Pre-packaged Liquidation - what is it and how it can help me

Pre-packaged Liquidation (pre-pack) is a relatively new legal regulation introduced into Polish law in 2016, amended in 2020. According to the article 56a of the Polish Baknruptcy Act , in bankruptcy proceedings, a party to the proceedings may file an application for approval of the terms of sale of the debtor’s enterprise or an organised part thereof or assets comprising a substantial part of the enterprise to the purchaser. The purpose of the prepared liquidation is to satisfy creditors faster and allows to significantly reduce the duration of bankruptcy proceedings.The assumption of the prepared liquidation is to accelerate the sale of the debtor's assets, which becomes the mass of bankruptcy. Similar solutions exist in the law of the United Kingdom and the United States.

The right to submit a pre-pack application is held by every participant in the bankruptcy proceedings, i.e. both the debtor and his creditors. The Act also provides for the possibility of submitting such an application by more than one creditor, which enables the cooperation of entities interested in various assets. This makes this regulation attractive to both the debtor and potential investors. To the application for approval of the terms of sale, the applicant must enclose proof of payment of a bid security in the amount equal to one-tenth of the offered price, deposited by the purchaser to the deposit account of the court competent to consider the application.

What are the basic advantages of this solution, except for the aforementioned swiftness of proceedings?

Because the sale is carried out by way of execution sale,the old debts of the debtor do not burden the buyer of the pre-pack item. It is also attractive for investors to acquire a "ready" enterprise, along with a portfolio of clients, know how and employees. It is also atractive for the debtor, who gains the possibility of quickly obtaining funds for further restructuring their activities.

All in all, the pre-pack option, especially after recent amendments, has a chance to become a popular and useful liquidation tool.