Contributed By Hogan Lovells (Warszawa) LLP
There are two major acts that regulate insolvency-related issues in Poland: the Bankruptcy Law of 28 February 2003 (referred to hereinafter as the 'Bankruptcy Law', and comprising the stated rules of declaring bankruptcy in relation to insolvent entities, with the assets and rights of the bankrupt entity comprising the so-called 'bankruptcy estate'), and the Restructuring Law of 15 May 2015 (referred to hereinafter as the 'Restructuring Law', and comprising the stated rules of initiating restructuring proceedings in relation to companies in distress, or threatened with insolvency). Both acts apply directly to companies and entrepreneurs that have their registered office or management (centre of main interest) located in Poland. Polish insolvency regulations can also apply to foreign entities that conduct their economic activity in Poland, or whose assets are located in Poland; in this case, Polish insolvency proceedings would apply as a secondary proceeding within the meaning of Regulation 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings. If a bankruptcy remote special purpose entity (SPE) established as an issuer for the purpose of a securitisation transaction is located outside Poland, the Polish insolvency regulations as such could apply supplementarily, mainly to its Polish assets and rights.
Securitisation deals in Poland are usually structured as 'true sale' transactions for the purpose of achieving bankruptcy remoteness, subject to certain limitations stated by the Bankruptcy Law and the Restructuring Law.
A transfer of receivables or rights (so-called 'assignment') differs from the transfer of assets (eg, in the form of a sale). However, most of the differences are not relevant from the perspective of securitisation. These transactions are based mostly on either receivables or financial assets. Therefore, the following document refers to the 'assignment' of receivables as a 'sale'.
In particular, certain types of actions performed by a bankrupt entity before the lapse of a relevant claw-back period can be declared ineffective (or are automatically declared ineffective), in accordance with claw-back provisions. The claw-back period is always counted back in time from the date of filing the petition for bankruptcy (similar claw-back periods generally apply to rehabilitation proceedings (postępowanie sanacyjne), one type of restructuring proceeding):
The following hardening periods (counted from the date of filing the declaration of bankruptcy) apply to any security interest, with the relevant action being ineffective vis-à-vis the insolvency estate (similar hardening periods generally apply to rehabilitation proceedings (postępowanie sanacyjne), one type of restructuring proceeding):
Additionally, after either the debtor is declared bankrupt or a restructuring proceeding is initiated in relation to it, its assets cannot be encumbered with any mortgage or pledge, nor be subject to any security assignment (transfer), except for the establishment of a mortgage if the application to enter the mortgage on a land and mortgage register has been filed with the court at least six months before the date of filing the application to declare the debtor insolvent or to initiate a restructuring proceeding, as applicable.
These risks are usually mitigated by performing legal and financial due diligence, setting up an SPE as an independent bankruptcy remote company with no organisational or capital ties to the originator, and ensuring that the sale of receivables in a securitisation is performed at a value that corresponds to their market value. Without the 'true sale' assignment of receivables, it would be virtually impossible to fully insulate securitised exposures from the financial risk of the originator.
True Sale vs Secured Loan
Traditional securitisations (ie, involving both economic benefits and a legal title to underlying transferred assets) are constructed in Poland as 'true sale' transactions. In order to be classified as such, these transactions need to meet the Polish law requirements for being considered as 'sales' of receivables and not as secured loans. Both sales (sprzedaż) and loans (pożyczka) are regulated under the Polish Civil Code as specific types of contracts (in relation to specific types of loans granted by Polish banks (kredyt), also under the Polish Banking Law). In the context of receivables, the main difference between these two types of contracts is that, under a sale, a seller is not obliged to repay or otherwise return to a purchaser the purchase price received in exchange for the disposed assets. In certain cases, a seller may have an option to repurchase the receivables, or be liable for any defects of disposed assets, which do not affect this general rule. To the contrary, a borrower's obligation to repay an amount at least equal to the amount of an utilised loan is an inherent component of any loan agreement under Polish law. Under a loan agreement, a lender has a direct claim to a borrower for the repayment of a loan. This right does not exist under a (properly carried out) sale agreement in relation to a purchase price, and consequently should not appear in any 'true sale' securitisation.
Protection for Transferred Assets
Receivables assigned in a properly structured 'true sale' securitisation are protected from the bankruptcy of an originating entity, subject to certain exceptions (discussed in more detail above). As explained, this means that a sale should be unconditional, so that an SPE, as the legal owner of the assignment receivables, is insulated from the financial condition and other assets of the seller in the further course of the transaction. Ultimately, other creditors, or the insolvency receiver of the originating entity, would not be able to effectively access and claw-back the assigned receivables from the SPE. The SPE would be able to claim for and retain all cash flows under the assigned receivables from debtors (except for certain other risks related to day-to-day servicing, etc).
The same receivables used as collateral for a secured loan would also be exposed to legal risks, although different in nature. In accordance with the Bankruptcy Law, certain hardening periods would also apply to both the process of granting a secured loan and the perfection of any related security interest, including a fiduciary transfer of ownership of receivables (security assignment). Moreover, even though formally assigned to a creditor, these receivables would still be subject to the provisions of the Bankruptcy Law and the Restructuring Law that still apply to receivables of a bankrupt entity, assigned solely for the sake of security (as in the case of pledged receivables). Consequently, these assigned receivables would not be fully insulated for the bankruptcy estate of the originating entity.
As mentioned, a true sale situates disposed assets outside the bankruptcy estate of the originating entity, if properly structured. The legal title to receivables that are the subject of a true sale is transferred from the originating entity to an SPE, and the insolvency receiver of the originating entity would not have access to these receivables.
Under a secured loan, the situation depends on the type of security interest established over the assets of the borrower. Certain types of security interest, such as the fiduciary transfer of ownership, can give a lender bankruptcy remoteness to a similar extent as a true sale, although, as mentioned above, certain provisions of the Bankruptcy Law would still apply, eg, with regard to claim notification procedures to bankruptcy courts, and the sale and application of proceeds of bankrupt enterprises that comprised the fiduciary assigned assets. The applicable provision of the Bankruptcy Law is quite general in this respect, so it is difficult to specify the exact scope of its application, which varies on a case-by-case basis.
Other security interests, such as registered or financial pledges, allow a secured creditor to enforce pledged assets in an out-of court manner, in particular by way of seizure of the pledged assets on terms that are set out in an underlying agreement, and to satisfy its claims without participating in bankruptcy proceedings. Finally, certain types of security interest can only give a lender a privileged position in the distribution of the proceeds, ahead of the non-secured creditors or creditors whose security interest has a lower ranking.
The other difference under the Polish insolvency laws between a true sale and a secured loan is that a secured loan creates a receivable that participates in the insolvency proceedings of the borrower, being in certain circumstances exposed to reduction, moratorium, arrangement, or other similar events.
Obtaining Legal Opinion
It is common market practice to obtain the opinion of legal counsel in a securitisation transaction, to support the true sale effect of the transfer of receivables and to confirm the bankruptcy remoteness of the acquisition of receivables by an SPE. This legal opinion should be limited to the general rules of insolvency and restructuring regulations (discussed above), under which any disposal of assets can be challenged if made against an incomparably lower equivalent, or harmful to other creditors. If the rights of the originating entity to repurchase the securitised receivables are too extensive, the legal counsel might request additional qualifications in Polish law opinions. However, a true sale is usually understood as a disposal of receivables that sufficiently protects them from other creditors and the insolvency receiver of the originator. Originating banks that would like to achieve a capital relief effect on the transaction by way of a significant risk transfer require the opinion of a qualified legal counsel to confirm that the securitised exposures are put beyond the reach of the originator and its creditors, in accordance with Regulation (EU) 2017/2401 of the European Parliament and of the Council, amending Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms (the CRR).
If the assignor is declared bankrupt, the Polish Bankruptcy Law clearly states that the assignment of a future receivable is not effective vis-à-vis the bankrupt estate if the receivable originates from a date after the declaration of bankruptcy, unless the assignment agreement was executed in writing with a certified date at least six months prior to the declaration of bankruptcy.
Also, apart from the bankruptcy claw-back periods (as mentioned above), Polish law recognises a separate five-year claw-back period for transactions made to the detriment of creditors, calculated from the date of the execution of such transaction. A creditor of an originating entity can challenge any action made by this entity within this claw-back period (including the disposal of receivables), if it was carried out in a manner harmful to its other creditors. The bankruptcy receiver of an originating entity has a similar right. A “legal action carried out in a manner harmful to other creditors” is defined under Polish law as any action resulting in the insolvency of an entity, or in an increase in the level of its insolvency. That said, creditors of an originating entity, as well as a bankruptcy receiver, are authorised to challenge the effectiveness of the sale of receivables by an originating entity to an SPE if the originating entity was aware of the detrimental effect of the sale of receivables on the position of its other creditors (including future creditors), and the SPE was or should have been aware of this detrimental effect. There is a risk that the SPE would be deemed to have this knowledge because of its permanent commercial links with the bankrupt originator created by the sale of receivables (in particular where the sales are repeated during a revolving period) and their subsequent servicing by the originator.
Commonly, bankruptcy remote SPEs are used to insulate transferred assets from the financial risk of an originator.
