Bankruptcy of an Entrepreneur Entered in the CEIDG Under the Provisions on So-Called Consumer Bankruptcy

One of the aims of the amendment to the Act of 28 February 2003, the Bankruptcy Law (in Polish) (the "BL"), is to equalise the status of an entrepreneur with a "business" (a natural person running a sole proprietorship) with that of a natural person (consumer). The new provisions allow the bankruptcy of an entrepreneur entered in the Central Register and Information on Economic Activity (CEIDG) to be declared under the provisions that have so far governed so-called consumer bankruptcy.

When May the Court Refuse to Declare an Entrepreneur Bankrupt?

One significant point is that until now the court had to dismiss a debtor's petition if the debtor had brought about his or her insolvency or significantly increased its degree, either intentionally or through gross negligence (this was the so-called negative condition for declaring bankruptcy). What now matters is the positive condition, namely the debtor's becoming insolvent. At this stage the court will therefore examine whether the debtor has lost the ability to perform his or her due monetary obligations. The Act contains a presumption (a rebuttable assumption) that insolvency is a state of delay in performing monetary obligations exceeding three months.

This does not mean, however, that the court will not consider at all whether the bankrupt deliberately brought about his or her insolvency. The debtor's dishonest conduct will be examined at the stage of setting the plan for repaying creditors. It is then that the decision will be taken on whether the bankrupt's debt relief is possible. Debt relief will be excluded only in exceptional situations, namely where:

1) the bankrupt brought about his or her insolvency or significantly increased its degree deliberately, in particular by squandering components of his or her assets and by deliberately failing to settle due obligations,

2) in the ten years before the date of filing the bankruptcy petition, bankruptcy proceedings were conducted against the bankrupt in which all or part of his or her obligations were discharged.

Even in the two cases listed above, the court may still apply general clauses, namely considerations of equity and humanitarian considerations, and grant the application for debt relief.

An Entrepreneur's Bankruptcy and the Fear of Homelessness

A micro-entrepreneur no longer has to hold back from filing a petition for fear of homelessness. The legislator has introduced a new provision, Article 342a BL, under which a bankrupt who is a natural person will be able to meet his or her housing needs and those of persons dependent on him or her, provided that the bankruptcy estate includes a residential unit or single-family house in which the bankrupt lives. The sum set aside for the bankrupt will correspond to the average rent for a residential unit in the same or a neighbouring locality for a period of 12 to 24 months.

Additional protection has also been extended both to the bankrupt's spouse and to the bankrupt's divorced spouse, who may, by way of an action or a defence, demand that the separation of property be recognised as effective against the bankruptcy estate (family law (in Polish)). The condition, however, is that at the time the separation of property arose the (divorced) spouse did not know of the existence of grounds for declaring bankruptcy, and the separation of property did not cause harm to creditors. A former spouse should not worry about being caught unawares by this situation: the bankruptcy trustee should inform him or her of this right in the notice of the declaration of bankruptcy (Article 176(1b) BL).

Bankruptcy Petition of an Entrepreneur: Summary

The Law Firm's comment: In the current period of economic change, many entrepreneurs are wondering whether seeking a declaration of their own bankruptcy might be the best way out of their situation. This approach is driven by the thought that it will stabilise their financial situation and allow a "fresh start". In most cases, however, the debts will not be "cancelled", only spread over time in the so-called plan for repaying creditors. In any event, it is not possible to have debts such as the following "discharged":

• maintenance,
• an annuity (by way of compensation for causing illness, incapacity for work, disability or death),
• a fine,
• exemplary damages (nawiązka) or a monetary payment (ordered by a court as a penal measure or as a measure connected with placing the offender on probation),
• the obligation to redress damage resulting from a crime or petty offence established by a final and binding decision,
• performance of the obligation to redress damage and to pay compensation for harm suffered,
• obligations that the bankrupt intentionally failed to disclose, if the creditor did not take part in the proceedings.

Legal basis:

Act of 28 February 2003, the Bankruptcy Law (Journal of Laws of 2019, item 498, as amended)