Negative equity
This term refers to the law of the country selected below.
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What is negative equity?
Negative equity arises where, as a result of incurred and uncovered losses, an entity’s equity falls below zero. From a balance-sheet perspective, this generally means that liabilities and provisions for liabilities exceed the value of assets. However, the mere recognition of negative equity does not automatically mean insolvency within the meaning of the Polish Bankruptcy Law. For legal persons and organisational entities referred to in Article 11(2) of the Bankruptcy Law, the balance-sheet insolvency test is met where monetary liabilities exceed the value of assets for a period longer than 24 months, subject to the statutory exclusions. The Act also provides for a presumption based on balance-sheet data, but that presumption is not equivalent to the mere existence of negative equity.Insolvency is not assessed exclusively on the basis of annual financial statements. The assessment should take account of the debtor’s current asset and liquidity position and the rules set out in the Bankruptcy Law. Negative equity may also trigger corporate-law duties. In a limited liability company, the management board should promptly convene a shareholders’ meeting if the balance sheet shows a loss exceeding the aggregate of the supplementary and reserve capitals and one-half of the share capital. In a joint-stock company, the corresponding threshold is one-third of the share capital. Negative equity may also trigger corporate-law duties. In a limited liability company, the management board should promptly convene a shareholders’ meeting if the balance sheet shows a loss exceeding the aggregate of the supplementary and reserve capitals and one-half of the share capital. In a joint-stock company, the corresponding threshold is one-third of the share capital.
Legal basis: Article 11 of the Polish Bankruptcy Law; Articles 233 and 397 KSH; Article 5(2) of the Polish Accounting Act.
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