Trusts or similar entities (commonly used for securitisation transactions carried out abroad) are not recognised under Polish law. A limited liability company (pol. spółka z ograniczoną odpowiedzialnością) is the usual legal form used as an SPE for issuing purposes in securitisations in Poland, established as an orphan company owned by a non-profit special entity, such as a stichting registered and operating under Dutch law in the Netherlands. There are no separate licence requirements for a Polish SPE to serve as an issuing entity for securitisation purposes, and no banking licence is required for an SPE to be used to securitise banking receivables.
An SPE can also be registered outside Poland; the most common choice of location is Ireland, although Luxembourg is often considered as well.
The Regulation (EU) 2017/2402 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation ("Securitisation Regulation") which applies in Poland from 2019, provides for certain requirements which should be fulfilled by an SPE used in a securitisation transaction (defined in the Securitisation Regulation a "securitisation special purpose entity"). Pursuant to the Securitisation Regulation an SPE should be a corporation, trust or other entity, other than an originator or sponsor, established for the purpose of carrying put one or more securitisations. The activities of the SPE should be limited to those appropriate to accomplishing the securitisation for which it has been established and its structure should allow isolating the obligations of the SPE from those of the originator. An SPE should not be established in a third country (i.e. not being a EU-country) which is listed as a high-risk and non-cooperative jurisdiction by the Financial Action Task Force (FATF) and/or it has not signed an agreement with a Member State to ensure that that third country fully complies with the standards provided for the OECD Model Tax Convention on Income and on Capital or in the OECD Model Agreement on the Exchange of Information on Tax Matters, and ensure an effective exchange of information on tax matters, including any multilateral tax agreements.
EU and Polish law also envisage certain requirements in relation to the transfer of insurance or reinsurance risk. Though the Polish Act of 11 September 2015 on insurance and reinsurance activity ("IRAA") does not use the word "securitisation", in connection with the implementation of Solvency II, the IRAA introduced the institution of a special purpose vehicle which operational model generally seems to be similar to the mechanism usually occurring in cases of securitisation.
According to the IRAA, a special purpose vehicle is an undertaking, other than an insurance company or a reinsurance company, which assumes risks from an insurance company or reinsurance company and which fully funds its exposure to such risks through the proceeds of a debt securities issuance or any other financing mechanism where the repayment rights of the providers of such debt or financing mechanism are subordinated to the reinsurance obligations of such an undertaking.
The activity of a special purpose vehicle as defined in the IRAA and Solvency II is, in a way, similar to reinsurance activity (taking over the risk of an insurance company or reinsurance company). At the same time, the model of activity of a special purpose vehicle as results from these regulations seems to be similar to the mechanism usually occurring in cases of securitisation. An insurance company or reinsurance company transfers certain risks to a special purpose vehicle, and then the special purpose vehicle finances these risks using appropriate financial instruments.
A permit for pursuing activity by a special purpose vehicle on the territory of the Republic of Poland shall be issued by the Polish Financial Supervision Authority (pol. Komisja Nadzoru Finansowego - KNF), after it has examined the application of the promoters of the special purpose vehicle.
In accordance with the relevant provisions of the IRAA, KNF can withdraw the permit to pursue activity which was granted to a special purpose vehicle, e.g. in the case where the special purpose vehicle has been pursuing the activity in violation of the provisions of law, or has failed to ensure the ability of fulfilling its obligations, or has ceased to meet the conditions required for obtaining the permit.
The other legal form of an SPE that can be used as an issuing entity is a Polish securitisation fund, which is a special type of closed-end Alternative Investment Fund ("AIF") supervised by KNF whose main purpose is to issue certificates for pecuniary contributions from investors in order to purchase the receivables or rights to the receivables for the collected monies, regulated under the Polish Act of 27 May 2004 on Investment Funds and the Management of Alternative Investment Funds, and the relevant EU regulations on AIFs and AIF managers,.
A securitisation AIF can only be established by a licensed and regulated AIF manager (towarzystwo funduszy inwestycyjnych) that is economically and legally separate from the managed AIF. However, the establishment of a securitisation AIF in Poland does not require a prior approval of any regulatory authority, unless the AIF intends to offer its securities to the public or apply for admission to trading on a regulated market or alternative trading system.
In general, securitisation AIFs are managed and represented by AIF managers. An AIF manager can also outsource the servicing of receivables owned by the AIF to an external servicer that has obtained approval from the KNF for servicing receivables belonging to securitisation AIFs.
Investors using securitisation AIFs as investment vehicles can invest in two ways:
The business activity of securitisation AIFs is strictly regulated by applicable law. Unlike SPEs established as limited liability companies, AIFs have a limited scope of eligible assets that can be purchased. In principle, apart from receivables, securitisation AIFs can only invest in debt securities, money market investment funds units, bank deposits, money market instruments and derivatives (only in order to hedge against investment risks). The exact investment limits imposed on securitisation AIFs differ according to the type of securitisation AIF.
Polish law envisages two forms of securitisation AIF: a standardised securitisation AIF, and a non-standardised securitisation AIF. Standardised securitisation AIFs have stricter investment policy and regulatory requirements imposed by the law.
As a general rule, a standardised securitisation AIF is required to invest at least 75% of the asset value exclusively in a single pool of receivables; the main purpose for this strict regulation is to assure the investors that the assets of the AIF will only be invested in a single class of receivables. The other 25% of the asset value can be invested in the financial instruments listed above. However, the statute of a securitisation AIF can state certain exemptions from this rule.
Investment certificates issued by standardised AIFs can be offered to legal entities, entities that are not legal persons but have legal capacity, and natural persons – only if the aggregated value of the investment certificates purchased for the first time is equal to at least EUR40,000 (unless the certificate is subject to public offerings or an admission to trading on a regulated market or alternative trading system).
Non-standardised AIFs can allocate the assets under less rigorous conditions. Unlike standardised AIFs, they are allowed to invest in various pools of assets without meeting additional criteria, but only if at least 75% of the assets are invested in receivables provided in the articles or in debt securities (however, debt securities cannot constitute more than 25% of the net asset value of the AIF).
Notwithstanding the above, both in the case of the standardised and non-standardised AIFs, their maximum exposure towards a single entity cannot exceed 20% of their asset value.
Investment certificates issued by non-standardised AIFs can be offered to legal entities, entities that are not legal persons but have legal capacity, and natural persons – only if the face value of a single certificate issued by the AIF is equal to at least EUR40,000.
Securitisation AIFs are subject to supervision by the AIFs' depositary, which is usually an external and independent credit institution, or an investment firm. The depositary is responsible for the assets held in custody, and is required to supervise and monitor the AIFs' activity in relation to the correctness of the process of the valuation of the AIFs assets, the correctness of the process of the valuation of the shares in the AIFs as held by the investors, and the AIFs' cash flows.
In practice, securitisation AIFs are used in transactions securitising non-performing loans originated by banks, since the disposal of non-performing loans to any entity other than a securitisation AIF does not allow an originating bank to achieve tax benefits.
There are no specific requirements for a Polish SPE in the form of a limited liability company. It can conduct activities on a minimum share capital (currently PLN5,000), with one executive member and one shareholder. A limited liability company is created by the execution of its articles of association in the form of a notarial act and its subsequent registration in the register of commercial companies as maintained by Polish registry courts. Corporate bodies of a limited liability company comprise executive member(s) and a shareholders’ meeting (a supervisory board is an optional body, usually not appointed for SPEs). It is common practice for already existing, dormant companies to be used in securitisation transactions. These dormant companies are managed by entities delivering professional corporate services, including management services.
There are special requirements for an SPE to be an issuing entity if the originating entity is a Polish bank. In accordance to the Polish Banking Law, an SPE cannot be linked to the bank-originator by means of equity (eg, it cannot be its affiliate or subsidiary) or organisation (eg, it cannot be managed by the bank-originator). In addition, the activities of an SPE must be limited to carrying out securitisation, comprising the acquisition of receivables, the issue of securities based on these receivables, and supportive activities. The scope of activities of this SPE must be limited under its articles of association (statute). The above rule, as stated under the Polish Banking Law, also applies to SPEs incorporated outside Poland, if a Polish bank is the originator.
The Polish insolvency regime does not recognise the concept of the consolidation of parent and affiliates for the purpose of insolvency or bankruptcy proceedings. There is no such term as the "Substantive Consolidation" of the indebtedness and other assets and liabilities. Consequently, the insolvency of a Polish originating entity would not have any impact on the financial standing of an SPE, although, in each case, an SPE is placed as a company with no links with the originator other than the contractual links created under the transaction documents.
It is standard practice for a legal opinion of an external counsel to support the bankruptcy remoteness of an SPE in a securitisation transaction. The Bankruptcy Law does not state any possibility for the insolvency consolidation of an SPE with the originating entity, its parents, or affiliates. If an SPE is located in Poland and, as such, is subject to Polish insolvency regime, the Polish law legal opinion confirms its bankruptcy remoteness and does not state any material qualifications to that effect.
Polish law provides some rules on abuse of control by the only shareholder. However, due to the fact that an SPE is usually owned by a professional and passive entity, this is not particularly relevant.
