The new Restructuring Law of 15 May 2015 (Journal of Laws of 2015, item 978, as amended), which enters into force on 1 January 2016, will not only revolutionise and expand the current principles of financial restructuring for businesses threatened with bankruptcy, but also – which is of particular importance – will change the current rules of bankruptcy proceedings by amending the Bankruptcy and Recovery Law of 28 February 2003 (Journal of Laws of 2015, item 233, hereinafter the BRL). Among the issues to be resolved is the possibility of lessors pursuing claims over unpaid lease instalments after a receiver has withdrawn from a leasing agreement.
This problem is important to leasing companies because at present, pursuant to Article 114 par. 1 BRL, within two months following the date of an announcement of bankruptcy by a lessee, a receiver, upon consent of the judge commissioner, may terminate a leasing agreement with immediate effect. This can put a lessor into a difficult position, for in such a case the subject of the lease should be returned to it, but the lessee is no longer obliged to pay further lease instalments. Further, another controversial issue is that of whether a lessor can pursue lost benefits resulting from the early termination of an agreement. Legal practice and doctrine are not uniform in this respect.
Current practice
It is worth recalling that the general principle in a situation where a receiver withdraws from an agreement is currently laid out in Article 99 BRL, which states that if a receiver withdraws from an agreement, the other party is not entitled to a return of the benefit it has provided, even if that benefit is part of the bankruptcy estate. In such a case, however, in the bankruptcy proceedings that party may pursue receivables due for the discharge of a liability and for losses suffered, by submitting these claims to the bankruptcy estate. This is the general principle. Some case law and practice considers that Article 114 par. 1 BRL constitutes a lex specialis in relation to Article 99 BRL. From this perspective it is held that, after a receiver has made use of his entitlement under Article 114 par. 1 BRL, a lessor loses the possibility of submitting receivables in the amount of the loss it has suffered as a result of the prior dissolution of a leasing agreement. In particular, the lessor is not entitled to submit amounts lost, remaining to be paid, or lease instalments. The justification of this interpretation of Article 114 par. 1 BRL is, firstly, the observation that Article 114 par. 1 BRL does not exhaustively regulate the matter of the effects of a bankruptcy on a leasing agreement, not foreseeing any claims against the bankruptcy estate, and secondly, the conviction that in such a case no harm is caused to the assets of the lessor because at the moment the agreement is terminated, the lessor recovers its entitlement to freely dispose of the subject of the lease (e.g. it may lease or sell that subject to another business).
Victim companies
In such a situation, lessors feel that they are victims. The viewpoint described above, after all, fails to address the fact that the subject of a lease is usually something which was purchased at the express instruction of the lessee, meeting its individual requirements and often custom manufactured for its needs. Depriving a lessor of its right to submit receivables for unpaid lease instalments (even reduced by the benefit the lessor will obtain as a result of the early repayment of lease instalments) is extremely adverse to entities which conduct business activity in connection with leasing services, since in the case of an announcement of bankruptcy of the lessee the lessor ends up with goods on its hands which it cannot dispose of at a price corresponding to their actual market value.
After the changes
The amendments of the BRL which enter into force on 1 January will definitively disperse the doubts of leasing companies to the benefit of the lessors.
This is because, in Article 114 par. 1 of the Bankruptcy Law (as the law will be called from the new year), the following new sentence will be added: “The provisions of Article 98 par. 2 and Article 99 apply as appropriate”. This direct reference to Article 99 of the law (the content of which, as stated above, refers to the possibility of pursuing claims in bankruptcy proceedings for receivables due for a discharge of liabilities and losses suffered by entering these on the list of receivables) will enable lessors to seek redress of harm suffered as a result of a receiver withdrawing from a leasing agreement.
Amendment of rights and obligations
The entitlements and obligations of a receiver will also change.
A receiver’s authorisation under Article 114 par. 1 of the Bankruptcy Law to withdraw from a leasing agreement will no longer be restricted to a period of two months. After the amendments, a receiver will be authorised to submit a declaration on withdrawing from a leasing agreement at any time up to the conclusion of a bankruptcy proceeding.
In practice, another provision will also be important: at the demand of a contractual partner of the bankrupt party (here: a lessor) submitted in writing at a certain date, within three months thereafter the receiver will be obliged to declare in writing whether he withdraws from the agreement or orders performance thereof (see the reference in Article 114 par. 1 Bankruptcy Law to Article 98 par. 2 of that same law). The absence of a declaration will be deemed a withdrawal from the agreement.
Under the changes in Article 98 of the law, there is an additional obligation to obtain the consent of the bankruptcy trustee when taking that decision.
Scope of receivables
What claims will a lessor be able to pursue?
In the author’s opinion, the scope of receivables a lessor will be entitled to submit to the bankruptcy estate pursuant to Article 99 Bankruptcy Law should include actual harm (damnum emergens) as well as lost benefits (lucrum cessans). Therefore, this scope should be defined similarly to that set out in Article 70915 of the Civil Code of 23 April 1964 (Journal of Laws of 2014, item 121, as amended), that is, harm which a lessee should relieve the lessor of in the case where a leasing agreement is terminated as a result of circumstances solely attributable to the lessee. In this way, lessors will not become victimised.
Pursuant to the new wording of Article 342 Bankruptcy Law, the receivables of a lessor should be entered in the second category in terms of the order for satisfying creditors of the bankrupt party. Those receivables will not immediately constitute procedural costs (liabilities of the bankruptcy estate) as defined in the new wording of Article 230 par. 2 Bankruptcy Law, because the arisal of the claims of the lessor is not related to the continuation of the leasing agreement by the receiver, but on the contrary, to the withdrawal from the agreement on the date of the announcement of bankruptcy. Receivables concerning the payment of further lease instalments exist before the announcement of bankruptcy, while they become mature at the moment the receiver makes use of his entitlement to withdraw from the leasing agreement. The announcement of the bankruptcy of the lessee and the withdrawal from the leasing agreement do not in themselves create a new liability of the lessee towards the lessor.
COMMENTARY
The amendment described above should be regarded as justified because previous regulation of this issue (or rather, how the provisions of the BRL were interpreted) gave rise to lessors being victimised. Where a lessee declared bankruptcy, even though the subject of the lease was returned to the lessor, the lessor suffered considerable harm. The amendment should also prove beneficial for potential lessees, for it will increase the security of leasing transactions concerning non-standard goods, and should thereby increase lessors’ willingness to finance transactions concerning things whose individual features could limit opportunities for disposing of them in the future (thereby lowering their market value upon forced sale).