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Effectiveness of the Security Agreement in the Insolvency Proceedings

It is the general rule of Polish insolvency law that all agreements to which the bankruptcy entity is a party are valid and effective even after the commencement of the insolvency procedure. Therefore no obligation of the debtor may be modified without the consent of the creditor. This principle is however limited by the regulation of art. 127 (1) of the Act on Bankruptcy which provides for ineffectiveness in regard to the bankruptcy estate of any legal acts that were undertaken by the bankruptcy entity 1 year before filling the bankruptcy request to the court, if those act were gratuitous or against payment, yet value of the obligation of the bankruptcy entity widely exceeds the value of benefits.

Polish insolvency law provides similar limitation as to the effectiveness of the security agreement. According to art. 127 (3) of the Act on Bankruptcy, the security agreement to which the bankruptcy entity is a party is ineffective in regard to the bankruptcy estate if it was signed 6 months before filling the bankruptcy request to the court. The creditor who holds the security interest may however demand the court to acknowledge the validity of the security agreement if he proves that on the day of signing the agreement, he was not aware of the grounds to declare bankruptcy.

Furthermore, the Judge - Commissioner may, on the request of the bankruptcy trustee, make the security interest on the assets of the bankruptcy entity ineffective, if the bankruptcy entity is not personally liable, the security interest was given

1 year before filling the bankruptcy request and the bankruptcy entity did not receive any benefits from it or it received grossly inadequate benefits (art. 130 (1) and art. 130 (2) of the Act on Bankruptcy). The Judge - Commissioner will make the security agreement ineffective irrespectively to the value of received benefit if those agreements secure the obligations of spouse, some categories of relatives or in-laws, partners or related companies.

 
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