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Among entrepreneurs, there is a widespread belief that the construction sector is one of the most indebted industries in Poland, and indeed, there is truth to this. According to data released by the National Debt Register as part of the KoronaBilans SME study in 2021, the total debt in the construction industry amounted to nearly 1.8 billion PLN. At the same time, as much as 25% of companies declare a lack of payments from contractors in the last three months, and almost half of them regularly receive payments after the due date.
Reasons for financial liquidity problems in the construction industry in Poland
Financial problems have persisted in the construction industry for years. Despite increasing legal awareness among the public, many mistakes continue to be made, especially by small businesses that do not opt for permanent legal support or even ad-hoc consultations.
What are the reasons that make debt collection necessary?
Failure to draft agreements in written form
A fundamental problem is relying solely on verbal agreements in business relationships. According to the Polish Civil Code, a construction contract should be in writing, and the documentation required by law (e.g., surveying, design) is integral to the contract.
Nevertheless, many companies provide services without a written agreement, significantly hindering later debt collection. When opting for a written contract, using ready-made online templates is not advisable either. It is important to remember that services provided to one customer can significantly differ from those offered to another, and the contract should reflect this specificity.
It is best to entrust the drafting of the contract to a law firm experienced in serving construction businesses.
Deliberate delay in payments by businesses
Delaying payments beyond the contractually agreed-upon deadline is still an unfortunate practice in Poland. Creditors should be aware that once a claim becomes due, they have the right to take steps to recover the owed compensation.
Many entrepreneurs believe that legal proceedings must drag on for years, thus they give up pursuing their rightful claims. It doesn’t have to be this way if experienced lawyers conduct the proceedings.
Strong interconnection between investor, contractor, and subcontractor
Construction projects are often very complex and multi-stage investments that involve substantial resources, and sometimes external financing, too. When payment delays occur at the beginning (e.g., the developer did not receive the desired level of funding), problems escalate rapidly and typically affect an entire chain of entities, including final subcontractors.
Initial verification of a contractor in CEIDG, KRS, or BIK can help stabilize the collaboration. It’s important to remember that most countries have registries which make it possible to check if a company even exists and if it has not entered bankruptcy or restructuring (e.g. the Unternehmensregister in Germany).
How to effectively avoid the debt spiral?
- Setting shorter payment terms: Dividing compensation into several installments with shorter payment terms for each – it increases the chances of the creditor recovering at least a portion of their due amount without resorting to legal action.
- Ongoing monitoring of payments: The bank account provided to the contractor should be regularly checked for payment.
- Entering into written agreements: A written contract allows for effective debt collection in court because the plaintiff has evidence of the collaboration, its terms, the amount due as salary, and payment deadlines.
- Assertively pursuing claims: If a creditor does not pursue their claims after the payment deadline, it sends a clear signal to the debtor that they are not interested in timely settlements. In the future, this can cause severe financial liquidity problems for the company.
- Reporting the debtor to Debt Registers or Debt Markets: Such actions are in accordance with the law and serve as a form of pressure on insolvent debtors. Being listed in debt registers negatively affects the reputation of any business. Increasingly, companies check such databases before entering into partnerships.
Provisions introduced by the Anti-Delay Payment Act
The Anti-Delay Payment Act introduces several mechanisms aimed at combating payment delays. These mechanisms can reduce the risk of debt and motivate debtors to make payments.
According to Article 5 of the Act, if the parties to a commercial transaction stipulated a payment term longer than 30 days from the date of performance and the delivery of the invoice or bill, a creditor who is not a large enterprise may demand interest to be paid after 30 days from the date of performance until the due date, but not longer than the due date. The same interest calculation period applies if the agreement does not specify a payment term.
From the day the right to collect interest is acquired, the creditor also has the right to demand reimbursement of collection costs:
- 40 EUR when the performance value does not exceed 5,000 PLN.
- 70 EUR when the performance value exceeds 5,000 PLN but does not exceed 50,000 PLN.
- 100 EUR when the performance value equals or exceeds 50,000 PLN.
Article 13b of the Act also introduces a prohibition on excessive delay in making monetary payments, allowing a situation where, over the course of the following three months, the total amount of unpaid and late-paid performances reaches at least 2 million Polish złoty.
In the event of an excessive delay, the President of the Office of Competition and Consumer Protection (UOKiK) initiates administrative proceedings ex officio or upon application and may impose a fine calculated based on Article 13v(2) of the Act.
The key elements of effective debt collection in Poland
Effective debt collection can be divided into amicable (out-of-court) actions and more formal, court-based proceedings. What steps can a creditor take when they have not received their payment on time?
