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Securing of syndicated financings in Poland (part two)

In the previous issue the author noted that due to particularities of Polish law (dating back to the beginning of the 20th century), securing of a multi-facility syndicated structure with Polish law governed security interests usually requires the use of special concepts such as parallel debt.

But what if the parties, for any reason whatsoever, decide not to use the parallel debt structure?

Security interests still based on the one claim – one security interest principle (such as civil pledge or financial pledge) will not be available. Fortunately, however, Polish law already has some concepts that can be of assistance in these situations: the pledge administrator available in relation to registered pledges and the mortgage administrator available in respect of mortgages. Although different when it comes to details, both models envisage appointment by all creditors whose claims are to be secured by a given security interest of one party that will hold the security on their behalf.

The concept of pledge administrator had already been introduced to the Polish legal system by the law on registered pledge and pledge registry when the law entered into force. Originally, though, its use was limited to securing of claims under loan or credit facilities only and even this provided that the loan or credit facility was jointly granted by the creditors whose claims were to be secured. Needless to say, the requirement of joint granting of the relevant loan or credit facility gave grounds to various doubts as to the construction of the term. In result, practical use of the concept was limited until it was substantially remodelled following the 2009 amendment to the law on registered pledge and pledge registry.

The concept of the pledge administrator may be employed to secure: (i) a claim owed to two or more creditors; (ii) two or more claims arising under agreements (and, although the law does not explicitly state it, it appears to be commonly accepted that such claims may be owed to two or more creditors) or; (iii) claims covered by an arrangement with creditors in insolvency or recovery proceedings. In order to take advantage of the concept, the creditors must authorise one of them in an agreement (or arrangement in insolvency or recovery proceedings) to secure by way of a registered pledge the claims of all those creditors and to exercise the rights and obligations of the pledgee for the account of those creditors. A model clause on appointment of a pledge administrator could read as follows:

For the purposes of the Polish law governed registered pledge, each Finance Party hereby appoints the Security Agent as the pledge administrator (administrator zastawu) within the meaning of Art. 4 Sec. 1 of the Act on Registered Pledge and Pledge Registry of 6 December 1996 (Journal of Laws of 2009, No 67, item 569, consolidated text, as amended), and authorises the Security Agent to secure through the establishment of the registered pledge(s) the receivables of the Finance Parties under the Finance Documents and to exercise on its own behalf but for the account of the Finance Parties all rights and obligations of a pledgee under the relevant registered pledge agreement(s) and applicable laws.

It is noteworthy that the pledge administrator must also be a creditor. Consequently, a third party (who in other jurisdictions could be appointed as the security trustee) may not act as the pledge administrator under Polish law. While this is not a critical issue, experience shows that this limitation of Polish law may potentially create issues in certain multi-jurisdictional transactions.

Borys D Sawicki

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