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Changes in civil procedure

Recently, the President signed the Act of 11 August 2021 amending the Act – Code of Civil Procedure and certain other acts. What does the subsequent amendment of the Code of Civil Procedure provide for this time?

  1. Article 165 § 2 of the Code of Civil Procedure was modified, which indicates that the submission of a pleading in the form of registered mail in a Polish postal facility of a postal operator within the meaning of the Act of 23 November 2012. – Postal Law or in an establishment of an entity engaged in the delivery of correspondence on the territory of the European Union is equivalent to bringing it to court.
  2. Thus, currently, in order to comply with the deadline for filing a pleading an additional obligation must be fulfilled in the form of sending the letter by registered mail (previously an ordinary letter was sufficient). But it is enough to send the letter at any Polish postal operator (provided that it performs its activity on the basis of the Act of 23 November 2012. – Postal Law). However, such a requirement does not apply to posting of procedural writs in other European Union countries – obviously, entities operating there do not provide services under the Polish postal law. Thus, it will be sufficient to post a letter at an establishment of an entity engaged in the service of correspondence in the European Union – the choice of establishments will therefore be very wide.
  3. There have also been introduced changes in the proceedings by way of payment-order and writ-of-payment in such a way that Article 4802 has been given a new wording. The new wording of the provision allows the court to indicate in the order for payment a time limit other than 2 weeks and § 2 indicates in what cases the court should indicate in the order what the time limit should be. The time limit is:
    1) two weeks of the day of service of the order in the case of an order for payment issued under the writ of payment procedure if the order is to be served on the defendant in the country;
    2) one month as from the date of service of the order in the case of an order for payment issued under a writ of payment procedure if the defendant is to be served with the order outside the country in the territory of the European Union;
    3) one month from the date of service of the order in case of an order for payment issued under the order of payment procedure where the service of the order on the defendant is to take place in the territory of the European Union;
    4) three months from the date of service of the order, where service of the order is to take place outside the territory of the European Union.
  4. In addition, two new paragraphs 21 and 22 have been added in the wording, which allow for a change in the time limit for the performance indicated in the order for payment if, after the order for payment has been issued, it transpires that service of the order for payment is to take place in a place other than that originally indicated in the lawsuit.
  5. In the proceedings by writ of payment, article 485 has been amended, with a new wording of § 2, adding additional requirements for the issuance of an order for payment against a consumer in the form of presenting, together with the statement of claim, the agreement from which the claim secured by a bill of exchange arises, together with the bill of exchange declaration and appendices.  Additionally, in the content of the lawsuit against a natural person, it is necessary to include a statement whether the claim asserted in the slawsuit has arisen in connection with the agreement concluded with the consumer. As a consequence of this change, the new wording of § 4 indicates that if the original bill of exchange or cheque is not attached or the statement (new element) referred to in the fourth sentence of § 2 is not included in the body of the lawsuit, the presiding officer shall request the claimant to submit it under pain of the return of the lawsuit under article 130 of the Code of Civil Procedure. Another consequence of the addition of this declaration is the addition of § 5 which provides for the possibility to impose a fine on the claimant, his legal representative or his agent who, in bad faith or through lack of due diligence, has made a false statement that the claim asserted in the lawsuit did not arise from a contract concluded with a consumer.
  6. The above changes are a consequence of, inter alia, the judgment of the Court of Justice of the European Union, C-176/17 – Profi Credit Polska (OJ EU.C.408).
  7. The Act also amends the law on bills of exchange and the Act on court costs in civil cases.
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The creditor will not always recover the pre-litigation costs in excess of the flat rate

It is common practice in business transactions to use the services of professional debt collectors in order to avoid costly and lengthy court proceedings. The legislator, meeting the needs of entrepreneurs, made it possible to claim from debtors the costs of such services, pursuant to Art. 10 sec. 1 and 2 of the Act of March 8, 2013 on counteracting excessive delays in commercial transactions (ie. Journal of Laws of 2021, item 424). In the first place, the creditor, pursuant to Art. 10 sec. 1 creditor is entitled to a flat rate in the amount of the equivalent of 40, 70 or 100 euro, respectively. The flat rate is due by operation of law and without any additional actions on the part of the creditor. Flat rate claims are not a major subject of controversy in the jurisprudence of courts.

However, ambiguities arise with claims regarding the costs of recovery in excess of the statutory flat rate, the return of which may be demanded by the creditor pursuant to Art. 10 sec. 2 of the above-mentioned act. The key wording in par. 2 is the phrase “in reasonable amount”. This means that the creditor must meet certain conditions in order to be able to recover the incurred expenses in excess of the flat rate. First of all, it is a claim for damages (for example, the Supreme Court in the resolution of December 11, 2015, file number III CZP 94/15, and the District Court in Warsaw in the judgment of February 24, 2017, file number XXIII Ga 111 / 17), with all the consequences, so the creditor must prove the damage suffered, secondly, to prove the debtor’s guilt and the causal link between the debtor’s fault and the damage suffered by the creditor. Therefore, it is necessary to prove not only the fact of incurring costs, but also the legitimacy, i.e. both the amount and the fact that the costs were justified in the circumstances of a given case. Compliance with the above requirements often causes many problems for creditors and their attorneys. In one of the last cases of this type, in which our law firm represented the debtor, the court dismissed the creditor’s claim for reimbursement of pre-litigation costs in excess of the flat rate. The court rightly drew attention to several issues which the creditor failed to prove. First of all, the amount of the debt collector’s remuneration may not be arbitrarily determined by the creditor together with the debt collection company in percentage terms, the circumstances of a given case should be included in the calculation of the remuneration, including the duration of the debt collector’s operation, the scope of activities undertaken, and the difficulty of the case. Subsequently, the creditor should prove not only the fact of payment as a result of the actions of the debt collector, but also what actions the debtor undertook and whether they resulted in the payment of the debt by the debtor. The court also confirmed that activities such as sending a request for payment or contacting by phone fall within the scope of activities for which a flat rate is due, but they cannot be considered as extraordinary activities justifying the award of remuneration exceeding the flat rate – reference number of the case – X GC 294/21 judgment of 1 July 2021 in the District Court Poznań Stare Miasto in Poznań, 10th Commercial Division.  

