Debt Collection in Poland

• In general, Domestic firms' payment conduct is reasonable, with the average DSO at 58 days. Domestic late payment laws are more stringent than EU standards, though recent government efforts have been made to adopt new transparency criteria and increase access to data.

• In Poland, friendly and pre-legal collection procedures are fairly efficient, particularly when a settlement is authenticated by a notary, and can be enforced through fast-track proceedings. Legal action can take a long time, but is fairly reliable.

• Collecting debt from insolvent debtors is a challenging task and although procedures for debt renegotiation have been developed, they are seldom utilized.

1. Summary

1.1. General financial information

1.1.1. Organizations in Poland have an obligation to report their financial statements to the National Court Register (KRS), which are released under certain conditions with the Monitor Sądowy I Gospodarczy (MSiG). Accounting standards and obligations for partnership structures where turnover does not exceed 1,2 million euro are simplified.

1.1.2. Nevertheless, in fact, numerous commercial companies ignore their legal obligations to post their financial statements and further refuse to disclose their financial data until explicitly challenged, making it difficult for potential partners to have any insight as to their financial health and profitability at all. Often the only way to receive financial information is by depending on external companies collect data from the KRS offices open. The government has recently tried to adopt new reporting standards, including increased access to data.

1.2. Key legal structures

1.2.1. Business debt responsibility is defined by legal structures which are listed as follows:

• Single proprietorship (indywidualna dzialalnosc gospodarcza) is possible for independently run small businesses for which no contractual arrangement is required. In this scenario, the claimant shall be held responsible for all contractual debts. Through various forms of partnerships, two or more individuals may also decide to share ownership and responsibility. The partners may jointly and individually be liable for the actions of the other partners under Civil Partnerships (Spółka Cywilna, S.C.) and General Partnerships (Spółka Jawna, Sp. J.) By contrast, the liability of the partners would be limited under Limited Liability Partnerships (Spółka Partnerska sp. p.), Limited Partnerships (Spółka Komandytowa, Sp. K.), and the very common Limited Joint-Stock Partnerships (Spółka Komandytowo-akcyjna, Sp. K. A.).

• It also offers incorporated entities. Limited liability companies (spółka z ograniczoną odpowiedzialnością,sp. z o.o) are in practice the most privileged legal entities since they require reasonable minimum capital funds (PLN 5,000) while the liability of the partners is limited to their contribution. Joint stock corporations (spółka akcyjna, SA) are more likely to be used for larger structures and require a minimum amount of PLN 100,000 to be divided into tradable stocks. The shareholders ' liability in those entities is limited to the value of their shares.

• Foreign enterprises may settle in Poland through Branch Offices (Oddział) or Representative Offices (Przedstawicielstwo) aimed at promoting the enterprise, but these entities are not separate from the legal structure of the parent company and therefore offer no limitations on liability. Joint ventures may also be formed by arrangement without any necessary incorporation.  

1.3. Regulatory framework

1.3.1. Poland's regulatory environment has a structure of Civil Law in which the laws are established by legislation rather than by case law. In the first place, the court system distinguishes into district courts (sąd rejonowy) and regional courts (Sąd Okręgowy), and both have specialist court units that are able to resolve trade disputes (wydziały gospodarcze). Claims exceeding PLN 75,000 would fall under Provincial court jurisdiction. Administrative tribunals would tackle administrative disputes. The Supreme Court serves as sole court with authority.

2. Receiving payments

2.1. DSO - Days Sales Outstanding

2.1.1. In 2016 the average DSO for business-to-business invoices fell to 58 days. Poland's regulation is more stringent than the requirements of the EU. Business-to-business transactions are generally to be paid within 30 calendar days.

2.1.2. Overall, domestic firms' payment behavior is reasonable, with firms increasingly ensuring payment (and receiving) is made on time. Also becoming less common is the tactic of delaying payments to exert pressure on suppliers.

2.2. Late interests

2.2.1. The new Act on payment terms of commercial transactions of 8 March 2013 (Journal of Laws Dz. U. 2013 element 403) transposed into Polish law Directive 2011/7/EU which stipulates that payments must be made in the EU within 60 days. Nevertheless, the regulations in Poland are more strict than the EU requirements: as a general rule, business-to-business transactions must be made within 30 calendar days, although the conditions of payment may be expanded to 60 days by law, so that they do not appear unjust to one side. The borrower shall be entitled to earn late payment interest determined on the basis of the interest rate of the National Bank of Poland, unless the parties agree on a higher interest rate by arrangement.

