When Mortgage Encumbrances Fail to Shield Against the Actio Pauliana
In March 2025, a seven-judge panel of the Polish Supreme Court resolved a question that had divided Polish courts and legal scholars for nearly two decades. The central issue was deceptively straightforward: May a debtor successfully defend against an actio pauliana—the venerable creditor’s remedy against fraudulent conveyances—by demonstrating that the transferred immovable property was so encumbered by mortgages that the creditor could not have obtained satisfaction from it in any event? Resolution III CZP 9/24 definitively settled one of the most significant controversies in Polish obligations law of recent decades, fundamentally reorienting the doctrinal framework governing creditor protection.
I. The Underlying Dispute: A Family Transaction with Strategic Implications
The litigation that precipitated this landmark ruling arose from circumstances that, while prosaic in their origins, exemplified the sophisticated asset-protection strategies that had long frustrated creditors under the prevailing jurisprudential regime. B.M., a physician practicing in Wrocław, found herself in severe financial distress. Her indebtedness to a banking institution had reached approximately 840,000 Polish zlotys, and all of her immovable properties were encumbered by mortgages. In October 2013, anticipating imminent financial catastrophe, she conveyed one of her properties to her son, J.M., by way of donatio.
The donee, upon acquiring the property, undertook to service the maternal mortgage obligations—at least initially. When he ceased making payments in 2018, the mortgagee bank initiated enforcement proceedings. Separately, two of the mother’s personal creditors, A.S. and K.S., who had previously obtained a judgment against her exceeding half a million zlotys, sought to invoke the actio pauliana. They contended that the gratuitous transfer had been effected to their detriment as creditors.
J.M. interposed what had become a familiar defense: the property was encumbered by mortgages whose aggregate amount exceeded its market value. Even had his mother retained title, these unsecured creditors could never have obtained satisfaction from the asset. What purpose, then, would be served by declaring the donatio ineffective as against them?
II. The Jurisprudential Instability: Two Decades of Doctrinal Oscillation
The defendant’s argument found substantial support in established Supreme Court precedent. For nearly two decades, the dominant view had been articulated in the judgment of January 31, 2007, which held that a debtor cannot be deemed to have become insolvent “to a greater degree” where the creditor could not have obtained satisfaction from the subject matter of the impugned transaction regardless of whether the transfer occurred. The Supreme Court maintained this position as recently as 2017.
The first significant departure from this orthodoxy appeared in September 2021, when the Court observed that mere mortgage encumbrance does not automatically preclude a finding of creditor prejudice; rather, the tribunal must ascertain what secured obligation actually remained outstanding. The decisive doctrinal shift, however, occurred in June 2024, when the Supreme Court fundamentally altered course, holding that in assessing the prerequisite of creditor prejudice, courts should not inquire whether the particular creditor could realistically have obtained satisfaction from the subject matter of the challenged transaction.
This reorientation was not fortuitous. The judiciary had come to recognize that the prior interpretive framework facilitated systematic abuse.
III. The Interpretive Revolution: Resolution III CZP 9/24
The March 2025 resolution definitively resolved the controversy, effecting a fundamental transformation in the conceptualization of the actio pauliana. The seven-judge panel pronounced unequivocally: where a debtor alienates mortgaged immovable property, creditor prejudice obtains whenever the transaction resulted in the creation or enlargement of an excess of liabilities over assets in the debtor’s estate.
The critical doctrinal innovation lay in abandoning the individualized assessment of particular creditors’ prospects in favor of a systemic approach to the protection of creditors in globo. As the Court astutely observed, Article 527 § 2 of the Civil Code speaks of “prejudice to creditors” in the plural—and this grammatical choice is not without significance. The legislature focuses on the objective insolvency of the debtor, not on the manner in which such insolvency affects the satisfaction prospects of any specific creditor.
IV. The Termination of “Mortgage Gaming”
The reformed doctrine put an end to what the Supreme Court denominated the practice of “mortgage gaming” (gra hipotekami). Under the antecedent regime, debtors could effectively argue that alienation of over-encumbered property caused no cognizable harm to creditors, only to procure—after dismissal of the actio pauliana—the discharge or cancellation of the very mortgages that had grounded the defense. Equally problematic was the retention of mortgage registrations securing obligations that had already been satisfied.
The Court emphasized that proving such manipulations in actio pauliana proceedings was, at minimum, exceedingly difficult, whereas creditors typically possess superior instruments for assessing their realistic prospects of satisfaction than do courts adjudicating fraudulent conveyance claims.