In our practice we have had numerous cases, in which the courts refused to compensate creditors pursuant to Art. 10 sec. 2 of the Act of March 8, 2013 on counteracting excessive delays in commercial transactions, if these costs were not justified and were not properly demonstrated. It is also worth paying attention to another judgment, also issued by the Poznań Stare Miasto District Court, in which the Court indicated an additional circumstance limiting the possibility of seeking compensation above the lump sum, namely that the debt collector’s remuneration should not exceed half of the costs of a professional attorney’s remuneration for conducting a court case: “As a rule, it should be assumed that the costs of debt collection proceedings should be lower than the remuneration of a professional attorney for court proceedings. Initiating and conducting court proceedings requires a greater amount of work than taking standard actions in debt collection proceedings. In the case of a trial, apart from sending a request for payment or telephone contact with the debtor and a general substantive assessment of the merits of the request, it is also necessary to prepare a statement of claim. Of course, determining the amount of the reasonable costs of debt collection proceedings depends on the circumstances of a particular case. In the present case, the justified remuneration should amount to (…) PLN, that is about 50% of the costs of any possible court proceedings ”(reference number XII GC 1398/20). To sum up, debtors are not defenseless against unjustified claims related to pre-trial recovery costs. If the additional costs are not justified and duly proven, these claims can be effectively challenged.

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Appeal procedures in the new public procurement law

The provisions of the new Act on Public Procurement Law, in force since 1 January 2021, introduced changes in the area of legal remedies aimed at improving them, as well as making them more accessible. Although the new act has not introduced any revolution in the above scope, the changes made are very significant, in particular from the point of view of the contractor’s interest. Legal remedies continue to be an appeal to the President of the National Appeal Chamber and a complaint to the District Court in Warsaw – the Public Procurement Court. Additionally, the possibility of filing a cassation complaint with the Supreme Court has been introduced.   

According to the new act, a contractor, a competition participant or any other entity that has or had an interest in obtaining an order or an award in a competition and has suffered or may suffer damage as a result of an infringement of the act by the awarding authority is entitled to legal remedies. Another novelty is the extension of the circle of entities authorised to file legal remedies against the announcement initiating the contract award procedure or the announcement of the competition and the contract documents to include organisations on the list kept by the President of the Public Procurement Office (available here: https://www.uzp.gov.pl/kio/lista-organizacji-uprawnionych-do-wnoszenia-odwolan) and the Ombudsman for Small and Medium-Sized Enterprises.

The basic legal remedy is an appeal to the President of the National Appeal Chamber.  One of the most important changes is the extension of the catalogue of prerequisites enabling a contractor to lodge an appeal.  Pursuant to art. 513 of the new Public Procurement Law, an appeal can be lodged against:

1) the ordering party’s action incompatible with the provisions of the Act, undertaken in the procedure for the award of a contract, the conclusion of a framework agreement, a dynamic purchasing system, a system for qualifying contractors or a competition, including the draft provision of the agreement;

2) failure to act in the procedure for the award of a contract, conclusion of a framework agreement, dynamic purchasing system, contractor qualification system or design contest, to which the awarding entity was obliged pursuant to the Act;

3) failure to conduct a contract award procedure or organise a design contest on the basis of the Act, despite the fact that the contracting authority was obliged to do so.

Thus an appeal may be filed against any act or omission of the awarding authority. The value of the contract does not matter. This constitutes a significant novelty in relation to the previous act, where an appeal below the so-called EU thresholds was possible only against a specific catalogue of actions performed by the ordering party. Currently this catalogue has been extended to include all actions. The scope of the appeal also includes the ordering party’s omissions.  

Moreover, an appeal is available not only in procedures for the award of a public contract, but it has also been explicitly indicated that an appeal is available in procedures aimed at awarding a contract, i.e. for the conclusion of a framework agreement, in a dynamic purchasing system, in a system for qualifying contractors or in a competition. The possibility to lodge an appeal against a failure to act on the part of an awarding entity, as well as against a failure to conduct a procurement procedure or organise a competition has been clearly indicated. A contractor may also lodge an appeal against draft provisions of a contract, regardless of whether their non-compliance with regulations has a significant impact on the outcome of the procedure. Appeals can be filed against non-compliance with the provisions of the PPL Act, as well as with the provisions of the Civil Code applied pursuant to art. 8(1) of the PPL to actions taken by the awarding entity, contractor and participants in the procedure for the award of a contract or competition, as well as contracts in public procurement matters. In such cases the National Appeals Chamber may order the amendment of the draft contractual provisions or their removal. It cannot order the introduction of provisions of a specified content, but it can order the introduction of provisions of a specified type.  

Submissions in appeal proceedings shall be made in writing, in an electronic form or in an electronic form, with the proviso that an appeal and an accession to appeal proceedings made in an electronic form shall require a trusted signature.

Unlike the previous act, the lodging of an appeal does not affect the course of the tender validity period. The new provisions do not provide for suspension of the tender validity period.

The new act has introduced regulations concerning proxies in appeal proceedings. The previous regulations did not regulate this issue. The general rules of the Civil Code applied. According to the new wording of the act, an attorney or a legal counsel may be a representative in appeal proceedings, as well as a person who manages the property or interests of a party or participant of the proceedings and a person employed by a commission from a party or participant of the proceedings, if the subject matter of the case falls within the scope of the commission. Moreover, an employee of a legal person, an entrepreneur, including one without legal personality, or an entity without legal personality may also be an attorney. The above provisions are based on the provisions of the Code of Civil Procedure. The well-established position of doctrine and courts in this respect will be helpful in their interpretation.  It is worth emphasising that the rule is that an attorney at law or a legal adviser may be an attorney at law, which is a change in relation to the previous provisions.

In proceedings with a value above the EU thresholds, the principle of three-person panel review by the NAC has been reintroduced. The President of the National Appeal Chamber may appoint a one-person panel in less complex cases.

The new Public Procurement Law has a separate section devoted to evidence proceedings, which has been systematized and made more precise. Among other things, a decision has been introduced as a form of admitting evidence, issued both at a hearing and in closed session, and issues related to the appointment of experts and testimony of witnesses have been clarified.

As in the previous act, the rule is that in the case of an appeal the ordering party cannot conclude an agreement until a judgment or decision closing the appeal proceedings is announced by the Chamber. The new act added another situation in which the Chamber may waive the ban on concluding an agreement if the ordering party has made it probable that the appeal is brought with the sole purpose of preventing the conclusion of an agreement.

