On February 2, 2015, the President of the Republic of Poland signed a new law on bonds, which will come into force on July 1, 2015, replacing the Bond Act of  June 29, 1995. The purpose of the new law is to replace the existing regulations, which in practice did not take into account the real needs of the market and the dynamic changes in the capital markets. In practice, the problems associated with the use of the existing Bond Act could discourage issuers from issuing non-treasury bonds in accordance with Polish law, and the potential investors, to subscribe for them. The new law is based on the existing solutions, introducing a number of innovations, the lack of which considerably limited the development of the bond market. It also removes the ambiguity and doubts that have existed in relation to the application of the Bond Act being repealed.

The following are the most important changes:

1. Indication of entities having issuance capacity

The Law clearly determines that the entities that are entitled to issue bonds pursuant to Polish law (having issuance capacity) include foreign entities, i.e. legal persons conducting business activity, whose registered office is located outside Poland, and SPVs, i.e. legal persons established solely for the purpose of bond issuance. Among the entities entitled to issue bonds pursuant to Polish law are also regional or local authorities units of other EU member states.

2. Making the requirements related to bond issue more precise

A rule was adopted, pursuant to which preparation and making the terms of issue available will be necessary notwithstanding the form of issuance of bonds. In the case of bonds in the form of a document, it will have an impact on the simplification of the contents of bond documents. Additionally, the language, form and elements, including the information which must be included in the terms of issue, were specified.

3. Introduction of the institution of bondholders meeting

A bondholders meeting will be a facultative body that the issuer will be able to establish in the terms of issue. The Act specifies the competencies of the bondholders meeting in respect of changes of the terms of issue. The Act also stipulates the rules for operation of the creditors meeting, including but not limited to the convening and holding of the meetings, exercise of voting rights and appealing resolutions. Exclusion of or limitation in the terms of issue of the provisions of the Act specifying the competencies and rules for operation of the bondholders meeting will be prohibited.

4. Allaying doubts concerning admissibility of changing the terms of bond issue

The new Act clearly allows for changing the terms of the bond issue after the completion of the issue process. A change of the terms of bond issue will require a resolution of the bondholders meeting and the issuer’s approval. It will be possible to change the terms of issue also as a result of the issuer’s conclusion of identical agreements with each bondholder. The technical provisions of the terms of issue, which do not have an impact on the rights and obligations of the issuer and bondholders, can be unilaterally changed by the issuer. In practice, the bondholder’s making a change of an obligation under the bonds pursuant to a resolution of the bondholders meeting will be possible if the issuer decides in the terms of issue to establish such meeting.

5. Introduction of subordinate bonds

The issuance of a subordinate bond will also be possible, with certain limitations, by joint stock or limited liability companies (under the previous Bond Act, banks had this right). A characteristic feature of this type of bonds is subordination of claims thereunder – in the case of bankruptcy or liquidation of the issuer. The claims arising from the subordinate bonds will be satisfied after any other claims against the issuer, in the sequence specified in the terms of issue. The new Act excludes establishment of any securities of subordinate bonds.

6. Introduction of perpetual bonds

Perpetual bonds will not be in principle subject to the issuer’s buy-out, and therefore, there will be no specific buy-out date. The issuer’s payment to bondholders will comprise payment of interest. The issuer’s obligation to buy-out bonds will be replaced with a payment of permanent income (interest) to bondholders for an unspecified period of time. The bonds will lose the “perpetuity” attribute if the issuer is declared bankrupt or is liquidated.   

7. Introduction of the institution of security administrator

The Act introduces a possibility to appoint an administrator for the securities other than a mortgage or a registered pledge, in respect of which the administrator can be appointed under the existing regulations. The administrator will exercise the rights and obligations of the creditors on its own behalf; however, for the benefit of the bondholders. Conclusion of an agreement with an administrator will make it possible to establish securities before the commencement of a bond issue and to trade in the secured bonds without having to amend the agreements with the security providers in the event of a change of the bondholders.

8. Making the rules for limitation of bond claims more precise

Pursuant to the new Act, any claims arising from the bonds, including claims for the payment of interest, will become time barred after 10 years.