V. Practical Ramifications of the Supreme Court’s Resolution
The interpretive reformation carries far-reaching implications for legal practice. First, it substantially strengthens the position of creditors in disputes with debtors who attempt to conceal assets from enforcement. The argument premised on excessive mortgage encumbrance ceases to function as a universal defensive shield.
Second, the resolution introduces enhanced legal certainty. Previously, courts were compelled to engage in complex prognostications concerning hypothetical future enforcement proceedings, evaluating whether the creditor could realistically have obtained satisfaction from a particular property. Henceforth, the inquiry is confined to whether the alienation of an asset resulted in a deterioration of the debtor’s financial position in balance-sheet terms.
Of considerable significance is the temporal rule established by the resolution: the existence of creditor prejudice is to be assessed as of the moment of the close of oral argument, not the date of the impugned transaction. This principle, grounded in Article 316 § 1 of the Code of Civil Procedure, may prove material in circumstances where the debtor’s financial situation has evolved during the pendency of litigation.
VI. Interpretive Challenges Under the New Framework
The reformed approach, while more systemically coherent, engenders certain practical difficulties. Adjudicators will now be required to analyze debtor balance sheets with greater precision, potentially necessitating expert testimony and sophisticated valuations. There also arises the question of threshold effects: will any deterioration in the debtor’s financial position, however marginal, suffice to sustain the actio pauliana?
Moreover, the resolution does not address all issues pertaining to mortgage encumbrances. Open questions remain regarding scenarios in which a portion of the secured obligations has been discharged while the mortgage registration persists in the land register, or cases involving joint mortgages (hipoteka łączna), where the secured creditor may elect from which of several properties to seek satisfaction.
VII. Prospective Considerations
The March resolution of the Supreme Court concludes nearly two decades of interpretive uncertainty regarding a significant institution of obligations law. It establishes an approach that is more systemically coherent and more resistant to abuse, albeit at the cost of somewhat increased evidentiary complexity.
The genuine test of the new framework, however, will come in the months and years ahead, as lower courts undertake to apply these principles to concrete fact patterns. The history of Polish jurisprudence demonstrates that even the most apparently pellucid Supreme Court resolutions may generate novel interpretive questions when confronted with the heterogeneity of real-world circumstances.
One conclusion, nevertheless, appears secure: the era in which mortgage encumbrance could serve as a universal shield against the actio pauliana has definitively concluded. This development represents salutary news for honest creditors—and unwelcome tidings for those who would exploit legal intricacies to evade the satisfaction of their obligations.
This analysis is based on Resolution III CZP 9/24 of the Polish Supreme Court, rendered by a seven-judge panel on March 19, 2025.
Robert Nogacki is a Polish attorney at law (radca prawny), the founder and managing partner of Kancelaria Prawna Skarbiec (Skarbiec Law Firm), which has operated continuously since 2006.
The law is equal for everyone, but the parties rarely are: on one side stands an organization with time, money, and lawyers, on the other a person with one business, one nest egg, and one life.
Clients rarely come to him with a legal problem. They come with a problem that also has a legal side: an audit that began with a single invoice, money entrusted to someone who has disappeared, a company that has to be passed on before it is too late. Most such matters are decided long before the first letter is written, in decisions made without asking and in deadlines nobody remembered. So he begins by asking how the client got here, not what the client should have done.
He advises entrepreneurs and families from more than a dozen countries, including those whose accounts the tax office has just seized and who do not know what to do tomorrow morning. He defends them in tax audits, customs and fiscal inspections, disputes with the tax authorities, and criminal tax proceedings. He represents victims of investment fraud and Ponzi schemes. He helps families set up family foundations and plan succession, so that a life’s work outlasts a single generation.
Not every case can be won. Every case can be run so that the client knows where they stand. Since 2006 he has represented the victims in the WGI case (Warszawska Grupa Inwestycyjna, the Warsaw Investment Group), one of the longest criminal cases in the history of the Polish financial market, because some things must not be left half finished, even when they take two decades. In the case of the collapsed cryptocurrency exchange Zonda (Zondacrypto, operated by BB Trade Estonia OÜ), he represents several hundred victims in the criminal investigation conducted by Poland’s National Prosecutor’s Office and in the Estonian bankruptcy proceedings.
Kancelaria Prawna Skarbiec is listed in the rankings of Poland’s largest tax advisory firms published by Dziennik Gazeta Prawna and Rzeczpospolita, and it is a four-time recipient (2015 to 2018) of the European Medal awarded by the Business Centre Club and the European Economic and Social Committee. Robert Nogacki publishes regularly, in the press and on the firm’s website, for people who have a problem rather than a law degree, because a legal opinion the client cannot understand protects only the lawyer.
He believes that the best legal advice is the kind that means the client never has to appear in court.