The rules of incurring the costs of proceedings have also been changed, introduced pursuant to the Regulation of the President of the Council of Ministers of 30 December 2020 on detailed types of costs of appeal proceedings, their settlement and the amount and manner of collecting the appeal fee. What is important, the issues of proportional bearing of the costs of appeal proceedings have been regulated. The NAC will divide the entry relatively, awarding respectively from the ordering party or participant in the appeal proceedings raising an objection in favour of the appellant an amount the height of which it will determine by calculating the proportion of the number of charges presented in the appeal, which the Chamber accepted, to the number of charges which the Chamber did not accept. It has also been specified that the NAC may, in justified cases, refrain from dividing the costs in a proportional manner, in particular if this is supported by the type of charges upheld by the NAC or their importance for resolving the appeal. This has an impact on the practice of constructing charges. On the grounds of the previous act, a significant multiplication of charges by contractors was observed, often without substantive justification.

To sum up, the changes introduced by the new Public Procurement Law are not only cosmetic in nature and systematize the existing provisions. In particular, the catalogue of prerequisites allowing a contractor to lodge an appeal will have a significant impact. This seems to meet the expectations of contractors, who in many situations were deprived of legal remedies. The positive impact of the changes is reflected in the increased number of proceedings before the National Chamber of Appeal observed after the Act came into force.

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Holding a general meeting of a housing cooperative in a stationary form during the COVID-19 epidemic

According to the current legislation, the obligatory body of a housing cooperative is, among others, the general meeting. By virtue of the Act of 2 March 2020 on special solutions related to preventing, counteracting and combating COVID-19, other infectious diseases and crisis situations caused by them, the deadline for holding general meetings in housing cooperatives was postponed, which, as a rule, were supposed to be  held by 30 June each year (Article 90 of the above-mentioned Act). Pursuant to the cited regulation, general meetings should be held within 6 weeks from the date of cancellation of an epidemic emergency or a state of epidemics. The changes introduced have led to a situation where some management boards of cooperatives interpret the provisions in such a way that they do not hold a general meeting because they comply with Article 90, which postpones the date of holding a general meeting. In other words, the boards believe that the general meeting should only be held once the state of the epidemic has ended.

The above view is not justified under the current legislation. Participation in a general meeting is a right of every member of a cooperative and a state of epidemics should not justify restricting this right.

There are two solutions for the legal holding of a general meeting. Firstly, during a state of emergency or epidemic the management board or supervisory board may order that a specific resolution be adopted by the general meeting either in writing or by means of direct remote communication. However, the main obstacle to holding general meetings in this form  are  worries of some of members of cooperatives about validity of meetings in such form  . Not without significance is also the lack of regulation in the current statutes or regulations concerning the course of meetings held in the remote format.

In such a case, the managers of cooperatives have the option of holding them in a traditional formula. When organising a general meeting, however, one should bear in mind the applicable epidemiological restrictions resulting primarily from the provisions of the Regulation of the Council of Ministers of 6 May 2021 on establishing certain restrictions, orders and prohibitions in connection with the occurrence of an epidemic (Journal of Laws of 2021, item 861). By introducing limits on the participants of meetings or assemblies, the legislator has restricted the possibility to hold meetings or assemblies in a traditional form. These restrictions also apply to general meetings of cooperatives.

The provisions of the Ordinance on the establishment of certain restrictions, orders and prohibitions in connection with the outbreak of an epidemic in § 26(15) indicate that:

– Until 31 August 2021, it is prohibited to organize and participate in assemblies other than those specified in paragraph 1 and paragraph 1a, including events, meetings and gatherings of any kind, except:

1) business and professional meetings or gatherings;

2) events and meetings of up to 25 persons which take place on the premises or in the building indicated as the address of the residence or stay of the person who organizes the event or meeting; the limit of persons does not include the person organizing the event or meeting and persons cohabiting or managing with him;

3) events and meetings of up to 150 persons which are held in the open air or on the premises or in a separate catering area of a sales hall, referred to in § 9(15)(2)

[§ 9(15)(2) concerning the conduct by entrepreneurs within the meaning of the provisions of the Act of 6 March 2018. – Entrepreneurs’ Law and by other entities the activity consisting in the preparation and serving of meals and beverages to guests seated at tables or to guests making their own choice of dishes from the displayed menu, consumed on the spot (included in the Polish Classification of Activities in subclass 56.10.A) and related to the consumption and serving of beverages (included in the Polish Classification of Activities in subclass 56.30.Z)];

4) gatherings, meetings or meetings related to the performance of tasks aimed at combating or preventing the spread of contagious animal diseases, including free-living (wild) animals.

It should be stated that in the period until 31 August 2021 it is possible to hold a general meeting provided that no more than 150 persons participate, it is held in the open air or in premises or a separate catering area belonging to an entrepreneur conducting food service activities. In addition, all participants should comply with the obligation to cover their mouths and noses.

The legislation in force as of the date of this information (16 August 2021) does not set limits for participants in assemblies or meetings held after 31 August 2021.

However, it cannot be ruled out that the legislator will decide to introduce new limits or maintain current limits also after this date. For this reason, it is essential to familiarize yourself with the current epidemiological restrictions each time before deciding to convene a general meeting.

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Opinion of the head of mayor on the consistency of the subdivision project with the zoning plan

The procedure for division of real property, regulated by the Act on Real Property Management, has been designed to remain consistent with the local zoning plan. The divisions themselves may not lead to circumvention of the provisions contained in the local plans. Most common disputes with authorities in regard to plot divisions are connected to minimum plot areas and  attempts to circumvent  the provisions on minimum plot area.  Importantly, in the absence of a local plan, the legislator has provided a separate set of  regulations on that matter, which will not be discussed in this article.

Article 93 of the Act on real estate management clearly indicates that a division of real estate may be made if it is consistent with the provisions of the local plan, and the consistency with the provisions of the plan concerns both the intended use of the land and the possibility of development of the separated land plots.  It is the consistency of the proposed division of real property with the provisions of the local plan (except for divisions which are made irrespective of the provisions of the plan) that is subject to the opinion of the mayor (hereinafter referred to as the head of the commune). The party requesting the division does not have to file a separate request for an opinion, as the opinion is a necessary stage of the division process, therefore the authority in charge of the case must ensure that such opinion is issued. Such an opinion is issued in the form of a decision which may be appealed against to the local government appeals board (org: samorządowe kolegium odwoławcze) and cannot be issued ‘separately’ from the division procedure. Thus it is not possible to request such an opinion before submitting the application for division, which the parties sometimes try to push through explaining that they want to “check whether it is worth initiating the procedure”.

