The relation between duration of insolvency proceedings and their efficiency (with a particular emphasis on Polish experiences)

Abstract

AbstractThe following article addresses the issue of the duration of insolvency proceedings (both winding‐up and reorganization) and its influence on the efficiency of the proceedings. The previous opinion presented in the literature, according to which shorter and cheaper insolvency proceedings contribute to establishing enterprises, has been recently reflected in a Directive of the European Parliament and of the Council on preventive restructuring frameworks. It expressly states that the excessive length of restructuring, insolvency and discharge procedures is an important factor triggering low recovery rates and deterring investors from doing business in jurisdictions where procedures risk taking too long and being too costly. It was also pointed out that reducing the length of restructuring procedures would result in higher recovery rates for creditors as the passing of time would normally only result in a further loss of value for the enterprise. Moreover, to promote efficiency and reduce delays and costs, the EU Directive recommends introducing flexible preventive restructuring frameworks. The research carried out within the ACURIA project, particularly interviews, allows us to answer the question about possible discrepancies between the law on the books and the law in action with respect to provisions on duration of the proceedings. Based mainly on the case study and the interviews with practitioners, this article shows that, despite a relatively modern framework, the length of the proceedings may not be satisfactory and ‐ in the case of Poland–is due to non‐legal factors and “law in action,” which are both basic barriers to the implementation of the time limits for proceedings introduced by the legislator. The study confirms that the thesis that the statement about the need to reduce the excessive length of insolvency procedures in many of the EU Member States resulting in legal uncertainty for creditors and investors and low recovery rates is true. It will also be demonstrated, however, that the duration of the proceedings is only one of the criteria for assessing the effectiveness of the proceedings, along with the costs and recovery rate. It has been pointed out in the interviews that, in practice, there are proceedings in which, due to the deliberate extension of proceedings, all creditors ultimately have been fully satisfied.