Bankruptcy of a Limited Liability Company Step by Step. How to Declare the Bankruptcy of a sp. z o.o.?
In business, companies sometimes have to take difficult decisions, such as having bankruptcy declared. The process requires careful analysis, consultation with legal professionals and compliance with statutory requirements and court procedures. In this article we explain how the bankruptcy of a limited liability company (sp. z o.o.) is declared, step by step, in the hope that this knowledge will help entrepreneurs facing difficult challenges.
Summary:
- Bankruptcy is declared in respect of a debtor that has lost the ability to perform its due monetary obligations (has become insolvent).
- The ground for declaring bankruptcy is, in principle, the debtor's insolvency shown by its ceasing to pay its debts, but insolvency cannot be found where the debtor does not settle a certain, even substantial, unenforceable claim because it considers that the amount is not owed (Supreme Court decision of 29 February 1936, C.II. 2907/35, OSN 1936, No. 9, item 366).
- Where the grounds for declaring bankruptcy (the company's insolvency) have arisen, the management board (as the body representing the sp. z o.o.) should decide to file a bankruptcy petition for the company, in order to avoid personal financial and criminal liability of the management board members.
- The bankruptcy petition must be filed with the bankruptcy court within 30 days of the date on which the grounds for declaring bankruptcy arose. A number of documents specified by law, which show the legal and financial situation of the insolvent company, are attached to the petition.
- Where the court finds no grounds for granting the bankruptcy petition (the petition is rejected or returned), the company's management board members will not be released from personal liability for the company's obligations.
1. A Thorough Analysis of the Financial Situation
The first stage in having a sp. z o.o. declared bankrupt is a thorough analysis of the company's financial situation. Where there is a risk of insolvency, the company's management board should examine the balance sheets closely, carry out a financial audit and assess whether restructuring is possible or whether bankruptcy is unavoidable. At this stage it is essential to involve professionals such as statutory auditors or financial advisers. Concealing company assets or giving other incorrect information in the petition is punishable by imprisonment.
2. Insolvency
Under the Bankruptcy Law, a debtor is to be regarded as insolvent if it has lost the ability to perform its due monetary obligations, where the delay in performing those obligations exceeds three months. One further presumption applies to companies: a company is also insolvent where its monetary obligations exceed the value of its assets and this state has continued for more than twenty-four months.
3. Filing the Bankruptcy Petition for a sp. z o.o.
The obligation to file a bankruptcy petition where the company becomes insolvent lies with everyone who, under the articles of association, has the right to manage the company's affairs and represent it. Under the Commercial Companies Code (CCC), the management board of a sp. z o.o. is the body entitled and obliged to manage the company's affairs and represent it. The management board opens bankruptcy proceedings by filing a bankruptcy petition with the bankruptcy court having jurisdiction by reference to the company's registered office, within 30 days of the date on which the grounds for declaring bankruptcy arose. A bankruptcy petition may also be filed by any of the personal creditors of the insolvent company. The provisions of bankruptcy law state that the management board is liable, on a fault basis, for damage caused by failing to file the petition on time when the conditions for filing were met.
4. Bankruptcy Petition for a Limited Liability Company: Requirements
The Bankruptcy Law lays down a number of formal requirements for a bankruptcy petition. It should include, among other things:
- identification of the company, including its business name, registered office, tax identification number (NIP) and National Court Register (KRS) number,
- the place where the company's centre of main interests is located,
- identification of the company's representatives.
The management board should also attach to the petition, among other things: a list of the company's assets with a valuation, a balance sheet and a list of creditors. The management board is responsible for the accuracy of the data stated in the petition.
The bankruptcy petition also sets out the circumstances justifying it and makes it plausible that the company has lost the ability to perform its due monetary obligations.
The court may also, on application or of its own motion, secure the debtor's assets, for example by appointing an interim court supervisor or establishing compulsory administration.
5. Declaration of the Bankruptcy of a sp. z o.o.
If the bankruptcy court finds the company's bankruptcy petition justified and the company's assets are sufficient to conduct bankruptcy proceedings, it issues a decision declaring the company bankrupt within two months of the filing of the petition. Note that this is an indicative time limit, not binding on the court, and the proceedings may take longer. At the same time the court appoints a bankruptcy trustee, who takes over the bankrupt's assets, manages and secures them, draws up the list of creditors, notifies the creditors of the bankruptcy and liquidates the company's bankruptcy estate. The liquidation of the company's bankruptcy estate (the sale of the components of the bankrupt's business) as a rule takes six months, but this time limit is not binding either. The declaration of bankruptcy of a sp. z o.o. results in its dissolution under Article 270 CCC.
6. Release of Management Board Members from Liability for the Obligations of the sp. z o.o.
Under Article 299 CCC, if enforcement against the company proves ineffective, the management board members are jointly and severally liable for its obligations. A management board member may be released from liability for the company's obligations if he or she shows that a bankruptcy petition for the sp. z o.o. was filed at the proper time, or that within the same time a decision was issued opening restructuring proceedings or approving an arrangement in arrangement approval proceedings, or that the failure to file the bankruptcy petition was not his or her fault, or that, despite the failure to file the bankruptcy petition and the absence of a decision opening restructuring proceedings or approving an arrangement in arrangement approval proceedings, the creditor suffered no damage.