In the decision itself the mayor specifies whether he assesses the proposed division “positively” or “negatively” – and in the justification of the decision, the mayor  is obliged to explain why the plots created as a result of the division can be  developed according to the local plan.

The administrative courts have repeatedly ruled on whether a decision giving an opinion is binding for the body performing the division. There is no doubt that it is binding. The Supreme Administrative Court – the “NSA” (judgment of 9 March 2018, ref: I OSK 946/16) indicates that ‘the authority approving the division of real property is bound by its opinion on the compliance of the proposed division with the local plan. This binding refers only to the fundamental issue which is subject to the opinion, and thus refers only to the compliance of the proposed division of real property with the provisions of the local plan”. The NSA further pointed out, however, that the body giving the opinion does not have a binding opinion on other substantive issues – therefore, if other obstacles to the division arise, a final refusal decision may be issued.

 It is worth bearing in mind that the opinion applies to the entire project of division – so if only a part of the proposed plots cannot be developed in accordance with the plan, a negative decision will be issued with respect to the entire project submitted for division. However, the applicant may change the project in accordance with the suggestions contained in the decision, in which case the authority will request a new opinion.

What if it turns out that the opinion was issued incorrectly and the authority has not yet issued its decision? The mayor cannot ex officio change the opinion, he/she may only request the local government board of appeals to initiate proceedings for its invalidity – if, of course, the conditions under Art. 155 of the Code of Administrative Procedure are met.

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Why should you consider setting up a limited liability company if the changes planned in the “Polish Deal” are implemented?

The announced program called the “Polish Deal” includes a proposal that entrepreneurs will pay a health insurance premium of 9% of their income, while the health insurance premium will not be tax deductible.

Such a significant change in the conditions of running a business will certainly affect the profitability of many enterprises in the country and is a good opportunity to rethink the form of business. According to the planned changes, the new higher health premium will be paid by entrepreneurs running sole entrepreneurships and partners in partnerships who are also treated as entrepreneurs.

In the event of the enactment and entry into force of new regulations, a change in the form of business activity may be considered in order to minimize the negative effects of this health contribution. One possibility is to run a business in the form of a limited liability company. In the case of this entity, if the company has more than one shareholder, and the share of the other shareholder is not symbolic (e.g. 1% to 5% of shares), the shareholders are not subject to the obligation to pay the health insurance premium. The management board of a limited liability company, if no employment contracts or contracts have been concluded with members of the management board, are also not subject to the obligatory health insurance contribution. The remuneration of the management board of a limited liability company, set out in the shareholders’ resolution, for performing functions in the management board is only subject to taxation under general rules.

The above means that in the event of the entry into force of the “Polish Deal”, the remuneration will be based on the tax-free amount of thirty thousand zlotys. In addition, this remuneration is settled according to the general tax scale, that is 17% and 32%, and the higher tax rate, in accordance with the proposed changes, will only apply to income above one hundred and twenty thousand zlotys. Summing up, the income from being member of the management board of a limited liability company, settled according to the tax scale up to the amount of PLN 120,000.00 per year, will be taxed at the rate of 17% and will be entitled to a tax-free amount, as well as to tax reliefs and joint settlement with the spouse. The remuneration of the management board is a tax-deductible cost for the limited liability company. The above option seems attractive compared to running a business unchanged, where the non-deductible 9% health insurance contribution will apply, the base flat tax rate is 19% and the lack of possibility to benefit from both reliefs and joint settlement with spouse. Additionally, it should be noted that the shareholders of the limited liability company and, partially, the management board are not liable with their private assets for the company’s obligations, so there is an additional benefit in the form of asset protection.

Considering converting a sole proprietorship into a limited liability company one should also take into account the fact that after the transformation itself, a one-person limited liability company will be created, with the transformed entrepreneur as the sole shareholder. In this form, the sole partner will be obliged to pay the health insurance premium. It will be necessary to carry out further actions, that is sell the shares to another entity, so that the company has at least two shareholders.

So how do you go from a sole proprietorship or partnership to a limited liability company?

Basically, there are two options: setting up a new limited liability company beside the entrepreneurship and then closing the business or partnership, or transforming the existing sole proprietorship partnership into a limited liability company.

Establishing a new company will be a reasonable solution only in the case if one’s conducting a small-scale business, having one contractor, limited business assets or a partnership. In such cases, the costs and time related to the transformation may be higher than registering a new entity, especially if we use the online registration of the company in the s24 system. In the event of establishing a new entity, it will be necessary to transfer the assets to the new entity and a possible assignment of contracts.

The second way to start a business in the form of a limited liability company is to transform existing activities. The undoubted advantage of using the transformation procedure is the fact that the limited liability company that will be created as a result of the transformation will be entitled to all the rights and obligations that the entrepreneur was previously entitled to. The company will automatically be a party to all contracts previously concluded by the entrepreneur, as well as all licenses and permits will be transferred to it. The law allows for transformation into a limited liability company of:
– sole proprietorship,
– civil law partnership,
– commercial partnerships (general partnership, limited partnership).

The conversion procedure differs quite significantly between a sole proprietorship and partnerships and civil law partnership, with a sole proprietorship being longer, more costly and more formalized.

Transformation of a sole proprietorship into a limited liability company requires the following actions:
– in the first place, the entrepreneur is obliged to prepare a transformation plan, which must be in the form of a notarial deed. The plan must obligatorily specify the carrying amount of the property of the transformed entrepreneur on a specific day in the month preceding the drawing up of the transformation plan. The Act indicates other necessary documents, which constitute attachments to the plan: draft of the entrepreneur’s declaration on the transformation, draft of the company’s memorandum of association, as well as the valuation of the company’s assets (assets and liabilities) and the report prepared for the purpose of the transformation on a specific day in the month preceding the date of preparation conversion plan;
– afterwards, the conversion plan with attachments is subject to an audit by a statutory auditor appointed by the registry court. The expert is obliged to examine the plan in terms of reliability and correctness within two months, and then submit an opinion to the registry court;
– after an opinion is submitted by a statutory auditor, the transforming entrepreneur submits, in the form of a notarial deed, a declaration of transformation into a capital company, the declaration should contain, in particular, the type of company into which the transformation takes place, the scope of personal rights granted to the entrepreneur as a shareholder in the newly established company, the amount of capital in the company, personal data of the management board;
– in the next stage, the entrepreneur signs the limited liability company contract and appoints the management board;
– the last step is to submit an application to the National Court Register and register the company, upon entry of the transformed company into the register, the entrepreneur is obliged to delete the activity from CeiDG (the registry for sole proprietorship and civil partnerships);
– The transformed company is also required to announce the transformation in public announcement. Upon transformation, the entrepreneur becomes the sole shareholder of the limited liability company, with the registration as limited liability company also the obligation to keep commercial books arises.

