Insolvency III Directive – free bankruptcy for micro-enterprises

At present, the EU is working on the Insolvency III Directive. It is supposed to simplify winding-up proceedings for micro-entrepreneurs. How will such proceedings work in practice and which entities will be covered by the new provisions?

Bankruptcy for the micro-entrepreneur in the EU under new rules

The draft of the Insolvency III Directive that is being developed involves the introduction of simplified winding-up proceedings for:

• micro-enterprises with up to 10 employees and a turnover of less than EUR 2 million per year.

The simplified winding-up proceeding for micro-enterprises means that the authority hearing the bankruptcy claim cannot dismiss the claim even if the debtor is unable to cover the costs of the bankruptcy proceedings (the company’s assets are not sufficient to cover such costs).

The insolvency of an entity will be established if a micro-enterprise is unable to pay its debts as they fall due. However, the draft regulations assume that EU member states will have the option:

• to specify what other conditions a debtor should fulfil, and
• to extend the simplified proceedings also to small and medium-sized enterprises.

Under the proposed provision of the Directive, Member States will be required to incorporate into their national legislation provisions on insolvency proceedings so as to allow micro-enterprises to be wound up through simplified proceedings.

Uneven insolvency rules in EU countries

Insolvency laws are not uniform across EU countries, which leads, among other things, to large differences in the efficiency of national insolvency proceedings and thus reduces the attractiveness of cross-border investments. Hence the need to standardise them by implementing the provisions of the Insolvency III Directive.

In Poland, the rules for declaring companies insolvent are governed by the Bankruptcy Law (Journal of Laws 2022.1520). Insolvency in Polish law means that a debtor has lost the ability to perform its due monetary obligations. It is also presumed that the debtor has lost the ability to perform its due monetary obligations if the delay in the performance of monetary obligations exceeds three months.

Furthermore, a debtor being a legal person or an organisational unit without legal personality, to which a separate act grants legal capacity, is also insolvent if its monetary liabilities exceed the value of its assets and this condition persists for a period exceeding 24 months.

Bankruptcy and restructuring – legal support by TGC law firm

We advise clients on all aspects of bankruptcy or restructuring. We continuously monitor changes in restructuring and bankruptcy law to help you choose the optimal and most advantageous solution.

We also represent creditors, investors and companies struggling with liquidity problems and timely payment of liabilities during court restructuring and liquidation proceedings. We direct our support to both Polish and foreign companies.

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