In general, financial assets (receivables) are transferred in a manner similar to other receivables, ie, by way of an assignment agreement.
Under Polish law, the legal relationship between a creditor and a debtor usually consists of two mirror-like elements: a receivable (asset) and an obligation (debt). Generally, in securitisation transactions, only the originator’s “receivable” component is subject to being transferred to an SPE in order to serve as the base for the financing of the SPE.
In accordance to the Polish Civil Code, by transferring a receivable, an assignor also transfers other rights and claims that are connected or ancillary to such receivable, including any interest.
Financial assets are usually freely transferable. In accordance to Polish law, each receivable can be transferred by its creditor to any third party, unless this transfer is contrary to the law or a contractual stipulation, or would be against the nature of an obligation (this concerns pre-emption rights, alimonies, salaries from work contracts, or personal easements).
Polish law does not recognise a general assignment, which means that the assignment can only refer to individual receivables, and not to the portfolio of receivables; however, the transfer of all receivables comprising the portfolio can be documented under one agreement.
The transfer of receivables is effective (ie, the legal title to the receivables is acquired by the assignee) upon the execution of an assignment agreement, unless the parties agree on a different effective date (please see below for certain exceptions). An assignment agreement can be executed in any legal form, although the Civil Code requires that an assignment agreement must be executed in written form if the receivable being assigned is evidenced in writing.
Certain receivables are not automatically transferred and require additional action in order to be perfected. This particularly applies to receivables secured by a charge over real estate (hipoteka, commonly translated into the English language as a "mortgage"). The transfer of a receivable secured by a mortgage is only perfected upon the registration of the assignee in the land and mortgage register maintained by the Polish courts for the underlying real estate. The registration must be carried out for each receivable separately (ie, should a pool of receivables is sold, the application for these registrations have to be made separately for each receivable), which takes a great deal of time (usually a few weeks) and is the main obstacle to the securitisation of mortgage loans in Poland.
Requirements for Transfers in a "True Sale" vs a Secured Loan
A true sale is not regulated in Polish law as a specific type of sale, different from other sale transactions. In order to reach a true sale effect, the assignment of a receivable in accordance to the sale agreement must be definite and should be performed for a consideration (purchase price).
A sale agreement, including an agreement which is to be considered a true sale, must contain at least the basic elements for any sale transaction, which are the definition of the object of the sale, and the purchase price, according to the Polish Civil Code. A sale agreement can be affected by a lack of either of these two necessary elements, including by its own invalidity in certain cases.
The transfer of receivables by way of a security (ie, to secure a loan) is not a sale; it constitutes a fiduciary transfer for security reasons only. It is also effected under an assignment agreement, which should be executed in written form for receivables documented in writing, but should always state a conditional reverse transfer of assets upon the secured loan being repaid. This reverse transfer can be automatic, or can require the execution of a reassignment agreement.
Other than that, the transfer of receivables under true sale and fiduciary transfer are similar.
Differences in Rights
As explained above, a true sale is not regulated under Polish law as a specific type of sale. Consequently, each and every sale agreement is formally considered as a true sale, unless it is evidenced otherwise (please see above in this respect). In the latter case, there is a material legal risk that such a sale would be rendered invalid and ineffective, to the extent that the statutory timeframes for filing these objections are observed (in particular in the course of bankruptcy proceeding, to the extent statutory hardening periods apply).
Polish law lists other types of securitisation transactions, named sub-participations. Similar to synthetic securitisation, sub-participation securitisation does not involve the assignment (sale) of receivables. Instead, in accordance with a sub-participation agreement, an originator is obliged to shift all cashflows from a particular receivable, or pool of receivables, to a securitisation AIF (and not to any other entity).
Unlike in other types of securitisation, the payment of the price for any “rights to cashflows” cannot be deferred. A sub-participation can only be performed with a securitisation AIF, as only securitisation AIFs are placed in a bankruptcy remote position by Polish law, in the case of an originator's bankruptcy. In the latter case, the receivables that generate cashflows that were “sold” in accordance to a sub-participation agreement will not constitute part of the originator’s bankruptcy estate. Instead, it is the securitisation AIF that will assume all of the rights arising under these receivables and related security interest. Sub-participations are a somewhat theoretical option for an alternative structure of securitisation transaction in Poland, and are very rare in the market.
One of the key Polish tax aspects that has to be analysed in all transactions concerning securitisation of receivables implemented by Polish originators relates to the implications of the VAT and Civil Law Transaction Tax (CLTT), a type of transfer tax, on the sale of the receivables to an SPE (which is either a special purpose company or a securitisation fund).
According to the CLTT Law, the sale of property rights (such as receivables) is subject to 1% CLTT on the market value of the property rights, payable by the purchaser, if the transaction concerns property rights exercised in Poland, or property rights exercised outside Poland if the purchaser is a Polish entity and the purchase agreement is signed in Poland.
Nevertheless, according to the specific rules in the CLTT Law, no CLTT payment obligation arises if the sale of the receivables is treated as a service for VAT purposes (regardless of whether the VAT is actually payable on it, or if the transaction is VAT-exempt).
According to the position currently adopted by the Polish tax authorities, the securitisation of receivables should be classified as a VAT-exempt financial service rendered by an SPE (ie, the purchaser of the receivables) to the originator (seller).
In order for the securitisation to be treated as a (VAT-exempt) service for Polish VAT purposes, it must include some kind of consideration payable to the SPE for entering into the transaction and for providing financing to the originator (as a result of the purchase of the receivables). Otherwise, the transaction would remain outside the VAT system (which could trigger a CLTT payment obligation).
It should be noted that there are also a number of other arguments used by practitioners to exclude the 1% Polish CLTT on the sale of receivables. In particular, in certain tax rulings issued on securitisation transactions, the tax authorities have stated that the transaction was a specific transaction not listed in the CLTT Law and therefore was not subject to this burden.
The implications of the securitisation of receivables from an income tax perspective depend on several factors, with the most important being the type of originator, the nature of the receivables, and the type and location of the SPE purchasing the receivables.
Generally, if the SPE is located outside Poland, Polish income tax would not apply to the income derived by this entity from the financial assets acquired. However, in this case, Polish withholding tax issues should be taken into account (discussed in 2.3 Taxes on Transfers Crossing Borders,below).
If SPE is located in Poland, the collections received from the acquired receivables will constitute taxable revenue for this entity. On the other hand, it will be entitled to deduct the purchase price paid for the receivables as a tax cost. Any income derived by the SPE (ie, taxable revenue less tax costs) will be subject to 19% income tax in Poland.
It should be noted that if the Polish SPE participating in the transaction is a securitisation fund, it will be exempt from income tax on all of its income, because all Polish investment funds, including securitisation funds, are exempt from Polish corporate income tax, except for income of closed-end funds derived from tax-transparent entities. Tax emption also applies to investment funds located in other EU or EEA countries, should the fund meet certain conditions specified under Polish law.
In the vast majority of securitisation transactions, Polish withholding tax implications are among the most important. They can relate to the transfer of collections in the case of a foreign SPE participating in a transaction, or to interest payable by a Polish SPE to a foreign investor for the financing provided under the notes (issued by the SPE), or senior loans (granted to a Polish SPE).
As a result, the withholding tax aspects need detailed analysis based on the available double tax treaties, also taking into account the status of the financing parties and the nature of the collections to be transferred from Poland to the foreign SPE (ie, those that result from the legal type of the receivables being securitised). In addition to the bilateral tax treaty concluded by Poland with a given country involved in the transaction, the Multilateral Instrument to Modify Bilateral Tax Treaties (MLI) should also be taken into account. The MLI convention entered into force on 1 July 2018 to implement the BEPS (base erosion and profit shifting) provisions aimed at counteracting aggressive tax planning. The MLI has already been ratified by Poland as well as by some other countries (including Austria, Slovenia, Isle of Man and Jersey).
Interest payable by a Polish SPE to a foreign investor which is a bank will most likely be exempt from withholding tax in Poland under the 'banking loan' exemption included in the majority of double tax treaties signed by Poland.
In addition, a few tax treaties concluded by Poland (with the USA, France, Sweden and Spain) provide for the waiving of withholding tax on interest derived in Poland.
In the case of securitisation concerning lease receivables, there are several tax treaties which do not treat lease payments as royalties under the treaty and thus do not impose withholding tax in Poland on the transfer of these collections to a foreign SPE. Examples of these types of treaty are those concluded with Ireland and with Luxembourg, and accordingly these countries are quite often chosen as the location of an SPE for the securitisation of Polish assets.
Notwithstanding the above, it should be noted that as of 1 January 2019 the legal provisions relating to the tax collector's duties with respect to the withholding tax were substantially amended. In general, in cases where the payments resulting from the titles specified in Article 21 item 1 and Article 22 item 1 of the Polish Corporate Income Tax Act (including, for example, interest and lease payments) made to the same recipient do not exceed the amount of PLN2 million in a given year, the tax collector will be entitled to apply the withholding tax exemption or a lower rate (resulting from a given tax treaty or other provisions) if it has a valid tax residency certificate. However, an additional requirement was added to the law with respect to the obligation of the tax collector to verify the applicability of the exemption/lower rate with due care.