The process of transforming a civil law partnership or partnership contains the same elements, but is generally simpler and shorter. Pursuant to the amendment to the Commercial Companies Code of March 2020, the transformation of general partnerships and civil partnerships may take place in a simplified procedure, provided that all partners of the company handle its affairs. Simplified transformation requires the following steps:
– the first stage is the preparation of a resolution on transformation, which must be signed by all partners, the legislator resigned from the need to prepare a transformation plan and audit it by a statutory auditor;
– next, the only document determined by the legislator as necessary is the financial statement prepared for the purposes of the transformation;
– the last stage is signing the agreement of the transformed company and submitting the application to the registry court, conclusion of the limited liability company agreement requires the form of a notarial deed.

The simplified procedure allows to transformation of a general partnership or civil partnership in a much shorter time than the transformation of a sole proprietorship. The time needed for the transformation is shorter by approx. 2-3 months. Moreover, the cost of the procedure is significantly reduced as the audit by an auditor is one of the most significant costs when transforming a sole proprietorship. Transformation of an entrepreneur or partnership into a limited liability company unfortunately it does not come only with benefits. There are some drawbacks as running a business in the form of a limited liability company is subject to corporate income tax (CIT), the so-called full accounting, is mandatory. The above drawbacks might increase the day to day costs of running a business. It is also worth noting that the transformed entrepreneur is liable with personal assets for three years from the date of transformation. The decision to transform should be preceded by a comprehensive analysis of the potential benefits and risks related to the transformation.

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Extension of the term of office of housing cooperative’s governing bodies during the epidemic period

Pursuant to the Act on Housing Cooperatives, by default the management board should convene a general meeting at least once a year within 6 months after the end of the financial year. In practice this means that a general meeting of members should be held no later than June 30th each year. The date of holding a general meeting is often of significance for the moment when the term of office of members of the cooperative’s governing bodies, especially supervisory boards, ends. Often the statutes link the term of office with the moment the general meeting is held.

The provisions of the “Covidowa” Law (Law on Amendments to the Law on Special Arrangements for Preventing, Counteracting and Combating COVID-19) due to the state of epidemic extended the term of office of housing cooperative’s governing bodies. According to Article 90 of the cited Act, the deadline for convening a general meeting of a cooperative that falls during a state of epidemic or epidemic threat is extended. Therefore, the management board may postpone the convening of a general meeting for up to 6 weeks after the state is revoked.

In connection with the foregoing, the legislature also extended the term of office of members of housing cooperative’s governing bodies by enacting the provision of Article 90a according to which, “If the term of office of a cooperative’s supervisory board or board of directors expires during a state of epidemic emergency or a state of epidemic which is in effect on the day this Act comes into force or which is declared to be in effect immediately after the period in effect on the day this Act comes into force, it shall be extended until the date on which the first general meeting of the cooperative is convened within the period referred to in Article 90.”

A legal norm has been adopted that by law extends the term of office of the supervisory board or management board if the term of office has expired or will expire during a state of epidemic emergency or a state of epidemic. Some practitioners indicate that, as a result of this norm, the term of office of the members of the bodies has been extended until the expiration of the period indicated in Article 90 (i.e., 6 weeks after the cancellation of the epidemic state).

The above view is incorrect and does not deserve to be accepted.

It should be noted that the Act on Housing Cooperatives and analogously the “Covidava” Act set the maximum, limiting deadline for the management board to convene a general meeting which may also be held prior to this date.

There is no provision that would prohibit holding a general meeting during the state of an epidemic (only sanitary-epidemiological restrictions apply which may make it difficult or impossible to hold a meeting during such period).

Article 90a extends the term of office of supervisory boards, but only until the first general meeting is convened during the extended period (“the period referred to in Article 90”) in which a general meeting should be held. Thus, if the managemet board calls a general meeting of its members during the epidemic or up to six weeks after its cancellation, the term of office of the members of the governing bodies will be extended, but only until the general meeting is held. Article 90a does not provide that the term of office is extended until the end of the period referred to in Article 90, but only until the first general meeting is held during that period.

The same position was expressed by the Polish Revision Association of Housing Cooperatives  (“on the statutory extension of the term of office of the governing bodies of housing cooperatives and the possibility to convene a general meeting in a stationary format”).

In the opinion of the Association, the notion of convening the first general meeting within the deadline referred to in Article 90 should be understood as the first general meeting in a stationary format convened between the period from the entry into force of the Act of 19 June 2020 on interest subsidies for bank loans granted to entrepreneurs affected by the consequences of COVID-19 and on simplified proceedings for approval of the arrangement in connection with the occurrence of COVID-19, i.e. from 24 June 2020 to 6 weeks from the date of cessation of the state of epidemic threat or the state of epidemics. Thus, this term does not include the adoption of resolutions by the general meeting in writing or by means of direct remote communication.

In the opinion expressed by the Revision Association it was also pointed out that “if the first general meeting is convened within the deadline referred to in Article 90, the term of office of statutory bodies shall expire on the date of holding this general meeting, and consequently, members of the governing bodies of a new term of office should be elected at this general meeting.” The above regulation does not limit housing cooperatives in convening general meetings in a stationary format if the sanitary regime regulations concerning e.g. the limit of persons during meetings allow for it. To sum up, when convening a general meeting during an epidemic, one should remember to appoint members of the supervisory board if the statute binds the expiry of their term of office to holding a general meeting.  

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Design contest in the new public procurement law

The provisions of the new public procurement law, in force since 1 January 2021, introduced a number of modifications to the institution of the design contest, aimed at improving it and making it more widely used by contracting authorities.  The essence of the design contest remained unchanged. It is worth recalling that in accordance with the statutory definition, a design contest is a special form of a public promise, in which the contracting authority, by means of a public announcement, promises a reward for the execution and transfer of the right to the design contest work selected by the jury. It is important to note that a design contest is not a public procurement procedure, but a public promise of a prize, which may include, among other things, inviting the author of the work selected in a design contestto negotiate in single source procurement or to negotiate without an announcement.