Amicable debt collection in Poland
Amicable debt collection, also known as extrajudicial debt collection, involves a set of actions the creditor should take to encourage the debtor to make payment. It can be pursued independently, although actions conducted by law firms experienced in debt recovery tend to be more effective. Many forms of extrajudicial debt collection can be pursued independently or concurrently. These may include:
- Sending payment reminders.
- Field debt collection.
- Publishing the debt in credit information bureaus or debt markets.
- Filing for the debtor’s bankruptcy by the creditor.
It’s essential to emphasize that amicable debt collection has limits and must always be conducted according to the law. Actions that are aggressive or infringe on the debtor’s rights may justify the need for legal protection (see, for example, the judgment of the Court of Appeal in Wrocław dated February 15, 2013, I ACa 31/13). Therefore, before taking action to recover funds, it is advisable to seek assistance from a law firm.
It’s worth mentioning that debt collection companies also engage in debt recovery. Unfortunately, in practice, they often do not consult their actions with clients and do not adhere to internal ethical guidelines as professional legal representatives do.
Judicial debt collection in Poland
An attempt to solve the dispute amicably is a necessary step prior to initiating judicial proceedings, per Article 187 §1 point 3 of the Code of Civil Procedure (hereinafter as: ‘KPC’). Therefore, before filing a lawsuit, the debtor must receive payment notice at least once in a manner that allows for the preservation of evidence, which can then be included in the initiating court documents. A mere telephone conversation is not sufficient for this purpose. A registered letter with acknowledgment of receipt or an email message may be more effective.
The judicial process commences with the service of a lawsuit on the debtor, in which the creditor seeks payment of the amounts arising from the contract, along with any interest for delayed performance. The initiating court documents should include various elements, including:
- A precise statement of the claim (along with the indication of the value of the subject matter in dispute).
- Identification of the due date of the claim.
- Presentation of the facts on which the plaintiff bases their claim and, where necessary, an explanation of the court’s jurisdiction.
In addition to the basic set of claims, the plaintiff may include various additional requests and legal actions in a lawsuit, including:
- A request for securing the claim.
- A request for an immediate enforceability order for the judgment.
- A summons for specified witnesses and experts to appear at the trial.
- A request for the court to compel the defendant to produce a document in their possession.
- A request for the court to request a document from another court, authority, or third party if the plaintiff can demonstrate that they are unable to produce it themselves.
Filing a lawsuit is subject to a court fee calculated in accordance with the Act on Court Costs in Civil Cases. Only in exceptional circumstances can the court exempt the plaintiff from these fees.
During the case, both parties have the right to examine witnesses, and experts and submit additional evidentiary motions and procedural documents. The court may only omit evidence in specific circumstances outlined in Article 2352 of the KPC, such as when the motion serves to prolong the proceedings or is irrelevant to proving a specific fact.
In the event of an unfavorable judgment, each party has the right to file an appeal within two weeks from the date of delivery of the judgment along with its reasoning.
The appellate proceedings are conducted before either a regional or an appellate court, depending on which court presided over the case in the first instance (with a threshold of 75,000 PLN as the determining factor).
Polish law does not require the mandatory involvement of a lawyer in legal proceedings (except for cases before the Supreme Court or an Administrative Court). This means that the plaintiff can file a lawsuit or an appeal on their own or entrust the handling of the case to a law firm. While the latter option may entail legal fees, it’s important to remember that legal disputes are complex, and navigating legal regulations requires professional knowledge, practical experience, and familiarity with judicial rulings and legal doctrine.
Furthermore, losing a legal dispute doesn’t just mean forfeiting the unpaid fee from the counterparty but often also entails the obligation to cover the opposing party’s legal costs.
Winning a legal case is not the end of the process. After obtaining an enforceable title (a judgment with an enforceable clause), the creditor must still file an application for enforcement, which a court-appointed bailiff will carry out. Even at this stage, the assistance of experienced lawyers can be crucial in minimizing the waiting time for receiving the funds.
Questions & answers
Claims arising from a construction contract are subject to the general rules of limitation rather than those specific to a contract for a particular work (dzieło). This means that the statute of limitations is calculated in accordance with Article 118 of the Civil Code. The limitation period is 3 years if the contract is between businesses (entrepreneurs) or 6 years if it concerns a relationship between a business (entrepreneur) and a consumer.
According to Article 6471 of the Civil Code, the contractor and the investor bear joint and several liabilities towards the subcontractor if, before commencing the work, the investor receives a detailed work schedule. The investor has the right to object to work assignment to a subcontractor within 30 days.
Based on Article 6491 of the Civil Code, the contractor can demand that the investor provide a guarantee for payment for construction work in the form of a bank or insurance guarantee, a bank letter of credit, or a bank guarantee. The contractor’s rights in this regard cannot be waived by agreement.