into account the statutory requirements.

Pursuant to Article 213(3) of the Restructuring Act, a ballot paper that does not meet the requirements set out in paragraph 1 is invalid.

Therefore, the effect of casting votes on defective ballots may be that the voting acts are invalid, which will result in the non-approval of the arrangement and the necessity to redeem the restructuring procedure or the refusal of the court to approve the arrangement.

The aforementioned view was expressed in particular by the Regional Court in Warsaw in its decision of 3 February 2022 (XXIII Gz 1317/21), indicating that: “First of all, attention should be drawn to the nature of the provision of Article 213 of the Restructuring Act. In the opinion of the Regional Court, it is a mandatory provision applicable in any proceedings for approval of an arrangement and, pursuant to Article 15 of the Covidium Act, in any simplified restructuring proceedings. In particular, there are no grounds to assume that the requirements regarding the content of a ballot described in Article 213(1) of the Restructuring Act apply only to proceedings where no creditors’ meeting has been convened to vote on the arrangement, whereas in proceedings where such a meeting has been convened, these requirements no longer have to be applied. The mandatory nature of this provision is indicated by paragraphs 3 and 4. Pursuant to these provisions, a ballot paper which does not comply with the requirements set out in paragraph 1 is invalid (...).

Ballot papers not meeting these requirements, on the basis of Article 213(3), were rightly considered by the Court of First Instance to be in breach of the provisions on simplified restructuring proceedings.

As a natural consequence of such an assessment, it must be concluded that there was a breach of the provisions setting out the rules for such voting in the course of voting on the arrangement, which leads to the conclusion that the arrangement adopted in breach of these provisions is in breach of the Act. Pursuant to Article 165(1) of the Restructuring Act this prejudices the necessity to refuse to approve the arrangement.”

The remedy for the imperfect legislation may lie in the professionalism and meticulousness of the party interested in accepting or challenging the arrangement.

It is in the interest of the debtor in the restructuring procedure and the supervisor of the arrangement to reliably prepare a sample ballot (especially in the case of the collection of creditors’ votes) that complies with the current regulations of the Act. Professional preparation of the documentation in the restructuring procedure should contribute to reducing the risk of the arrangement being challenged by the court or the creditors.

On the other hand, with regard to cases of instrumental use of the restructuring procedure by the debtor, the remedy for the counterparty’s disregard may be the effective filing of objections as to the legality of the conduct of the self-collection of votes or the indication of other circumstances that may affect the approval of the arrangement, which includes, inter alia, the invalidity of the ballots.