The contracting authority can organise a design contest in order to select a creative work, concerning in particular spatial planning, urban design, architectural design, architectural and construction design, data processing, IT design, and an innovative project. The presented catalogue is not closed, but it makes it easier to specify the contracts to which the design contest may apply.  A novelty is the addition to the catalogue of “IT design” and “innovative project”.  The most important thing is that the design contest is held in order to select a work of creative character, thus having the character of a work in the understanding of the copyright law, to which the participant who submitted the selected work will transfer the author’s economic rights.

Unlike the previous act, which provided for the optional nature of the design contest, the current regulations introduced the obligatory principle, in a situation where the contracting authority intends to award a contract for architectural design or architectural and construction design services. There are three exceptions to this rule.  There is no obligation to hold a design contest if the contracting authority intends to award a contract for architectural design services or architectural and construction design services that has a negotiated element, i.e. in the form of negotiations with announcement, competitive dialogue, negotiations without announcement or single source procurement. There is also no need to hold a design contest for contracts of this type with values lower than the so-called EU thresholds – here it is worth noting that the value refers to design services, not the planned construction work (as the law stands, depending on the type of contracting authority, it is the equivalent of EUR 139,000 or EUR 214,000, i.e. PLN 593,433 or PLN 913,630). Moreover, a design contest does not have to be held if the subject of the procurement is a linear object within the meaning of the construction law – for example, a road construction project is such a procurement. It does not require creative solutions, and waiving the requirement for a design contest seems fully justified, particularly in the context of the length of potential proceedings. 

The award in a design contest is obligatory. It is a pecuniary or material prize awarded to the author(s) of the selected entries, or an invitation to the author(s) of the selected entries to negotiations with a view to providing a service based on the selected entry, or such an invitation along with a pecuniary or material prize. Under the previous act, the reward in the form of an invitation to negotiations could only lead to the detailed elaboration of a design contest entry, so the introduced change should protect against a situation in which the execution of a design services contract would be performed by an entity other than the winner of the design contest.

Another novelty introduced are two types of design contest procedures: an open design contest and a restricted design contest, in which, after verification of the subject of the design contest, only the participants invited to submit entries may submit entries. 

The staged nature of design contests has been retained. In a two-stage design contest, in the first stage, studies complying with the requirements laid down in the design contest regulations are selected. In the second stage, the jury evaluates the entries based on the studies submitted in the first stage, using the criteria specified in the design contest regulations. In a two-stage design contest, the Contracting Authority may also limit the number of participants who will be invited to the second stage of the design contest by applying all or some of the criteria for the evaluation of the entries as specified in the design contest Rules to the study designs.

A very important practical innovation is the possibility of inviting to negotiations, and thus concluding an agreement, with the participant whose entry received the second highest score. Such possibility can be provided for in the Rules and Regulations of the design contest in the event that negotiations conducted in the mode of single source procurement with the author of the selected entry do not lead to the conclusion of a public procurement agreement.

The provisions of the new act also introduced the limitation of the publicity of those design contest entries or stage studies, which were not awarded.

The above principles are the basic rules according to which a design contest should be conducted. Moreover, just as under the previous regulations, the contracting authority organizes the design contest on the basis of the rules and regulations, which contain detailed principles of the design contest, including the rights and obligations of the design contest participants. The provisions of the regulations are binding not only for the design contest participants, but also for the contracting authority, which has limited possibilities of making changes.  The act indicates the minimum scope of the regulations, which includes a description of the subject of the design contest, the detailed procedure of the design contest, requirements for participants, the composition of the jury, and legal protection measures.  A thorough familiarisation with the regulations is crucial for any possible participation in the design contest procedure. Also from the contracting authority’s point of view, it is extremely important to properly prepare the regulations, so that they meet the requirements of the Act and do not leave any doubts in the interpretation of their provisions. It is worth mentioning that, among other things, the recommendations of the president of the Public Procurement Office are prepared for this purpose with the participation of entities bringing together entrepreneurs active in the field of construction and architecture. This document, once established, may constitute useful guidelines for the ordering parties and interpretative guidelines for the participants. Draft available here:   https://www.uzp.gov.pl/strona-glowna/slider-aktualnosci/konkurs-po-nowemu-konsultacje-projektu-rekomendacji/konkurs-po-nowemu-konsultacje-projektu-rekomendacji.

It is worth reminding that the jury, which makes the evaluations, consists of at least three persons appointed by the contracting authority, whodo not have to be its employees, should have the knowledge and experience to evaluate the submitted entries, and if specific provisions require that they have the qualifications to develop a design contest entry, at least 1/3 of the jury members, including the chairman, should have the required qualifications.  

It should also be remembered that there are legal remedies in contests, which should be specified in the rules of procedure. The legal remedies are available to design contest participants, if they have or had an interest in obtaining a prize in a design contest and suffered or may suffer a loss as a result of an infringement of the Act by the ordering party.

To sum up, the changes introduced by the new public procurement law are not only cosmetic and systematic. It seems that conclusions have been drawn from the design contests held and the problems that have arisen there. Moreover, by making design contests obligatory to a certain extent, the legislator aims to increase their role, which is already visible in the practice of awarding contracts, particularly for architectural services.   

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Knowledge

Possibility for private owners to influence spatial planning

I.

At the outset, it should be emphasised that local spatial development plans shape the way in which the ownership right to real estate is exercised. Planning acts directly or indirectly affect the rights of individual owners by specifying the way in which land covered by the plan is to be used. In this way, by their actions in the sphere of public law, authorised local government bodies affect the rights of private owners. It is of utmost importance to ensure that the interests of the entities affected by the spatial development plan can be protected.

In the Act on spatial planning and development, the legislator ensured the possibility of active participation of the public in the work on the adoption or amendment of local spatial development plans. Ensuring broad participation of residents in the planning procedures is to foster a proper diagnosis of the needs and expectations of the residents, and a balancing of the interests of various entities. Openness and transparency of planning procedures should also serve this purpose. Article 1(3) of the Act on spatial planning and development directly implies the obligation to balance the public interest with the private interest when determining the purpose or manner of development and use of land. It should be noted that none of them is superior. In case law it is even indicated that the public interest has not been given primacy over the interest of an individual (II OSK 791/19 – judgment of the Supreme Administrative Court (NSA) of 25-11-2020).

