Selected examples

of our legal interventions

<div id="consumer-bankruptcy"></div>Consumer bankruptcy
Debt repayment

Consumer bankruptcy

Joanna_Pluta

Partner responsible: Joanna Pluta

Problem

We were approached for an analysis of a situation and possible filing of a petition for consumer bankruptcy under new regulations that came into force in Poland on 31 December 2014. The Clients were a married couple, without a regime of separate property. In 1996, after marrying, they moved into a studio apartment of 36 square meters, which they inherited from the wife’s grandparents. However, after their son was born, they were forced to move into larger premises. In 2000 they purchased an unfinished, 60-square meter apartment. They used the funds from the sale of the studio apartment to purchase the flat and also took out credit in the amount of PLN 100,000 in Euros.

Result

At that time, the credit advisors did not explain the risk to our Clients of taking out credit in a foreign currency. Our Clients are not economists and had no knowledge of finances; hence, they trusted their credit advisors. At that time, both Clients had stable jobs and the credit repayments were not a problem for them. After purchase of the larger apartment, they took out further credit to finish it. When the Euro exchange increased from PLN 3 to nearly PLN 5, they were forced to convert the credit into PLN. As a result of that transaction, the amount of their credit increased from PLN 100,000 to over PLN 400,000. After a few years, other problems arose. Mr. Nowak lost his job at the company he had been employed with for over 10 years. For more than a year, despite many efforts, he still couldn’t find a new job. At the same time, his spouse became seriously ill and took sick leave for over 3 months. Despite their deteriorating financial situation, the Nowaks continued to reliably settle their liabilities using all their savings. However, after her return to work, Mrs. Nowak was informed that due to a difficult situation with her employer, her remuneration would be reduced 50%. The situation became tragic. Although Mr. Nowak did finally find a new job after more than a year searching, his new remuneration was 60% less than it had been at his previous company. Mr. and Mrs. Nowak decided to immediately sell the apartment, which turned out to be worth PLN 100,000 less than the credit they had taken to purchase and finish it. Our Clients’ situation was now a vicious circle. The credit instalments continued to grow, while their income continued to shrink. After a short time, they couldn’t even rely on financial assistance from their family. They were trapped in a debt spiral. Having analysed their situation for compliance with the prerequisites for the declaration of consumer bankruptcy, on 31 December 2014 we filed a petition for declaration of consumer bankruptcy for Mr. and Mrs. Nowak. The hearing was scheduled for H1 February 2015.

<div id="inheritance-proceedings-in-the-usa"></div>Inheritance proceedings in the USA
Inheritance

Inheritance proceedings in the USA

Joanna_Pluta

Partner responsible: Joanna Pluta

Problem

Our firm was visited by Clients asking for assistance in the representation of their interest in inheritance proceedings pending in Cook County, Illinois. The Testator was the Client’s brother, who had been living in the United States for 30 years and who had no other living relatives there. The person who initiated the inheritance action in America was a distant cousin of the Client. Furthermore, the Testator had no children and his wife had died 10 years earlier. According to the documents presented by the Clients, which they had received from a family court in the US, they were the heirs appointed to the inheritance. The content of the document raised suspicions with us, as the value of the Testator’s property declared to the court was ten times lower than its market value. We immediately took appropriate steps to determine the actual value of the estate and to protect the interests of our Client.

Result

We petitioned for participation in the proceedings before a court in the US and requested judicial supervision of all actions by the estate’s administrator, including the presentation of documents to confirm the value of the estate. It turned out that the value of the property in question increased from a deliberately undervalued USD 50,000 to USD 490,00. At our request, a market-based measure of the property was made. The inheritance proceedings ended after 6 months, with the property sold at a price consistent with our valuation. We requested that the IRS (Internal Revenue Service) grant a tax identification number (ITIN) to our Client, relevant US taxes due on the estate were paid, and our Client became the owner of the estate at its final value (after deduction of taxes and costs of court proceedings) of USD 300,000. After the inheritance was granted, we provided the Tax Authorities in Poland with the relevant data. By virtue of a double taxation agreement between Poland and the United States, the tax on inheritance paid in the US was deducted from the Client’s tax liabilities in Poland.