In cases where the above-mentioned payments to the same recipient exceed in total the amount of PLN2 million in a given tax year, the tax collector will, as a rule, be obliged to withhold and transfer to the tax office the tax on such payments at the domestic 20% withholding tax rate, notwithstanding lower rates or exemption provided by tax treaties or other specific provisions. This tax will be refundable on the request of the tax collector or the payments' recipient after the tax office verifies that the relevant conditions required for the application of the withholding tax exemption, or a lower rate, are met. However, the new law also provides for the possibility of avoiding the withholding tax if all board members of the tax collector file specific written statements with the tax authorities. Such statements have to confirm that the tax collector possesses the documents required by law to apply the tax exemption to the payments transferred to the recipient and that, after conducting (with due care) the relevant verification, it is not aware of the existence of circumstances excluding the possibility of applying the withholding tax exemption. Such statements should confirm, in particular, that the tax collector is not aware of the circumstances excluding the possibility of recognising the recipient as a beneficial owner of the payments conducting actual economic activity in connection with which the payments are derived.
It should also be noted that, although the above-described amendments to the Polish withholding tax provisions entered into force as of 1 January 2019, under the special Decree of the Minister of Finance, their applicability to payments exceeding PLN2 million annually has been postponed. In general, for lease payments, the applicability of the new laws has been excluded for an indefinite period of time (assuming there is a relevant double taxation treaty in place allowing the exchange of tax information); for all other payments (including interest) the applicability of the new law has been postponed until 1 July 2019.
Each securitisation transaction can have its own specific tax implications, so the proper structuring of these projects always requires detailed analysis that takes a number of different factors into account, including:
In general, any loss incurred by a bank on the sale of the credit receivables will not be tax-deductible. However, receivables arising under non-performing loans (NPLs) that are sold to a Polish securitisation fund (and not a normal company) will be treated as tax-deductible, subject to certain limits and exclusions provided in the law. In addition, subject to certain requirements, any proceeds from the sale of the principal (not the interest component) of the NPL receivables to a Polish securitisation fund will not be treated as taxable income by the bank-originator.
The Polish VAT treatment of the servicing of the receivables by the originator to the benefit of the SPE depends on the type of services rendered in this respect by the originator, and on the location of the SPE. In general, the servicing of the receivables will usually be treated as a debt collection subject to standard VAT rates in Poland. In the case of an SPE located outside Poland, the place of supply of these services should generally be at the seat of the SPE (therefore no Polish VAT would be chargeable in this case).
There is no direct regulation in the VAT law relating to sub-participation, which is another type of securitisation and should be treated as a VAT-exempt financial service, similar to a true sale securitisation. However, since there is very little in the way of market practice relating to sub-participation transactions, the approach of the tax authorities is not uniform in this respect (there are tax rulings qualifying these transactions as being subject to 23% VAT, but there have also been positive decisions from the administrative courts confirming the exemption of sub-participation from VAT).
According to the General Anti-Abuse Regulations implemented in Poland in July 2016, the Head of the National Tax Administration in Poland is able to challenge Polish taxpayers' actions that have been acknowledged by the GAAR as tax avoidance. This can apply to transactions, the main purpose (or one of the main purposes) of which is to achieve tax benefits, including avoiding, decreasing or delaying the tax payable in Poland in connection with these transactions. If the relevant transaction or structure is acknowledged as tax avoidance, the tax liability of the relevant taxpayer will be calculated as if it resulted from an 'adequate' transaction of similar economic consequences, or by ignoring the tax avoidance activity, which could result in a higher tax becoming due and payable.
Although securitisation transactions are usually implemented mainly for reasons other than for tax or business, the above-mentioned new GAAR provisions should be observed when structuring a given securitisation. In certain situations, gathering the proper business substance and justification might be necessary in order to mitigate any risk of a GAAR application.
It is common practice to obtain both legal and tax opinions for each securitisation transaction.
Also, due to the complexity of the tax issues involved in securitisation transactions, as well as the fact that the majority of them are not addressed directly in the tax law, the confirmation of the key tax aspects through individual tax rulings issued by the Polish tax authorities is always recommended. This specifically relates to the VAT/CLTT treatment of the sale and servicing of receivables, the withholding tax treatment of the collections transferred to a foreign SPE, and the CIT implications for Polish originators and Polish SPEs. Obtaining an individual tax ruling takes three months from the time of filing the relevant application.
In general, the accounting treatment of securitisation should not affect the legal implications of the transaction. In particular, classifying a securitisation as providing financing to the originator does not have an impact on the true sale consequences under civil law. The same relates to the tax aspects, which means that from the tax perspective the securitisation is treated as a sale of receivables with all its consequences (eg, taxable revenue and tax-deductible costs arising for the originator upon the sale of the receivables, collections which are taxable revenue for the Polish SPE, etc). Different rules can apply to the qualifying sale of receivables under certain accounting principles (eg, the sale of receivables for securitisation purposes can be qualified as a loan). However, this does not have any effect on the true sale effect of the assignment of receivables.
No response provided.
The Securitisation Regulation applies to Poland as to all other EU countries, and imposes certain disclosure requirements on originators, sponsors and/or SPEs. All these requirements apply directly to Polish entities performing such roles in securitisation transactions.
There is no autonomous local legal act regulating securitisation transactions under Polish law. Fragmentary regulation is contained in a few legal acts: the Banking Law, the Investment Funds Act, and the Bankruptcy Law. As an EU member state, Poland has implemented European regulations that deal with various aspects of securitisation transactions. Trading in securities in Poland is regulated mainly by two Polish legal acts: the Act on Financial Instruments, and the Act of 29 July 2005 on Public Offering, on Conditions for the Introduction of Financial Instruments to the Organised Trading System and on Public Companies (the 'Act on Public Offerings'). Both of these follow the European regulations, including Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading, amending Directive 2001/34/EC (the 'Prospectus Directive').
Commission Delegated Regulation (EU) 2015/3 of 30 September 2014, which has applied since 1 January 2017, provides certain notification requirements relating to issuers, originators or sponsors of the structured finance instruments where any of these entities is established in the EU. However, the legal status of this regulation is unclear, as the ESMA has not provided any guidelines or technical instructions, and a dedicated website for notification purposes has not been established.
Polish law does not generally diverge from the EU regulations in this case. However, the definition of 'public offering' under the Polish Act on Public Offerings differs from the definition in the Prospectus Directive and most other European jurisdictions. According to the Polish act, 'public offering' means a communication made in any form and by any means, directed at 150 or more people per EU member state, or at an unnamed address, containing information on the securities and the terms of their acquisition which is sufficient to enable an investor to decide on the securities’ acquisition. This means that a securitisation instrument (such as a note) offered this way abroad (even if the foreign law definition of a public offering is different) would be subject to the Polish requirements for a public offering, provided that it is offered in Poland as well – subject to the usual exemptions.
It also needs to be noted that, according to MAR, persons professionally arranging or executing transactions on listed instruments (such as notes issued under securitisation transactions) are subject to the rules of notification of the EU member state in which they are registered or have their head office, regardless of where the instruments are listed. The same rule applies to persons discharging managerial responsibilities, as well as persons closely associated with them, who are obliged to notify the authorities on the transactions relating to the listed instruments of the related issuer. This means that this person would have to notify the KNF (as defined below), in accordance with the form available on the KNF’s website.
Non-exempt public offerings or admissions to the regulated market need to meet the usual requirements arising under the Prospectus Directive. The relevant provisions of the Commission Regulation 809/2004 of 29 April 2004, implementing Directive 2003/71/EC of the European Parliament and of the Council, as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements also need to be taken into account when drafting the prospectuses for the asset-based securities, especially annexes VII and VIII.
Admission to the Polish regulated market requires certain other requirements to be met, including obtaining the KNF’s approval of the prospectus. Furthermore, instruments cannot be admitted to trading on a regulated market or alternative trading system in Poland unless they have been registered in the Central Securities Depository of Poland (Krajowy Depozyt Papierów Wartościowych SA). The so-called 'alternative trading systems' (corresponding to the MTF under Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (MiFID)) provide less restricted disclosure requirements, subject to whether the issuer is already listed on the regulated market, etc. Depending on meeting certain requirements, the admission of these instruments to the alternative trading system might require either a full prospectus or the less complicated information memorandum or information note (least requirements).
The Polish regulator responsible for capital markets and the supervision of banks and insurance companies is the Polish Financial Supervision Authority (Komisja Nadzoru Finansowego, or KNF), which has also been designated as the 'competent authority', in accordance with the relevant EU financial regulations.
The principal penalties relating to disclosure requirements under the Polish Act on Public Offerings can be divided as follows:
The penalties for a violation of disclosure requirements set out in the Regulation (EU) 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation or MAR) have been implemented by the Polish Act of 29 July 2005 on Trading of Financial Instruments, and are lower than the maximum penalties stated by the MAR. The maximum penalties range from PLN2 million for the unlawful disclosure of inside information by a natural person to more than PLN10 million or up to 2% of the total annual turnover for an infringement of public disclosure rules by the issuers. Any violation of the MAR is subject to notification to the KNF in accordance to the rules set out in the Regulation of the Minister of Finance of 25 April 2017 on MAR infringement reporting procedures. However, the provisions of the MAR apply only to the securities that are admitted to trading on a regulated market, the MTF or OTF (within the meaning of MiFID).