Therefore, property owners have the opportunity to influence planning acts in principle at each stage of their adoption. Protection of their interests requires active participation in the planning procedure. The discussion of particular rights vested in the interested persons requires a brief introduction to the planning procedure.

II.

The procedure begins with adoption of a resolution by the municipal council on commencing the preparation of a plan. A draft resolution is prepared by the mayor of a municipality. In order to determine the purpose of the land and specify the manner of its management and development, the municipality council first adopts a resolution on the accession to the preparation of a local spatial development plan. First, however, the head of commune, the mayor or president of the city performs analyses concerning, inter alia, the legitimacy of the plan’s accession to preparation, prepares geodetic materials for preparation of the plan and determines the necessary scope of the planning works. Following the adoption of the aforementioned resolution by the municipal council, the executive body of the municipality (the head of the commune, the mayor or the president of the city) is obliged to undertake activities facilitating public participation in the planning procedure. To this end, it announces in the local press, by way of a notice and in the Public Information Bulletin, as well as in the customary manner adopted in the given municipality, about the adoption of the resolution to proceed with the preparation of the plan, specifying the form, place and deadline for the submission of applications to the plan, which should not be shorter than 21 days from the date of the announcement. The authority does not send to private owners the information about the commencement of the local plan procedure, therefore it is necessary to follow the announcements referred to in the previous sentence. Proposals to the plan within the specified deadline may be submitted by practically anyone, the Act does not contain any subjective restrictions in this respect. Therefore, any owner may, in any form, submit to the executive body their proposals concerning the plan under procedure.

The head of the commune, mayor (city president) is obliged to consider all applications to the plan. The Act does not require the reviewing authority to specify the manner in which the applications are to be incorporated into the plan, nor to provide justification for the rejection of the applications.  Each designation in the local spatial development plan of additional limitations on the exercise of the ownership right must be adequately justified in detail, professionally and credibly, therefore the lack of adequate justification for disregarding the applications or comments may constitute grounds for challenging the resolution adopting the local plan.

The next stage of the planning procedure is preparation of the draft local  plan by the mayor. At the stage of preparing the draft, the authority considers the applications received earlier. The draft plan contains both text and graphics and therefore a town planner is involved in its preparation.

The opportunity to influence the content of the local plan is given to the local community in the course of a public discussion on the solutions adopted in the draft plan, which should take place during the public examination of the draft. The Act does not contain a definition or further specification of the rules of holding a “public discussion”. Based on the literal wording of the provision of Art. 17 item 9 of the Act, it may be assumed that:

1) the discussion is organised by the head of commune, mayor (city president);

2) it takes place during the public inspection of the draft;

3) the subject of the discussion are to a large extent the solutions adopted in the draft local plan;

4) there are no restrictions as to the entities that may participate in the discussion (thus, the discussion may be attended by both the municipality inhabitants and non-residents, representatives of the communities, legal entities through their representatives, and public administration bodies and organisational units without legal personality through their representatives).

Legal and natural persons as well as organisational units without legal personality are entitled to submit comments on the draft local plan within the deadline specified in the announcement on public disclosure of the draft local plan. The mayor is obliged to consider the comments and may take them into account by amending the draft plan. The decision of the head of commune, mayor (city president) not to consider the applications to the local plan, as well as the comments on the draft plan, are not subject to appeal to the administrative court. If the municipal council finds it necessary to amend the draft local plan submitted for adoption, including as a result of taking into account the comments on the draft plan, it is obliged to partially repeat the procedure of preparing the plan.

III.

Persons whose comments on the project have not been taken into account in the course of the planning procedure may use another instrument, i.e. they may challenge the resolution adopting the local plan. Following the public discussion and consideration of comments on the project, the council of the municipality adopts by way of resolution the local plan or amends it. Based on the provision of Article 101 of the Act on Municipal Self-Government, “Anyone whose legal interest or right has been violated by a resolution or order made by a municipal body in a matter of public administration may challenge the resolution or order to an administrative court.” Thus, the above provision gives a legitimacy to persons whose requests and comments were not taken into account at the stage of the plan procedure to challenge the resolution adopting the local plan. Importantly, it does not follow from the provisions of the Act on Planning and Spatial Development that the inactivity of the owner of the real property covered by the draft plan and his failure to submit comments on the draft plan deprives him of the possibility to demonstrate that his legal interest has been violated by the plan’s provisions and to demonstrate that the violation occurred in excess of the planning authority. In other words, anyone whose legal interest was violated by a resolution adopting a local plan may challenge such resolution, regardless of whether they participated in the earlier stages of adopting the plan by submitting motions to the plan or by filing comments.

A condition for challenging a resolution on adopting or amending a local spatial development plan is that it violates an individual interest of a citizen. The judicature indicates that a complaint may only be filled by an entity that demonstrates its ownership right. Thus, in order to fill a complaint effectively, it is necessary for a party to demonstrate that as a result of adoption of a contested resolution, its specific legal interest or entitlement has been violated by limitation or deprivation of rights arising from its right. In other words, it is necessary to demonstrate that as a result of the adoption of the appealed resolution, a specific and current individual interest has been violated and to indicate the violation by a municipal body of a specific provision of substantive law, having a negative impact on the legal situation of the complainant.

IV.

Irrespective of challenging the resolution adopting the local spatial development plan and the possibility to make motions and comments in the course of the planning procedure, another legal remedy available to the owner whose interest has been violated by the adoption of or changes to the plan is the possibility to pursue claims for compensation for damage resulting from the adoption or changes to the local plan. In order to assert such claims it is necessary to meet strict conditions described below. Pursuing claims does not constitute a stage of the planning procedure, however their emergence is connected with the solutions adopted in the plan, and it is up to the interested party to decide whether to pursue such claims.

The issue of the financial effects of adopting or amending the local plan is regulated by Art. 36 par. 1 of the Act, under which if, in connection with the adoption of a local plan or its amendment, it has become impossible or substantially restricted for the owner or the perpetual usufructuary of the property to use the property or a part thereof in the manner or for its intended purpose, the owner or the perpetual usufructuary of the property may demand from the municipality

1) compensation for the actual damage incurred, or

2) to purchase the real estate or a part thereof.