<div id="taxes-and-tax-proceedings"></div>Taxes and tax proceedings
+ 1 000 000 zł

Taxes and tax proceedings

Partner responsible: Grzegorz Baran

Problem

Company X asked our firm for assistance. It had all the documents confirming a transaction for intra-Community supply of goods, but still couldn’t recover the VAT. The reason? The company used a legally rented virtual office, which was not recognised by the tax authorities. Company X purchased mobile phones from business entities operating in Poland, collected the goods, paid for them and exported them to another EU Member State, where they were re-sold to other counterparties. All of this was confirmed by the relevant documents; nevertheless, the ‘blatantly obvious’ became a battlefield for Company X in its fight with the Polish tax authorities. Representing Company X in the audit proceedings before the tax authorities, we picked up the fight for our Client’s tax rights...

Solution

What was the dispute about? It did not concern the substantive aspect of the issue but the aforementioned so-called virtual office. Having the aforementioned documentation, Company X filed a VAT-7 declaration requesting return of the excess VAT paid on the purchase of the mobile phones. As the amount of the return requested was considerable, the tax authorities conducted a tax audit of the company. At the auditors’ request, Company X presented complete necessary documentation pertaining to the transaction, and the president of the management board also provided comprehensive explanations in this respect. The tax authorities received everything that was expected during the audit, and decided that by renting the ‘virtual office’ to conduct its business, Company X could not perform the aforementioned transaction as it did not have the relevant infrastructure for this purpose. Then, the tax authorities decided that Company X was not a VAT payer. So in the opinion of the authorities, the company had not performed the transaction. Therefore, it was not entitled to deduct the VAT charged on the phones purchased. But by applying the jurisprudence of the CJEU, we proved that if a taxpayer conducts its business in accordance with the law, and performs legal commercial transactions, the tax authorities have no grounds to question the right to a VAT return. Especially given that they are not entitled to instruct taxpayers on how to conduct their businesses in organisational terms. Ultimately, it did not matter whether Company X had a physical office with equipment and employees or not. In the intra-Community transactions performed, it acted in accordance with the regulations and had every right to have the excess VAT returned. Eventually, it took us two months to convince the tax authorities of this fact, which in the reality of the Polish tax administration is incredibly quick. But what’s most important is the fact that, due to our actions, Company X finally recovered over one million Polish zloty of excess tax.

<div id="bankruptcy-and-reorganisation-law"></div>Bankruptcy and reorganisation law
Protection of assets

Bankruptcy and reorganisation law

Joanna_Pluta

Wspólnik odpowiedzialny: Joanna Pluta

Problem

The president of a large construction company with the form of a limited liability company came to our Firm after his investors decided to withdraw their funds from the company, as they didn’t see the point in making further investments due to the LLC’s insolvency. The president represented the single-member management board and realized that only he would be held responsible for the company’s insolvency. To make matters worse, the president and his wife had significant personal property in the form of lots of real estate, bank deposits, cars, etc. They also had some joint property. So the president was worried that if his investors ceased capitalising the operations of the company, he would be forced to terminate it and, at the same time, would not be able to pay back all of its creditors. It is important to note that in the face of this difficult situation, the company concluded certain contracts which, after their execution, would quickly restore its financial liquidity.

Result

Despite the investors’ refusal to co-finance the company, we managed to conclude an arrangement with its creditors, and consequently, the arrangement bankruptcy, while also helping the management board to find additional funds for further operations of the company and for the implementation of the arrangement plan. Today, the company is still successfully operating and its president has avoided all the problems of being responsible for his private property, following his failure to file a petition for declaration of bankruptcy on time. Due to his rational actions and with our assistance, he prevented a situation that could have had a very negative impact on the property he had spent his life collecting.

