The Bond Act of 15 January 2015 will enter into force on 1 July 2015. Although it is a new law, for the most part it carries forward the regulations from the current law from 2005, with changes and additions where the need was revealed by the practice under the existing act.
The new solutions include an assembly of bondholders, SPVs as issuers of bonds, and new types of bonds, i.e. subordinated bonds and perpetual bonds. The new act also includes a number of changes (e.g. concerning issue terms and interest) which should eliminate doubts that arose under the old act.
Assembly of bondholders
A major new feature is introduction of the institution of the assembly of bondholders, whose key entitlement is modification of the terms of the issue. Under the old law, as there was no express prohibition of this approach, some issuers included provisions concerning the assembly of bondholders in the terms of issue. The new regulations provide a legal basis for the position of the assembly of bondholders, with uniform rules for appointment of the assembly, participation in the assembly, and adoption of resolutions.
Appointment of an assembly of bondholders is not mandatory, but will be decided upon by the issuer through a relevant provision in the terms of issue. The assembly may be legally authorised to amend the terms of issue with the issuer’s consent. A change in the terms of issue may also be made based on identical agreements between the issuer and each of the bondholders. The act provides for a right to challenge resolutions of the assembly of bondholders made in violation of law or against the interests of the bondholders.
This clarification of the legal aspects of the functioning of the assembly of bondholders should make bonds a more attractive investment vehicle by giving bondholders the right to exert influence over the activity of the issuer and to defend their own interests. Currently this right arises only when the issuer proposes the conditions for appointment and gathering of the assembly of bondholders.
SPVs as bond issuers
Companies established especially for the purpose of issuing bonds (SPVs) will be entitled to issue bonds under the new act. Under the current law doubts arose concerning which entities were eligible to issue bonds in Poland and whether a foreign issuer could be classified as an entity conducting business activity.
The new act clearly states that entities authorised to issue bonds include SPVs as well as foreign companies doing business outside Poland.
New types of bonds
The new types of bonds are subordinated bonds and perpetual bonds.
The essence of subordinated bonds, which generally cannot be secured, is that in the event of the bankruptcy of the issuer the claims under these bonds will be satisfied only after satisfaction of the claims under the issuer’s other bonds in accordance with the terms of their issue.
Perpetual bonds are bonds with no set maturity date, but only a specified obligation to pay interest. The principal under perpetual bonds becomes due and payable in the case of the issuer’s bankruptcy or liquidation or if the issuer defaults.
The regulation providing the issuer freedom to set the interest rate on bonds, which was repealed in 2005, has now been restored. This means that the interest rate on bonds may be higher than the statutory interest rate.
Poland’s new Bond Act also clearly states that the limitations period on claims under bonds, including interest claims, is 10 years. This eliminates doubts concerning whether interest claims were subject to the 3-year limitations period provided in the Civil Code for claims for periodic performance.
Danuta Pajewska, Capital Markets Practice and Financial Institutions Practice, Wardyński & Partners