The Public Market vs. the Private Market
Most securitisation deals involve the listing of asset-based securities issued by the SPE on a regulated market. Popular destinations include the Irish Stock Exchange and the Luxembourg Stock Exchange, though it is also possible to list these instruments in Poland on either the Warsaw Stock Exchange or BondSpot. Even though public market offer and listing is connected to various requirements (including the obligation to publish a prospectus and MAR requirements), it is often chosen due to the better liquidity of these instruments and the possibility to attract more investors who usually prefer listed instruments to non-listed ones.
Polish legal opinions concerning an issuer’s capacity to issue instruments (Polish issuers only), the validity and enforceability of these instruments, and their non-conflict with Polish regulations, are usually required. These opinions would significantly differ depending on several factors, including the type of offering (public or private), the governing law of the debt instrument, whether it is admitted to trading on a regulated market or alternative trading system and if so whether in Poland or elsewhere. In any case, other than a fully-fledged Polish public offering with a prospectus, this opinion would include detailed qualifications relating to Polish selling restrictions. In the case of international offerings, a tax opinion concerning withholding tax might also be desirable.
See 4.1 Specific Disclosure Laws or Regulations, above.
'Credit risk retention' regulations that apply in Poland are contained in the CRR. These regulations are addressed, in the first place, to investors in debt instruments issued by an SPE, but also to originating entities. In accordance with the CRR, an investor might be exposed to the credit risk of a securitisation position (of a lower risk weight than for non-securitisation assets) if the originating entity has explicitly disclosed to the investor that it will retain, on an ongoing basis, a material net economic interest of no less than 5%.
In other words, in order to allow certain groups of investors – in particular banks and other financial institutions that are obliged under the CRR to apply risk weight to their assets – to invest in debt instruments issued by an SPE, the originator must keep at least 5% of the material net economic interest. In accordance with the CRR, there are a few methods of keeping the material net economic interest, two of which are commonly used. The main method is the retention by the originator (or the sponsor) of not less than 5% of the nominal value of each tranche of finance instruments (debt securities or loans) sold to investors. In practice, this most common way of meeting the credit risk retention rules is fulfilled by the originators providing a subordinated debt to the SPE, with a nominal value of not less than 5% of the total external funding delivered to the SPE. Subordinated financing can be delivered in the form of subordinated debt instruments (notes, bonds) or subordinated loans. For certain categories of originators, providing subordinated financing to an SPE might not be acceptable. For leasing companies, exposure in interest-bearing debt instruments (such as notes or loans granted to an SPE) might not be economically effective, because of the specific tax regulations that apply to these entities. High exposure in lending instruments can affect their ability to recover the VAT payable on the initial acquisitions of the lease objects for conducting their leasing activities. For certain originator banks, an exposure in subordinated instruments might not be acceptable either, since it can affect the capital relief effect on the transaction. In all these cases, an alternative approach is used, named under the CRR as the "retention of randomly selected exposures." This means that, through the lifetime of the transaction, an originator will retain in its assets at least 5% of the nominal value of all securitised receivables which would otherwise have been securitised (ie, which meet the same eligibility criteria as the receivables actually sold to the SPE under the transaction), as randomly selected by the originator.
The fulfilment of the credit risk retention requirements must be periodically reported by the originator. The so-called investor report is usually delivered by the originator or by another entity participating in the transaction, such as a cash manager, on a monthly or quarterly basis.
There are no legal penalties for an originator that does not meet the credit risk retention rules. The consequences are for investors, since the relevant regulator could impose additional risk weight on their securitisation positions.
The credit risk retention requirements are not usually covered by legal opinions. The obligation to meet these requirements is one of the covenants of the originator under the transaction documents and, as discussed above, is reported to investors on an ongoing basis.
As mentioned above, the Securitisation Regulation imposes certain reporting requirements on entities participating in a securitisation. In each transaction, the originator, the sponsor (if there is any) and the SPE must designate amongst themselves one entity (the reporting entity, which must be expressly indicated in the transaction documents) to fulfil the reporting requirements under the Securitisation Regulation. The scope of these reporting requirements depends on the character of the transaction (private or public). Specific requirements relate to STS securitisations (simple, transparent and standardised securitisations were introduced by the Securitisation Regulation, which must fulfil various specific criteria but in exchange benefit from a more favourable prudential treatment and continue to be LCR-compliant). The reporting entity must make the relevant information available by means of filing the information with a securitisation repository or, if there is no securitisation repository, on a website meeting the safety and operational requirements specified in the Securitisation Regulation. Before the pricing of the transaction, the reporting entity must make available the summary of the transaction and its main features, to include the ownership structure, cash flows, characteristic of securitised exposures, priority of payments, voting rights of noteholders). This information can be presented in the prospectus, if prepared for the transaction. During the lifetime of the transaction the reporting entity is required to produce periodic (at least quarterly) reports presenting information on the performance of underlying positions, data on trigger events, cash flows, data on risk retention, etc. Each STS transaction must be notified to the ESMA and included in the ESMA's list of STS transactions.
The main legislation that regulates the periodic reporting of the issuers of the securities that are subject to trading on the regulated market in Poland has been set out in the Act on Public Offering and the Regulation of the Minister of Finance of 19 February 2009 on current and periodic information. In particular, the admission of exclusively non-equity securities (which is the case in securitisation transactions) requires an issuer to publish either quarterly reports and yearly reports, or interim reports and yearly reports, containing audited financial statements for the relevant period; these reports are submitted to the operator of the market, to the KNF, and to the chosen press agency. An entity that operates on the regulated market can also impose additional reporting requirements on the issuers.
The requirements concerning financial reports included in the report depend on the type of report (ie, quarterly, interim or annual). The issuer’s non-compliance with the reporting requirements can result in the exclusion of their securities from trading, and/or a fine of up to PLN5 million or 5% of its total annual revenue.
Issuers of securities admitted to trading on an alternative trading system are not subject to the regulations mentioned above, but instead to the rules imposed by the organiser of the facility. In practice, these requirements are identical, or at least very close. However, alternative trading facilities operators usually envisage less complex reporting requirements and lesser fines imposed on the issuers if they do not comply with the regulations of the alternative trading facility.
Managers of AIFs are subject to the reporting requirements stipulated in the Act on Investment Funds, and the Regulation of the Minister of Finance of 28 June 2017 on the periodic and current reports on the activity and financial situation of fund managers and investment funds submitted by those entities to the KNF. The regulation envisages a wide range of situations that impose a reporting obligation on the issuers. In respect of AIFs, the reports must be submitted to the KNF, for example, upon the occurrence of an event that could have a material impact on the fund, such as the incorrect valuation of the fund's assets, exceeding of the investment limits stipulated in the articles of the fund or the applicable law, or court proceedings initiated against the issuer.
In accordance with the Delegated Regulation of Commission 231/2013 of 19 December 2012, supplying the Directive of the European Parliament and the Council 2011/61/EU (the AIFMR), the manager of an AIF is also required to submit a separate statement (containing certain financial information) concerning the activity of the AIF carried out through the year to the KNF and, upon demand, to the investors, within four months of the end of each financial year.
Additionally, in accordance with the provisions of the AIFMR, fund managers are required to submit supplementing information to the KNF, drafted in accordance with Annex IV to the AIFMR and containing, in particular, investment strategies, material exposures, investors and their profiles, and the liquidity and use of leveraged financial instruments.
The issuer’s non-compliance with the reporting requirements can result in the KNF imposing additional activity limitations, a fine of up to PLN5 million, or even a withdrawal of the licence to run an investment fund.
Rating agencies are regulated in Regulation 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies, amended by Regulation 462/2013 of the European Parliament and of the Council of 21 May 2013 (the 'Rating Agencies Regulation'), which imposes additional restrictions on the activity of rating agencies in the area of securitisation and structured products. Polish law does not contain any material provisions concerning the regulatory framework for rating agencies. Rating agencies are subject to direct supervision under the European Securities and Markets Authority (ESMA).
The issuers and the rating agencies that take part in the securitisation are subject to the additional requirements that apply to the process of rating issuers or issued securities. Any issuer is obliged to obtain at least two different ratings from independent rating agencies. Issuers are also advised to consider appointing at least one credit rating agency with no more than 10% of the total market share. Ratings are subject to public disclosure.
The Rating Agencies Regulation imposed civil responsibility on the rating agencies for any of the infringements listed in Annex III to the Rating Agencies Regulation that have an impact on a credit rating by, eg, not establishing adequate policies or procedures to ensure compliance with its obligations, or by setting up a compensation system for the independent members of its administrative or supervisory board that is linked to the business performance of the credit rating agency, provided that there has been a negligent or wilful default on the part of the rating agency. The ESMA is allowed to impose a fine on rating agencies for infringement of the provisions of the Rating Agencies Regulation, ranging between EUR25,000 and EUR750,000 depending on the type of violation.