2.3. Costs of debt collection

2.3.1. According to the new law, the debtor may also be charged a flat payment fee equal to EUR 40 and, if the collection costs surpass that figure, the borrower is further allowed to demand compensation through the courts of its actual costs. In practice, debtors are often reluctant to pay, and they would negotiate the interest value. For eg, where the charge of EUR 40 is charged, they will usually refuse to pay any interest beyond that amount.

2.4. Protecting ownership

2.4.1. Retention of Title (RoT) agreements aimed at preserving ownership of goods until full payment of the related invoice is granted under Polish law, but their validity is conditional upon strict requirements being met. In fact, the explicit acceptance of the arrangement by the partner must be stressed in written form, and it is important to insure that the agreement has been registered with a licensed notary in order to be effective during the legal process or during insolvency proceedings.

2.4.2. Furthermore, agreements to retain ownership of' all monies' until all invoices have been paid by the buyer, as well as extended forms of RoT, aiming to protect ownership despite transformation or sale to a third party, would not be enforceable.

2.5. Payments

2.5.1. The most common methods of payment are as follows: Bank transfers are becoming increasingly popular as they are rapid, secured and supported internationally and domestically by an increasingly developed banking network. Nevertheless, export transactions should be guaranteed through Export Credit Insurance which helps minimize the risk of sudden or unexpected insolvency of customers.

2.5.2. Furthermore, Standby Letters of Credit (a bank guarantees the credit standard and recovery capability of the debtor) are effective assurances although they are not often used in Poland.

2.5.3. It may also be considered as irrevocable and confirmed Documentary Letters of Credit (a debtor guarantees that a certain amount of money is made available to a beneficiary through a bank once certain conditions specifically agreed upon by the parties have been met).

2.5.4. As a general rule it is fairly common in Poland to secure bank guarantees from large corporations. In the case of smaller businesses, the loss of financial assistance can be offset by arranging down payments or deferred payments.

2.5.5. It should be remembered that although certificates, trade bills and promissory notes (weschel in blanco) are not widely used, they appear to be seen as titles for debt identification rather than means of payment. If left unpaid, they would thus become directly enforceable by quick-track proceedings before the courts.

3. Collecting payments

3.1. Amicable action

3.1.1. A legal action in Poland can be lengthy, and substantive litigation can begin when all friendly collection incentives are exhausted. Alternative methods of dispute resolution should be addressed wherever feasible. In addition, the courts must provide participants with some opportunities to use conciliation at all times in the process of legal proceedings, and ignoring arbitration would be a waste of resources.

3.1.2. Judicial dunning activities by collectors and attorneys frequently begin with a letter advising the delinquent of his obligation to pay the principal in accordance with late payment interest (as negotiated in contract or as a guide to a judicial rate). In reality, it is often desirable in Poland to have a collection agency that can hold solid discussions with the debtor, whether on the phone or at their premises.

3.1.3. If it is possible to achieve an amicable settlement (installment schedule, full or partial payment), it is important to have it certified by a notary as any infringement of the deal would then render it enforceable by fast-track litigation.

3.1.4. Therefore, before beginning legal proceedings against a debtor, asset appraisal is important because it allows assurance as to whether the business is still viable and whether chances of recovery are at best. Therefore, it is important to be mindful of the solvency state of the debtor: once insolvency or default proceedings have been started, execution of a loan will indeed become unlikely.

3.2. Legal proceedings

3.2.1. Ordinary proceedings. The borrower may first seek reimbursement from the courts by prescribed proceedings or electronic payment orders if the debt is certain to be an unquestioned. Therefore, any disagreement at this point would become a common case.

3.2.2. A European Payment Order procedure facilitating the recovery of undisputed debts (under Regulation EC No 1896/2006) may also be triggered if the debtor has assets in other EU Member States. In this situation, the complaining party can order a District or Provincial Court to issue an Order to Pay which will then be enforceable without exequatur proceedings in all European Union countries (except Denmark).

