Pre-packaged bankruptcy is a new notion in Polish law, inspired by solutions present in common-law countries, where it is also known simply as pre-pack. Pre-packaged bankruptcy consists in the sale of a part of or a whole undertaking of the debtor, or selected assets thereof, on terms agreed beforehand between the debtor and the investor and approved by a court.
Even prior to taking any action before a court, the debtor starts searching for an investor willing to purchase their assets for a pre-determined price (estimated by way of appraisal). Next, an application for the approval of the conditions of sale of an undertaking is appended to the bankruptcy petition. Every entity legally authorised to file a bankruptcy petition may file such an application, meaning that it may be done by the debtor themselves, as well as by any creditor interested in purchasing the undertaking in question.
The application must set out the terms of sale and at least indicate a price and a buyer of specific assets. It also needs to include a description and valuation of the assets it covers, prepared by a person from the list of court experts, allowing the court to analyse the proposed price and terms of sale. The court will consider the application only if the agreed sales price exceeds the amount that could have been obtained as a result of bankruptcy proceedings, minus any costs of court proceedings. For the result to be positive, also the condition of satisfying the creditors to a larger extent than by way of liquidation of debtor’s assets according to provisions governing “traditional” bankruptcy proceedings needs to be met.
This form of liquidation allows a debtor to preserve the integrity of their business and to avoid adverse effects of bankruptcy, and creditors to be satisfied somewhat earlier (with the bankruptcy procedure remaining the same), and avoid being charged with costs of running the business throughout the proceedings.
Most importantly, pre-packaged bankruptcy allows to preserve the operation of the debtor’s business, as it is taken over and managed by the investor without the need to wait for particular stages of bankruptcy proceedings. Such acquisition is identical to acquisition from an official receiver or a bailiff, meaning that the business is purchased free of any debts. The application for the approval of terms of sale is examined at one time with the bankruptcy petition.