The originator of a traditional securitisation can exclude securitised exposures from the calculation of risk-weighted exposure amounts and expected loss amounts if:
If the possible reduction in risk-weighted exposure amounts is not justified by a commensurate transfer of credit risk to third parties, competent authorities may decide that significant credit risk shall not be considered to have been transferred to third parties.
However, competent authorities will grant permission to the originators to consider the significant credit risk as having been transferred where the originator is able to demonstrate, in every case of a securitisation, that the reduction of own funds requirements that the securitisation achieves for the originator is justified by a commensurate transfer of credit risk to third parties.
The originator applying for permission will have appropriately risk-sensitive policies and methodologies in place to assess the transfer of risk, and will also have recognised the transfer of the credit risk to the third parties in each case for the purposes of the originator's internal risk management and its internal capital allocation.
Moreover, in order to comply with the requirements provided in the CRR, the originator must ensure that the following criteria are met:
Any clean-up call option must also meet the following criteria:
The IRAA stipulates the rules concerning the financial management of insurance companies and reinsurance companies. In the above terms, the IRAA operates based on the notions of Solvency Capital Requirement (SCR) and the Minimum Capital Requirement (MCR). According to Article 239 of the IRAA, an insurance company and reinsurance company shall hold eligible own funds in an amount not lower than the SCR, and eligible basic own funds in an amount not lower than the MCR. The IRAA also stipulates the absolute floor of the MCR in respect of reinsurance companies and insurance companies, depending on the type and scope of the pursued insurance activity (Article 272), and the relation between the MCRs and the SCR (Article 273). The IRAA assumes capital-tiering stipulating that the insurance company and reinsurance company shall classify own-fund items into one of the three tiers (Article 245).
It goes without saying that beside the IRAA’s implementation of Solvency II, insurance companies and reinsurance companies in Poland must directly observe the applicable regulations of law of the EU. In reference to the financial management of insurance companies and reinsurance companies, Polish undertakings should apply, inter alia, the relevant provisions of the Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance ('Solvency II') (Official Journal L 12, 17.1.2015, as amended) ('Regulation 2015/35'). In particular, when classifying own-fund items in specific tiers, insurance company and reinsurance company shall use the list of own-fund items that complies with Article 69, Article 72, Article 74, Article 76, and Article 78 of Regulation 2015/35.
The IRAA stipulates that an insurance company and reinsurance company shall determine the value of the technical provisions for the purpose of solvency on the part of reinsurers and special purpose vehicles in accordance with the relevant rules.
In particular, when calculating the amounts due from reinsurance contracts and from special purpose vehicles, an insurance company and reinsurance company shall take into account the time difference between the receipt of the amount due from the reinsurer or special purpose vehicle and the making of a direct payment. The insurance company and reinsurance company shall adjust the results of the calculations, taking into account expected losses due to the reinsurer or special purpose vehicle being in default of their obligations. In order to calculate the expected losses, the insurance company and reinsurance company shall determine the probability of the reinsurer or the special purpose vehicle being in default of their obligations and the average amount of the loss due to the reinsurer or the special purpose vehicle being in default of their obligations.
In addition, with reference to the special purpose vehicle, although this is neither an insurance company nor a reinsurance company, it has a special regulation concerning solvency requirements principally regulated in Articles 326 and 327 of Regulation 2015/35.
In the event that the KNF considers that an insurance or reinsurance company has failed to comply with the statutory requirements related to its activity, the KNF has the power to impose on a penalty set forth in the IRAA, which envisages that a penalty of up to 0.5% of the gross amount of premiums received by the company as disclosed in the previous financial statement or, if the amount of received premiums was below PLN20,000,000, of up to PLN100,000. The KNF may also impose on members of the management boards, or proxies of such an insurance or reinsurance company, a penalty of up to the equivalent of three times their average monthly remuneration for the previous 12 months (but no more than PLN100,000) for non-compliance of the company with binding regulations.
There are no specific laws or regulations applying to the use of derivatives in securitisation transactions under Polish law. As an EU member state, Poland is subject to general EU regulations, including those applicable to derivatives (eg, Regulation 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories). There are also certain provisions under Polish law that apply to derivatives, particularly under the Polish Act on Financial Instruments, but these are all of general application and not specifically addressed to securitisations.
As discussed above, if located in Poland, a securitisation SPE can be established either in the form of a company with a limited liability or as a securitisation AIF. If used as the issuing entity in a securitisation, a Polish limited liability company does not differ from a regular company regulated under the general rules of Polish commercial law. As such, it is not subject to any specific derivatives regulations. In relation to securitisation, AIFs are regulated under the Act on Investment Funds, which allows the securitisation AIF to invest in derivatives solely to limit its investment risk (and not for speculative purposes).
No response provided.
There are no separate regulations determining investor protection for investments in instruments issued in securitisation transactions. In general, Polish regulations are the same as the protective measures stipulated by MiFID. The level of protection for investors depends on the category of client: retail clients receive more protection (including the obligation of the seller of the financial instruments to offer only instruments for which the retail client is 'eligible', bearing in mind the assessment that has been carried out prior to the offering of these instruments), whereas professional clients and the so-called 'eligible counterparties' receive less protective treatment.
Additional protection measures apply to investors that are consumers (ie, any natural person performing a legal act with an entrepreneur who is not directly connected to the business or professional activity of the natural person). In particular, any wrongful contractual provision (ie, any provision that is in conflict with good customs and in flagrant violation of the consumer's interest) can be declared ineffective by the court. Off-premises or distance contracts of sale of financial instruments to consumers (eg, by telephone) are subject to dedicated requirements.
Investment firms offering financial instruments are subject to certain organisational requirements, concerning in particular conflict management policy, the protection of confidential business information, and internal control, compliance monitoring and internal audit systems.
Polish banks are allowed to securitise their assets. The Banking Law stipulates the possibility to sell bank receivables to either an SPE (in the form of a company with limited liability) or a securitisation AIF. In order to be eligible for a securitisation transaction with a Polish bank as an originating entity, an SPE must be separated from the bank in both capital and organisational sense. No specific rules apply to a securitisation AIF participating in a securitisation with a Polish bank, which would be regulated under the same provisions of the Act on Investment Funds as any other securitisation transaction.
The Banking Law provides certain exemption for the Polish in relation to the activities associated with the process of securitisation. It does not provide a general release from the statutory obligations, but does allow the banks involved in the securitisation process to provide the information covered by bank secrecy obligations to the extent necessary for execution of certain activities and agreements, eg, sale of receivables, servicing of receivables or execution of an agreement regarding issuance of a rating.
A bank as an originating entity is capable of achieving a capital relief effect through the securitisation of its assets. This would require fulfilment of certain conditions specified under the CRR, in particular relating to a significant risk transfer.
Polish banks are also allowed to invest in securitisation positions. In these investments, the most important thing from the perspective of a bank as an investor is that the originating entity duly observes the risk retention rules.
As discussed above, there is no specific form of SPE dedicated to securitisations under Polish law. The only exception is a securitisation AIF; however, in practice this form is used almost exclusively to purchase NPLs from Polish banks. For securitisations of other assets, a limited liability company is used; if located in Poland, this is subject to generally applicable commercial laws. Other legal forms of SPE are not visible. SPEs in the form of Polish limited liability companies are structured as orphan companies, with one shareholder, usually a non-profit entity (Dutch stichtings are commonly used), managed by external, professional corporate servicers. SPEs in this form do not have to be licensed in order to participate in securitisations, and are not supervised by any regulator.
The scope of activities of Polish SPEs is limited either by incorporating the relevant provisions into their articles of associations, or contractually. As a consequence, their activities consist of purchasing receivables, issuing debt securities, or borrowing under loans and conducting any other related activities, all solely for the purpose of the securitisations in which they are involved, and in compliance with transaction documents. There is no risk of the activities causing an SPE to be regulated.
Credit enhancement in Polish securitisations is provided in various forms, with the main forms being subordinated tranches (in the form of either subordinated debt instruments or subordinated loans), a deferred purchase price payable as the last position in an agreed payment waterfall, or over-collateralisation. These forms are mainly designated to cover the first loss and protect senior tranches of debt instruments.
Deposits are often used to protect against various risks, particularly liquidity risks and commingling risk.
If a Polish bank is an originating entity, its investment in subordinated tranches is always dependent on whether the bank is trying to achieve a capital relief effect. If this is the objective, the investment in subordinated tranches would need to be compliant with the CRR, as would any other credit enhancement delivered by the bank.
Polish law does not contain any particular rules relating to securitisation carried out by entities that are either sponsored or partially owned by the government (ie, the state treasury). The latter (eg, joint-stock companies with a sizeable number of shares owned by the state treasury), including banks, often participate in securitisation transactions. However, it should be noted that guarantees granted by either the state treasury or certain state-owned entities (including the Polish Bank of National Development, the Bank Gospodarstwa Krajowego) acting as sponsors or originators can be subject to the special rules described in the Act of 8 May 1997 on Guarantees and Warranties granted by the State Treasury or certain legal entities.
Apart from foreign entities or international organisations, such as the European Bank for Reconstruction and Development or the European Investment Bank, which comprise the most engaged investors, active investors in debt instruments issued in accordance with securitisation include banks, financial institutions and pension and investment funds.
