Poland repeals ineffective bankruptcy penalty provision

Poland is set to repeal Article 586 of the Commercial Companies Code, which imposed criminal penalties on company managers for failing to file for bankruptcy in a timely manner. Though the provision allowed for fines, restrictions of liberty, or imprisonment for up to one year, it was rarely enforced and had little practical impact. The Ministry of Justice’s decision to remove it reflects a shift toward more effective civil mechanisms for protecting creditors and encouraging responsible corporate governance.

Originally intended to compel swift action from management during a financial crisis, the provision proved difficult to enforce. Convictions were extremely rare, largely because proving intent was nearly impossible. Many managers, especially in small and medium-sized businesses, were unaware of the rule or viewed it as an empty threat. In practice, the law served more as a negotiation tactic than a functioning safeguard.

Rather than targeting dishonest behavior, the provision often created problems for managers attempting to restructure or rescue their companies. Recognising insolvency is rarely straightforward, especially in uncertain financial situations. Courts frequently relied on expert analyses that failed to reflect business realities, sometimes interpreting minor financial irregularities as signs of prolonged insolvency. This created legal exposure for managers acting in good faith, discouraging turnaround efforts and encouraging premature bankruptcy filings.

The repeal does not eliminate accountability. It redirects focus toward civil enforcement tools that are already in place and carry more serious consequences. These include personal liability under Article 299 of the Commercial Companies Code, which allows creditors to pursue managers directly if company assets cannot cover debts. Managers can also be held responsible for tax arrears under Article 116 of the Tax Ordinance. Additionally, courts can impose bans on holding management positions for up to ten years.

Civil proceedings offer creditors more effective means of recovering funds than criminal prosecution. Imprisoning a company director does little to resolve unpaid debts, while civil claims directly target personal assets and professional standing.

The decision also reflects broader legal trends in the European Union. A recent judgment by the Court of Justice of the EU (CJEU) in case C-278/24 highlighted the need for member states to ensure liability frameworks are proportionate and allow for individual assessment. The automatic nature of criminal penalties under Article 586 conflicted with this principle. Given the already extensive financial and legal exposure faced by managers, the added criminal provision was viewed as redundant and out of step with modern legal standards.

The repeal signals a move toward a more practical and effective legal framework—one that balances creditor protection with the realities of managing a business in distress.