The above claims may also be executed by way of the municipality offering the owner or perpetual usufructuary a substitute real estate (Article 36, paragraph 2).

Accordingly, if, in connection with the adoption of a local master plan or its amendment, it has become impossible or substantially restricted for the owner (perpetual usufructuary) to use the real property or a part thereof in the manner or for the purposes previously intended, the owner (perpetual usufructuary) is entitled to file a claim against the municipality for compensation or purchase of the real property. The municipality is obliged to execute the claim indicated by the entitled person. If he chooses compensation, he may effectively claim it for the damage he actually suffered (damnum emergens) and not for lost profits (lucrum cessans).

Claims for lack of possibility (limitation) of using a real estate in the same way as before, due to the adoption of a local plan or its change, are time-barred pursuant to the general rules under the Civil Code (see Article 118 of the Civil Code).

The second situation in which the owner has a claim against the municipality is when, following the adoption of the local plan or its change, the use of the property or its part in the existing manner (consistent with the existing purpose) is possible, but the value of the property is diminished. If, in connection with the enactment of the local plan or its amendment, the value of the real property is diminished and at the same time the owner (perpetual usufructuary) has not availed himself of the possibilities referred to in Article 36 (1) and (2) of the Act (i.e. it is possible to use the real property in the existing manner), the owner (perpetual usufructuary) may request from the municipality to pay compensation equal to the diminished value of the real property. Such compensation becomes payable as of the date of sale of the real property (date of conclusion of the sales agreement). Therefore, if the value of the real property is diminished as a result of enactment of the plan or plan amendment, but the owner (perpetual usufructor) does not sell the real property, the claim in question does not arise at all.

In such cases it is essential to obtain an opinion of a real estate valuation expert who will assess whether and in what amount compensation is due.

The following articles will be devoted to detailed discussion of, in turn:

1. principles, form and deadline for submitting applications and comments at the stage of plan procedure;

2. the premises and procedure of appealing against resolutions adopting or amending local plans;

3. pursuing claims for damages by owners related to change of the designation of real property.

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Knowledge

How to deal with excessively long payment terms?

The vast majority of entrepreneurs operating in Poland, especially from the SME sector, encounter the problem of excessively long payment terms. Extending payment terms is a common practice used by contracting parties, whether in construction services, transport or the supply of goods. Ordering parties often use contract templates with payment dates after 90 or 120 days. Often you can also find provisions extending the already long payment date by another month in the event of failure to comply with some minor formalities.

How to deal with such challenges? Since the beginning of 2020, the legislator has made available several tools that may be helpful. One of the amended regulations contained in the Act of March 8, 2013 on counteracting excessive delays in commercial transactions (ie Journal of Laws of 2021, item 424) is Art. 7 sec. 2a, which indicates that “The payment deadline specified in the contract may not exceed 60 days, counted from the date of delivery of the invoice or bill to the debtor, confirming the delivery of goods or the performance of a service, unless the parties expressly agree otherwise in the contract and provided that is not grossly unfair to the creditor, with the exception of paragraph 2a “. Wherein paragraph 2a applies to transactions where the debtor of the micro, small or medium-sized entrepreneur is a large entrepreneur. In such a situation, a large entrepreneur cannot set a payment period longer than 60 days. How to assess whether a contract clause is not grossly unfair indicated in Art. 11a of the Act, according to which, when assessing, the entirety of the circumstances of the case should be examined, in particular:

“1) flagrant departures from good commercial practices that violate the principle of good faith and the principle of fairness;

2) the nature of the goods or services that are the subject of the commercial transaction, in particular the time usually needed for the sale of the goods by the debtor to third parties, or

 3) adjusting the schedule for the delivery of goods or performance of the service in parts to the schedule of meeting the corresponding parts of the cash benefit. “

Translating the above general guidelines into the realities of business situation that were conducted by our Law Firm and in which the courts recognized payment terms longer than 60 days as violating the Act and, as a result, ruled that our Law Firm’s clients were entitled to payment after 60 days for the service provided, for example the following particular provisions were considered grossly unfair:

 – “the date of payment of the amount of a single freight set on (…), i.e. more than 3.5 months after the actual performance of the contract by the carrier meant that the carrier credited the defendant’s business activity, who could freely dispose the funds allocated to the payment of remuneration for the carrier during this period, when he had the remuneration paid by the entity ordering the transport ”;

– “the provisions (…) of the order, which authorized the defendant to extend the payment deadline by another 60 days in the case of any complaints or entries in the CMR document, – taking into account the behavior of the defendant who did not report any claims to the claimant related to transport – as gross unfair to the carrier (…) “and ” (…) the contractual provisions extending the payment period were grossly unfair to the creditor, and were contrary to the socio-economic purpose of the contract and the principles of social coexistence, and above all were objectively unjustified, taking into account the type of service and the duration of the contract (only 3 days elapsed between loading and unloading the goods). It should be noted that the approximately 4-month period for the payment of the unit freight amount de facto meant that the plaintiff was crediting the defendant’s business activity ”;

The cited opinions of the courts indicate that if the payment deadline is set for more than 60 days or is extended unilaterally by the debtor, such deadlines may most likely be considered grossly violating the creditor’s interest. In the event of a court dispute, it is the debtor who will have to prove that the special circumstances justified such a long payment period. This issue was also considered by the courts in cases conducted by the Law Firm, and as circumstances justifying the extension of the payment deadline, the courts indicated these might be, for example: “(…)the complexity of the order, the need to produce goods from unique elements as the basis for extending the payment deadline, and thus proving that the extended payment term will in no way infringe the interests of the creditor”.

Following the remarks of the courts presented above, it can be concluded that if the debtor has set a payment term longer than 60 days, it will not be relevant for the maturity of the creditor’s claim in most commonly concluded contracts in business transactions, and only in the case of atypical specific contracts, the deadline longer than 60 days will be justified. As a result, the creditor will be able to demand payment of the due amount already after 60 days from the date of delivery of the invoice or bill, even in the case of a payment deadline exceeding 60 days resulting from the contract between the parties. If the claim becomes due after 60 days, it will mean that the creditor will also be able to claim the lump sum costs of pre-trial debt collection after these 60 days.

The possibility of demanding payment from the debtor of the receivables after the statutory payment deadline and before the contractual deadline may contribute to the improvement of the creditor’s liquidity and avoid crediting contractors at his own expense.