The Act on Investment Funds and Alternative Investment Fund Management does not explicitly stipulate the investment limits related to securities that are issued in connection with the securitisation process. In the case of notes and similar instruments, the baskets are divided into two categories: notes that are subject to the admission to trading on regulated markets, and those that are not.
As to the former, a UCITS (FIO) and an open-ended AIF (SFIO with FIO investment limits) can invest up to 5% of its asset value in the notes issued by a single entity (or 10% if stated in the articles of association of the relevant fund – special rules can apply here). An AIF (FIZ and SFIO with FIZ investment limits) can invest up to 20% of its asset value in the notes issued by a single entity. The rules are more or less the same for notes not traded on regulated markets, but in each case the total combined share of the notes that are not admitted to trading on a regulated market in the assets of the fund cannot exceed 10% of the total value of the assets of a UCITS (FIO) and an open-ended AIF (SFIO with FIO investment limits).
Pension funds impose investment limits on notes and investment certificates, issued in the securitisation process, which vary depending on the type of securities issued and on whether the securities are subject to public offering, and if they are secured.
The relevant investment baskets can be divided into the following categories:
A pension fund can invest up to 10% of its asset value in any of the categories, with the exception of category 1; a pension fund can invest up to 40% of its assets value in assets of this category, but not more than 10% in the notes issued by a single entity.
If an investment certificate is issued by an AIF or other closed-ended fund established in Poland, an EEA or OECD country, a pension fund can invest up to 10% of its asset value in a certificate, but not more than 2% in the certificates issued by a single entity.
Legal documentation used in securitisations in Poland can be divided into two parts: asset documents and finance documents.
Asset documents are governed by Polish law and used to effect bankruptcy remote transfers. If an SPE is located offshore, finance documents are usually governed by English law. If an SPE is located in Poland, Polish law governing finance documents is also considered.
The two main asset documents are the receivables purchase agreement and the servicing agreement. A receivables purchase agreement is executed between the origination entity as the seller of the receivables, and an SPE as the purchaser of the receivables, in written form and usually with a date certified by a notary. In transactions where receivables are sold repeatedly during a revolving period, the receivables purchase agreement serves as an assignment and sale agreement for the initial pool of receivables (usually at closing) and then as a master agreement for each subsequent sale of the receivables. Each subsequent sale of the receivables takes place on the terms and conditions of the receivables purchase agreement, by way of submission of an offer by the origination entity and its acceptance by the SPE. A properly structured receivables purchase agreement ensures the true sale effect and the bankruptcy remote transfer of the receivables from the originating entity to the SPE, which is supported by independent legal opinion. An assignment of a receivable under Polish law can be structured as a 'silent assignment', without debtors being notified. There is no established market practice as to whether and when notifications to debtors should be made in securitisation transactions. In some transactions, notifications are required to be made shortly after each sale of receivables, but there are also transactions where notifications are postponed and conditional upon certain agreed events, in particular relating to financial and other conditions of the originating entity. This depends on various factors, such as the ability of the originating entity to make notifications, the occurrence of a notification event, the existence of the back-up servicer in the transaction, or the position taken by the rating agencies on the matter.
A servicing agreement is concluded between the originating entity as the servicer of the receivables and the SPE. The servicer is appointed for the entire lifetime of the transaction, although its appointment can be terminated earlier following the occurrence of a servicer termination event. Servicer termination events are usually standard and consist of non-payment events, breach of obligations under the transaction documents, misrepresentations, insolvency, etc. A servicer is usually appointed to deliver simple day-to-day administration services, and to conduct the enforcement of defaulted receivables. As a standard, a servicer is obliged to act in accordance with the servicing agreement and its standard credit and collection policy agreed with the SPE and the other parties to the transaction documents, particularly the note and security trustees for the noteholders (investors). There is no established market practice on the appointment of a back-up servicer. There are transactions where the back-up servicer is appointed at the closing and is ready to replace the servicer at any time upon the demand of the SPE (usually supported by an external agent named back-up servicer facilitator), but there are also transactions that stipulate the later appointment of a back-up servicer upon an agreed event relating to expected difficulties in the servicing of the receivables by the original servicer.
In terms of finance documents governed by Polish law, a Polish SPE can issue bonds (obligacje) under Polish law, in accordance with the Polish Act of 15 January 2015 on Bonds (the 'Act on Bonds') (a foreign entity also can issue bonds under Polish law if it has the exclusive ability to issue bonds in accordance with the law applicable to it). A Polish bond can be issued in documentary dematerialised form, as registered or bearer bonds. If Polish bonds are to be listed, a bearer form is required. There is an issue with Polish bonds if used for securitisation, since an issuer is responsible for its obligations under the bonds with all its assets, according to the Act on Bonds. This responsibility cannot be contractually limited, which causes the ineffectiveness of standard limited recourse clauses. In addition, non-Polish investors prefer to invest in English law debt instruments, which are more common and recognised in the Euromarket. As a consequence, SPEs located in Poland usually issue English law notes rather than Polish law bonds.
See 5.4 Principal Covenants, below.
A sale of receivables in a securitisation transaction is concluded upon the execution of a receivables purchase agreement or, in relation to subsequent sales, upon the delivery of an offer and its acceptance. No other actions are required to conclude the sale. Usually, a security interest established in favour of the investors over the assets of an SPE has the legal form of a Polish registered pledge and is concluded upon its registration by the registry court.
Much like representations and warranties, contractual covenants in Polish securitisation documents match the approach usually seen in other jurisdictions.
The usual covenants for a seller include complying with laws and credit collection policies, refraining from amending documents evidencing receivables sold to an SPE, holding the necessary licences to conduct business, and standard reporting covenants. An important covenant of a seller relates to risk retention requirements; depending on the agreed structure of a transaction, this could be either an obligation to maintain interest in the subordinated tranches of the financing, or a balance retention of randomly selected receivables.
Covenants for a servicer usually include complying with laws and credit collection policies, maintaining accounting and other records to allow for a separation of the sold receivables from any other receivables, and providing periodic servicer reports.
The main covenants for an SPE are due observance of the transaction documents, not engaging in other business, and not incurring any indebtedness other than that allowed under the transaction documents.
A breach of a covenant by either party constitutes a default under the transaction documents and, depending on which covenant is breached, can lead to various consequences, including an early termination of the transaction and acceleration of financing.
As mentioned in 5.1 Bankruptcy Remote Transfers, above, the servicing of receivables can be divided into the regular day-to-day administration of receivables and their enforcement. A servicer is usually appointed to perform both types of servicing. Since an SPE is formally the owner of receivables sold and assigned by an originating entity, the servicer acts in the name and on behalf of the SPE. The main duties of a servicer are:
In all its actions, the servicer is obliged to observe the provisions of the servicing agreement and the agreed credit and collection policy.
A breach of the servicer's obligations can lead to the termination of its appointment and its replacement by a back-up servicer.
The principal defaults used in securitisation documentation are standard, and usually comprise non-payment events, breach of transaction covenants, misrepresentation and insolvency events. The defaults are usually subject to agreed remedy periods. Under the Polish Bankruptcy Law, the filing of an application for bankruptcy or a declaration of bankruptcy of an entity cannot constitute the basis for the compulsory amendment or termination of an agreement to which the entity is party.
The principal indemnities to which an originating entity is obliged toward an SPE are usually described widely. The originating entity is obliged to indemnify an SPE, its directors, agents and other related persons against any liabilities (which term is defined very broadly to cover any losses, damages, costs, charges, awards, claims, demands, expenses, or judgments, etc) incurred by an SPE or related persons as a result of its entry into the transaction documents. In particular, the originating entity is obliged to indemnify the SPE against any liabilities resulting from the improper actions of the originating entity, such as misrepresentations, incorrect reports, breaches of covenants, etc. The liability of the originating entity is excluded in the case of wilful misconduct or gross negligence by the SPE.
Usually, securitisation documentation also contains indemnity obligations imposed on an SPE, similar to market standards seen in other jurisdictions.
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There are no special regulations concerning the enforcement of securitisation.
Court enforcement can prove ineffective in certain situations due to the length of the proceedings. Therefore, most structures involving registered pledges include additional types of enforcement (eg, seizure) in order to facilitate the enforcement of collateral.
The main role of an issuer in any securitisation transaction is to purchase assets/receivables from an originator and issue debt instruments on the basis of them. The common responsibilities of issuers include providing a security interest over securitised assets. The standard type of security interest is a registered pledge established over either the entire enterprise of an issuer or a collection of movables and rights which are an economic entirety of variable composition (including transferred assets and receivables). In most cases, issuers do not run any other business activity aside from purchasing assets or receivables and issuing debt instruments on the basis of them.
The classic types of securitisation transactions involve SPEs, established either under foreign law (Ireland and France are common jurisdictions) or under Polish law. The former are often established as special purpose designated companies (as allowed by the relevant jurisdictions), while the latter are often established as Polish limited liability companies (spółka z ograniczoną odpowiedzianością). Other types of issuer entities include closed-end securitisation funds, which are mostly used for bank securitisations.