3.2.3. If a debt is challenged and the borrower wants to take ordinary legal action (before Polish courts) they will file a claim with the judge, which would then issue a summons to the debtor. Usually, the claimant is granted 14 days to file an appeal, although failing to do so would allow the borrower to ask the court for a default judgment.  The court would then arrange hearings so that the claims and testimony of the plaintiffs may be weighed before a judgment is made.

3.2.4. Required documents. Many papers are necessary for filing a complaint with Polish courts:

• Power of attorney properly filled and signed by an individual legally allowed to act on behalf of a client
• Records of incorporation, clear declaration of the style of operation of a corporation and details of the entitled parties
• Invoices ascertaining the allegation
• Trade bills (if any)
• Acknowledgement

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3.2.5. Unless the defendant makes the exclusion point and requests the court to dismiss the case, however, failure to bring a claim within the appropriate time period does not necessarily prohibit legal action.

3.2.6. Provisional measures can help to protect the rights of the debtor awaiting a final judgment. The courts can in fact order interim measures aimed at protecting assets (attachment orders, restraining orders). Nevertheless, the complainant will show that he has a strong case, and that imposing these interventions will avoid irreparable harm.

3.2.7. During emergency situations, as in most nations, the courts may consent to make ex parte rulings (in the absence of the debtor), but the applicant would then be required to provide expense security to protect the respondent against reckless behavior.

3.2.8. A lodging of an appellate judgment made by a lower court in the first place may be put before the higher court within 14 days of receiving formal reasons for the ruling. The review hearings start with the appellant's submission of an application. If the court approves the appeal, the respondent shall have the right to submit a reaction to the appeal within two weeks of obtaining it. The trial is held in review hearings where both sides are involved or not there. The final judgment is legally binding and should be treated as a term to follow. Decisions made in second instance may be challenged in cassation before the Supreme Court in certain cases.

3.2.9. Enforcing court decisions. A judgment becomes enforceable as soon as it becomes definitive (i.e. when all the places of appeal have been exhausted) and, if the defendant fails to comply with the judgment, a bailiff may recommend that the court order the compliance of the judgment.

3.2.10. Decisions in the Court stay enforceable for ten years. The above are compliance orders: res judicata decisions, non-res judicata judgments liable to compulsory implementation, legal agreements, arbitral awards, notarial actions in which a debtor acknowledges regulation (including an agreement to refund a sum of money or a quantifiable substitute or an obligation to provide specifically specified items) and EU Member judgments

3.2.11. Duration of a legal action. The Polish judicial procedure can be time consuming, with legal action taking up to three or four years to complete.

3.2.12. Enforcement takes an average of 12 months but great disparities can be seen, ranging from four months to five years when the assets of the debtor are not clearly identifiable. Domestic courts can make no difference in cases involving external parties and cases involving domestic parties only, but there may be complications due to potential problems in interpreting papers, or challenges in getting foreign witnesses to trial.

3.2.13. Costs of a legal action. As a general rule, the defeated party would typically have to pay part of the cost of the successful party. Court fees will pay for 5 percent of the judgment while legal fees would be assessed on an hourly basis or as a proportion of the grant.

3.3. Alternatives to legal action

3.3.1. Alternative methods of dispute resolution (ADR). Traditional mechanisms of dispute resolution, such as consultation and arbitration, would be a very useful means of avoiding domestic courts.

3.3.2. Mediation requires the selection of a mediator who is in control of having the sides reach a compromise. The mediator, in other terms, has no authority to decide on behalf of the parties and can not commit the parties to a judgment. The arbitration is only binding where a settlement agreement is reached at the conclusion of the negotiations between the parties. The Mediator serves as mediation facilitator. Arbitration involves the parties agreeing to rely on an independent and impartial arbitrator from a third party who has the authority to settle their dispute on their behalf. Decision of the arbitrators will be binding upon the parties.

3.3.3. Overall, ADR can be a cost-effective method of out - of-court settlement because it can reduce delays, allow confidentiality to be preserved and offer a binding decision which can then be enforced before the courts if necessary. The legal tribunal may also be regarded when concerning international transactions.

3.3.4. Foreign forums. Alternatively, Poland is a signatory to the Rome I Regulation on the law applicable to contractual obligations, which provides that the contracting parties may, by mutual agreement, select the law applicable to their contract and select the court which will have jurisdiction over disputes. The parties may therefore therefore decide to settle their legal conflicts in a foreign court (i.e. under foreign law or before a foreign tribunal).

