Distressed assets as an investment strategy in Poland

Legal frameworks

There is no specific legal regime applicable to distressed transactions (M&A or asset transactions) in Poland, however, an investor’s safest approach is one that enables an acquisition free and clear of encumbrances. This would involve: (1) bankruptcy liquidation (pre-packed or classical); or (2) the acquisition of assets in court enforcement proceedings.

A riskier approach is the use of a classical transaction through a share purchase agreement, the acquisition of a business as a going concern, or the acquisition of respective assets (properties) in a classical asset deal. The investor must conduct thorough evaluations of the potential acquisition via legal, tax, and commercial due diligence. An additional way to mitigate legal risks is to arrange for warranty and indemnity (W&I) insurance.

Pre-packaged sales

One option is the acquisition of distressed assets in bankruptcy proceedings using pre-pack sales. This manages the adverse impact of bankruptcy proceedings on the distressed company’s business, while reducing the time and cost of such proceedings, and offering greater asset realisation to be distributed among creditors.

Pre-pack sales (called “prepared liquidation”) was introduced by Polish bankruptcy law in January 2016. Under Polish law this is a pre-arranged sale of all or part of the debtor’s business (or the assets comprising its substantial part) to a buyer of choice at a pre-arranged price. 

Pre-packs are negotiated before the company applies for the commencement of bankruptcy proceedings, but the sale is completed after the bankruptcy of the company has been declared and the court has approved the sales terms. Pre-pack sales have the effect of an enforcement sale, which means the buyer acquires the assets free of any liabilities, encumbrances, or tax obligations, including those arising after the company’s bankruptcy has been declared.

Compared to other types of insolvency proceedings under Polish law (which in some cases can take several years), the pre-pack timeframe is much shorter (on average up to 9 months).

Conclusion

Although distressed properties are very rare on the Polish market, the acquisition of distressed assets is an attractive opportunity for investors equipped with the right tools and strategies. By leveraging advanced analytics, engaging in strategic partnerships, and maintaining a focus on thorough due diligence, investors can navigate this complex market effectively. As economic conditions continue to evolve, those who act decisively may find themselves well-positioned to reap substantial rewards from distressed asset investments. 

Katarzyna Sawa-Rybaczek is a partner at Penteris. She is a rarity among lawyers in that she uniquely connects transactional real estate work with banking and finance.