Debt collection in Poland – what creditors should pay attention to

November 5, 2023

Dishonest debtors are increasingly attempting to use legal proceedings solely to fictitiously dispose of their assets to settle their debts. They believe that if they obtain a legally binding judgment ordering them, for example, to pay a specific sum to another person, the creditor cannot contest this payment. But is the creditor truly defenseless? With this publication, we launch a series of articles on what to consider and how to respond if our debtor initiates legal proceedings that could lead to their insolvency.

If our debtor disposes of their assets to avoid paying their debts, we can challenge their actions. This is done through the multi-stage legal action already described. However, this creditor protection tool cannot be used against a court judgment.

Dishonest debtors and their supporters are, of course, aware of this. They therefore abuse the right to later argue in court that the transfer of their assets to third parties was based on a legal relationship established or confirmed by a legally binding court judgment, so that creditors cannot contest it.

The problem is not new and has already been identified by Polish legal scholarship and jurisprudence.

Obvious legal loophole

For decades, a special type of sham lawsuit has existed, initiated by purported creditors so that the defendant loses the case against them and can transfer substantial assets, or their equivalent value, to them through enforcement of the judgment. These lawsuits are intended to prevent the satisfaction of the actual creditors. If the debtor transfers assets to the substitute creditors without a court judgment, the actual creditors could effectively challenge the debtor's dispositions with a Paulian action for avoidance.

The Supreme Court has long recognized (e.g., in its judgment of May 24, 1994, I CRN 50/94) that fictitious court proceedings to the detriment of creditors are becoming increasingly common, particularly in the determination of the separation of property and the division of assets (marital property, inheritance, etc.). More importantly, the Supreme Court has emphasized that there is an unintended gap in the Polish creditor protection system in this regard (as, for example, in the Supreme Court's decision of October 8, 2015, III CZP 56/15, and more recently in the Supreme Court's judgment of October 5, 2022, II CSKP 552/22). This gap lies primarily in the fact that Polish regulations concerning the Paulian action do not explicitly provide for the possibility of challenging, by means of this remedy, procedural acts carried out by dishonest debtors to the detriment of their creditors before an ordinary court. The Supreme Court noted that in the Polish legal system it is generally very difficult for creditors to prevent fictitious court proceedings and to remove their effects (including final judgments) from legal transactions.

Nevertheless, this legal loophole persists. Consequently, one all too often hears that if something has been withdrawn from or not received from the debtor's assets as a result of a lawsuit that has been legally approved or ordered by a court of law, such a lawsuit can under no circumstances be effectively disqualified as fraudulent (fraudulent) vis-à-vis the creditors. This can no longer be the case!

An obvious loophole

For decades, a special type of lawsuit known as a sham claim has existed, filed by purported creditors so that the defendant loses the case against them and can transfer substantial assets or their equivalent value to them through enforcement of the judgment. These lawsuits are intended to prevent the actual creditors from being satisfied. If the debtor transfers assets to the substitute creditors without a court order, the actual creditors could effectively challenge the debtor's dispositions with a Paulian action for avoidance.

Supreme Court rulings

As we wrote in the article on the Paulian action for annulment, it is possible to effectively challenge procedural acts that also have substantive legal effects, such as a court settlement, a waiver of a claim, or an acknowledgment of a claim, by means of such an action. However, such a possibility does not arise directly from Polish law. It was only made possible by the jurisprudence of the Polish Supreme Court, which, to a certain extent, attempts to close the aforementioned legal loophole that is exploited by dishonest debtors (see, for example, the Supreme Court judgments of October 15, 1999, III CKN 388/98; of November 14, 2011, V CSK 163/08; of May 6, 2009, II CSK 670/08; and the Supreme Court decision of October 8, 2015, III CZP 56/15).

Poland has a system of applicable law, not a precedent. Therefore, there is no guarantee that the ordinary courts will, in every subsequent case, tend to interpret and apply the provisions on the Paulian action in the same way as the Supreme Court does in the aforementioned judgments. This is well illustrated by a relatively recent judgment of the Court of Appeal in Warsaw (dated November 6, 2019, V ACa 127/19). The wording of the reasoning behind this judgment reveals that the panel of judges who ultimately decided the case were aware of the Supreme Court's jurisprudence that a Paulian action can also be brought against procedural acts, but disagreed with this legal opinion and refused to apply it (which, we should add, was entirely justified under the Polish system). Therefore, the intervention of the Supreme Court was once again necessary, and in its judgment of October 5, 2022, II CSKP 552/22, it overturned the aforementioned judgment of the Court of Appeal in Warsaw (you can read more about this very interesting case here). However, there is no illusion that this dispels the considerable doubts as to whether a creditor will in the future be able to challenge actions committed to their detriment by a dishonest debtor by means of a Paulian avoidance action.

A change to the law is necessary.

The problem is all the more serious because the gap in the Polish creditor protection system does not only consist of the lack of an explicit provision that allows procedural acts undertaken with the knowledge of harming creditors to be rendered ineffective by means of a Paulian action. Added to this is the absence of legal instruments in Polish legislation that would allow creditors to:

a real guarantee that they would be informed about legal proceedings whose outcome could affect the debtors' ability or inability to pay,
as interveners in a proceeding, they would guarantee full independence from the party to the proceedings to which the creditor has joined,
an independent right to bring an extraordinary appeal in a case where the final judgment has been rendered to the detriment of the creditors as a result of procedural actions by the parties to the proceedings.

Therefore, creditors in particular should strongly advocate for a corresponding amendment to Polish law in this regard, and as quickly as possible.

However, it is not the case that creditors lack legal means to limit the risk of negative consequences from legal proceedings initiated and conducted against them. Such instruments – albeit inevitably with certain shortcomings – already exist, and creditors should become familiar with and utilize them.

Should you have any questions regarding contractual penalties in Poland, please contact via email at kontakt@kancelaria-pozniak.pl or by phone at +48 665 246 969 .