3.3.5. It is essential that the agreement be characterized by an international connection (e.g. one party has elected domicile in another country, or the place of execution is located abroad) and that a jurisdiction clause be drafted specifically for this purpose. Nonetheless, domestic courts can maintain exclusive authority when it comes to specific legal or public policy issues (for example, in relation to real estate).

3.3.6. Enforcement of foreign awards.  Foreign decisions are generally enforceable in Poland. Judgments made in an EU country and enforceable in a domestic country are immediately enforceable in Poland so no further enforceability requirements are necessary.

3.3.7. Judgments taken in foreign countries outside the EU will usually be recognised (uznanie) and applied on a mutual basis, given that the issuing country is subject to a bilateral or multilateral arrangement with Poland drafted for that reason. Exequatur prosecutions will take place in domestic courts, in the absence of equitable agreements.

3.3.8. As a general rule, international rulings can not be challenged on the merits of the case, but courts may refuse admissibility if the foreign ruling in the issuing country is neither definitive nor enforceable, if it is considered inconsistent with domestic public policy or with decisions of domestic courts, if the offender has not benefited from a proper legal procedure, if the foreign court has imposed penalty.

4. Managing insolvent debtors

4.1. Insolvency in Poland

4.1.1. Insolvency in Poland is a question of both cash flow and balance sheet. The 2003 Bankruptcy Act and the 2015 Restructuring Act put the Polish legal framework into line with the EU market. This means that the cases have to be handled in such a manner that the interests of the investors can be met to the greatest extent, while the debtor's business will be maintained where there is an incentive to do so. In fact, though, if a debtor has become insolvent, liquidation is the default method.

4.2. Insolvency cases

4.1.2. Out-of-Court proceedings. The statute does not provide specific mechanisms for entering an out - of-court arrangement on structure between the claimant and creditors.

4.1.2. Debt restructuring. A debtor is allowed to launch settlement proceedings when he or she is –or is in danger of becoming–illiquid. The primary aim of the settlement process is to stop the debtor's bankruptcy. When settlement proceedings are ongoing it is illegal to launch an insolvency proceeding.

4.1.3. The debtor may file a petition with the District Court for settlement proceedings to begin. Restructuring measures aimed at rehabilitating / reorganizing the loans so that successful businesses can thrive after achieving an arrangement compromise between the issuer and the creditors. The supervisor carries out a complaint log. A suspension safeguards the corporation during the litigation, while the claimant maintains control over the business management (debtor-in-possession), with the consent of an administrator.

4.1.4. Winding up proceedings. A debtor is deemed to be insolvent when it is illiquid (i.e. when it is unable to cover the outstanding debts), while illiquidity may also be defined when the assets of the debtor are unable to fulfill all the obligations of the business. The debtor and creditors may lodge a petition to receive a declaration of bankruptcy from the District Court.

4.1.5. So long as the judge imposes a state of bankruptcy, liquidation procedures are performed by a liquidator responsible for managing and liquidating the assets of the debtor company. The court will normally require investors to file their lawsuits within a prescribed period, from one to three months after the bankruptcy motion was approved. The liquidator would then compile a list of demands on this basis, and send it to the judge-commissar, who would then advise the court. After two weeks, creditors will appeal to the judge-commissar over the lack of recognition of their allegations. The sale proceeds are then allocated to the investors according to their level of importance.

4.1.6. Priority rules.  The laws of priority normally apply while the profits are allocated to the creditors. Secured loans (fresh money made available to the firm during the insolvency proceedings, expenses of the litigation, debts coming under a RoT provision) would have precedence over favorable representations (tax claims, job and social benefits, etc.). Unsecured representations would be deemed last and thus never recoverable.

4.1.7. Cancelation of suspicious transactions. Liquidators usually have the right to request that the court void such transactions completed prior to the insolvency proceedings. Any action taken by the debtor deemed to be detrimental to the creditors would typically be void. A suspect duration can extend from six months to one year.

4.1.8. Duration of insolvency process. Although the court will declare bankruptcy within two months of filing of the complaint, the initiation of liquidation proceedings may be lengthy. Insolvency cases therefore seem to range from several months to several years.