<div id="corporate-law"></div>Corporate law
Transformation

Corporate law

Partner responsible: Grzegorz Baran

Problem

Convincing an entrepreneur to change the form of his enterprise from a business activity into a limited-liability company is only the first stage of reorganising a company and its assets. Many transformed companies develop their operations to such an extent that tax optimisation becomes a problem. Happily, it’s not a problem for us. One of our Clients, a services company in the car industry, is a good example. After transformation, the company’s operations grew to such an extent that it was necessary to develop a tax-free strategy for the dividend payments to its partners. Bear in mind that the Polish tax authorities also impose a mighty 19% tax on this income.

Result

To meet the needs of the Client, we used the services of a branch of our law firm in Cyprus. We established five separate special purpose vehicles aimed at taking over the ownership structure of the Polish limited-liability company, so that none of the companies held more than 24% of the shares in the car services’ company capital. This was the result of a need to avoid having the so-called CFC clause applied to the company – that is, taxation of its operations in Poland, regardless of the geographical location of the business. This is all the more justified by the fact that through the new companies in Cyprus, our Client also expanded his business abroad. With this, we achieved the intended tax effect, as dividend paid to a foreign partner, who does not control a Polish company in terms of the number of shares held, is not subject to taxation in Poland and the income tax on this dividend in Cyprus amounts to 0%. There are now a growing number of entities interested in Cypriot solutions.

<div id="business-law"></div>Business law
Restructuring

Business law

Joanna_Pluta

Partner responsible: Joanna Pluta

Problem

Mr. Jan Kowalski and Mr. Nowak ran a chain of hotels across Poland. They began their operations in the form of a general partnership, where both had equal rights to manage the company’s affairs. When they came to us, it was for help in optimising their operations and in reducing related risks. The existing general partnership governed a business that was developing very dynamically, and eventually the legal form of general partnership ceased to be sufficient. Moreover, running this dynamically developing business in its current legal form started to be more and more risky. Therefore, we suggested the transformation of the partnership into a limited-liability company.

Result

We prepared a draft resolution and draft articles of association for transformation of the company, including an evaluation of its current assets and liabilities and the financial statements drawn up for the purpose of the transformation. We used the same valuation methods and the same arrangement as we had done for their last annual financial report, although it was necessary to obtain the opinion of an auditor on the valuation of the company’s assets and liabilities. The final stage of the procedure in chronological terms was entering the transformed company into the register and deleting the former company. The responsibility of partners for the liabilities of the company was limited. Partners of a general partnership bear subsidiary responsibility for the liabilities of the company up to their full amount. After transformation, the partners became shareholders who could not be responsible for liabilities occurring after the transformation. Both gentlemen, as partners in a partnership, became partners of a company, which in practice meant that they are not subject to social and health insurance. Thus, if as a result of transformation of a partnership a company is established other than a single-person limited-liability company, the obligation to pay contributions for the partners to the Social Insurance Institution (ZUS) were no longer valid.

<div id="family-law"></div>Family law
Divorce

Family law

Joanna_Pluta

Partner responsible: Joanna Pluta

Problem

A Client struggling with a marital crisis came to our firm. She did not know how to deal with her new life circumstances after her husband had discovered her long-term relationship with another man. The most important thing for the Client was to be able to take care of her child. She did not want the Court to give exclusive custody rights to their father.

Result

The first step was to provide our Client with psychological support, which came through the psychologists working with us. Then, after tremendous work on her emotions, the Client was able to answer the most important questions regarding the divorce, liability for the marriage’s breakdown, custody of the children and division of the property. Despite the fact that, initially, the Client’s liability for the marriage’s breakdown appeared to be evident, we determined that the actual cause of the marriage’s failure was the husband’s despotic nature and his propensity for abusing alcohol. A petition for a no-fault divorce was filed on behalf of the Client. During the proceedings we managed to convince the Court that our Client’s affair was simply the result of her husband’s behaviour, and not the central cause of the marriage’s failure. During the proceedings, the Client was presented as a model mother, taking care of her children. In the course of the proceedings, the husband, despite an initially hostile attitude to his wife, decided that there was no point in trying to assign guilt exclusively to her, and agreed to a no-fault divorce. The children stayed with the Client. Contact between the father and the children, as well as child support payments, were determined by the Court after consultation with experts. Currently, the case for division of the marital property is pending.