Special rules apply to issuers established by banks. In accordance with the Polish Banking Law of 29 August 1998 (the 'Banking Law'), the activities of an SPE used by a bank for securitisation purposes must be limited to those connected to the purchase of receivables and issuance of securities. In this case, the constitution document of the relevant issuer (even if established outside Poland) needs to be aligned accordingly. Apart from this, the issuer must not be linked by equity or management to the bank-originator.
Most Polish securitisation transactions do not involve sponsors. If sponsors do appear, their role is mostly to provide certain financial guarantees or additional financing, such as subordinated loans that may serve as risk retention, for example. Their type of business depends on the transaction, but the most common types include holding companies or finance companies.
Regarding underwriting rules, Polish law stipulates the so-called 'sub-issuance' (subemisja), divided into two types: 'servicing sub-issuance' (subemisja usługowa) and 'investment sub-issuance' (subemisja inwestycyjna). In accordance with the former (which is basically identical to underwriting, as this term is used in other jurisdictions), a sub-issuer agrees to acquire instruments in order to later allocate them to investors of its choice. Like underwriting in other jurisdictions, this sub-issuance can belong to either of two types: soft, when an obligation to acquire securities materialises after the pricing process is complete; or hard, when a sub-issuer is obliged to acquire securities at an earlier stage. The latter consists only of the obligation of the sub-issuer to acquire instruments that have not been purchased by other investors.
Underwriters are mostly licensed banks or credit institutions, or, more rarely, other professional investment firms. Only these particular entities can act as sub-issuers under Polish law.
The duties of a servicer include managing, servicing, collection, administrative and enforcement tasks, and specific duties in respect of the purchased receivables as set out in the servicing agreement entered into between the issuer and the servicer. In the case of securitising retail receivables (including lease or loan receivables), an originator serves as a servicer until to the occurrence of a so-called 'servicer termination event' (eg, the inability of the originator to continue to act as the servicer), whereupon the back-up servicer (usually a professional entity) steps in. The aim of this structure is to facilitate the entire process of receivables management and simultaneously to avoid any confusion between debtors (which, in this case, still pay the originator, acting as the servicer).
The specific responsibilities of the investors include:
In general, debt instruments offered in securitisation transactions are only offered to professional investors, not retail investors. Therefore, investors are mostly banks, funds and similar entities. The securitisation instruments are also often acquired by public entities, such as the European Investment Bank. In certain cases, investors enjoy a number of privileges, including a call option (which might be associated with the obligation of the originator to repurchase receivables or assets that have been transferred to an SPE as a part of the securitisation deal) that could be activated upon a certain trigger, such as a default of a certain percentage of receivables transferred to an SPE that are the basis for the notes acquired by investors. The primary right of investors is to convene and vote on the meeting of investors, including extraordinary meetings that can be convened in certain cases. The instruments issued by issuers can also be divided into different classes, the purchasers of which enjoy different rights.
Polish law does not recognise trusts and trustees as such. Polish law transactions often involve foreign law structures (mostly English law) and foreign trustees. This applies, in particular, to parallel debt structures that are often used to combine Polish and foreign security interests. This parallel debt is often created under an English-law Security Trust Deed, with the trustee being a professional entity (often a bank or credit institution).
Polish law does not explicitly envisage the admissibility of synthetic securitisation schemes, but the establishment of these structures is permissible according to the general rules of freedom of contract, and the regulations on particular parts of the structures of synthetic securitisation, ie, the establishment of SPEs, as well as derivatives and securities issued in relation to synthetic securitisation.
Unlike 'true sale' securitisation, synthetic securitisation is not linked to the transfer or assignment of underlying receivables. This feature allows originators to transfer the exposure to the risk arising from the receivables that are, in accordance to the statutory or contractual provisions, limited or not transferrable to third parties by a 'true sale' assignment, or in the event that the transfer of security interest that constitutes collateral for the receivables demands a disproportionate effort to be effectively transferred to third parties.
In principle, synthetic securitisation is not regulated by any competent authority, unless it is conducted in connection with a public offering or an admission to trading on the regulated market of issued securities subject to the prior approval of the prospectus, or involves a financial institution; in this case, the synthetic securitisation scheme can be partially subject to supervision by the KNF, especially in relation to prudential supervision of the capital requirements of the financial institution. Nevertheless, the KNF is not entitled to interfere in the shape or conditions upon which the structure of the synthetic securitisation has been established.
Polish law does not stipulate any special regulations concerning synthetic securitisation. The main provisions that can affect the process of synthetic securitisation are set out in the Banking Law, the Bankruptcy Law of Poland, the Act on Financial Instruments, the Act on Public Offering and the Act on Bonds.
The main differences between synthetic and regular securitisation are the method of the transfer of the risk, and the distribution of any proceeds from the underlying receivables.
In a regular securitisation, the receivables and their collateralisation are transferred to an SPE by way of assignment, which is funded by the issuance of the debt instruments. The SPE replaces the originator as a creditor and can only demand repayment of the receivables from the debtors in order to collect the cash that is subsequently distributed among the investors as the accrued interest and redemption value of the previously issued notes. Upon the assignment of the receivables, the originator no longer has exposure to the risks arising from the receivables and can freely distribute the obtained consideration, which replaces the assigned receivables in the balance sheet of the originator.
In a synthetic securitisation, the originator remains a creditor and is fully exposed to the risk related to the receivables that are still on the books of the originator, whilst the default risk related to the receivables is transferred to an SPE not by assignment but by a credit derivative instrument called a credit default swap (CDS). Unlike in 'true sale' securitisation, the SPE only acts as the issuer of credit-linked notes, the counterparty to the CDS, and the collector and holder of the cash that serves as the collateral for the CDS.
CDS, as a derivative contract, is treated preferably in the event of bankruptcy or restructuring of any party to such an agreement. The Bankruptcy Law and the Restructuring Law provide that if derivatives contracts are executed on the basis of a master agreement and the provisions of such agreements envisage termination of the derivatives contract in the event of termination of the master agreement, then any claims arising under the specific derivative contracts concluded on the grounds of the master agreement shall not be included in the bankruptcy arrangement. Moreover, either party to such a derivative contract may terminate the master agreement, conduct settlements in accordance with contractual provisions and set-off the claims it has against the other party.
In CDSs that have a value equal to the notional amount of the credit-linked notes executed between the originator and the SPE, the SPE assumes the risk of the receivables portfolio and commits to provide the originator with a hedge against the default in relation to the receivables held by the originator.
As a consideration for the provided hedge, the originator pays the SPE a premium during the lifetime of the transaction, usually equal to the aggregated value of the proceeds gained from the underlying assets (receivables) or the collected cash deposited in the SPE's bank account or distributed among the investors as interest on the credit-linked notes.
In the event of a default of the securitised receivables, the SPE is obliged to pay the originator an amount equal to the value of the defaulted receivables from the cash collected through the issuance of credit-linked notes and held as collateral for the CDS in the SPE's bank account (however, this cash can be invested in high-credit quality and liquid assets, such as treasury bonds or money market instruments).
Upon the maturity of the credit-linked notes, the SPE redeems the issued credit-linked notes and hands back the principal to the investors, with accrued interest (collected as the premium for the CDS). The amount payable is on the note that can be written down based on the protection payments that the SPE was required to make to the originator under the CDS.
No response provided.
The originator of a synthetic securitisation can exclude securitised exposures from the calculation of risk-weighted exposure amounts and expected loss amounts if:
However, if the possible reduction in risk-weighted exposure amounts is not justified by a commensurate transfer of credit risk to third parties, the competent authorities may decide that significant credit risk cannot be considered to have been transferred to third parties
Notwithstanding the above, the competent authorities will grant permission to the originators to consider the significant credit risk as having been transferred if the originator is able to demonstrate, in every case of a securitisation, that the reduction of own funds requirements that the securitisation achieves for the originator is justified by a commensurate transfer of credit risk to third parties. The originator applying for permission will have appropriately risk-sensitive policies and methodologies in place to assess the transfer of risk, and will also have recognised the transfer of the credit risk to the third parties in each case for the purposes of the originator's internal risk management and its internal capital allocation.
Moreover, in order to comply with the requirements provided in the CRR, the originator must stipulate the following in the securitisation documentation:
Any clean-up call option must also meet the following criteria:
The most common types of receivables originated by Polish parties are:
Mortgage loan receivables are semi-securitised, ie, Polish mortgage banks often issue covered bonds (listy zastawne) on both domestic and international markets, denominated in EUR or PLN, that are secured by these receivables. However, covered bond issuances are subject to special rules that do not involve SPE structures. Furthermore, in accordance with the Polish Act on Covered Bonds, in the bankruptcy of a mortgage bank, these receivables constitute a separate bankruptcy estate and are not subject to a compulsory write-off or conversion to equity.
The prevailing structure used for each main type of receivable originated by Polish parties listed in 9.1 Common Financial Assets, above, would involve a standard approach, ie, the use of bankruptcy remote SPEs, which are limited liability companies. A notable exception relates to securitising NPLs originated by Polish banks, where securitisation closed-end alternative investment funds are commonly used, since the disposal of NPLs to any entity other than a securitisation fund does not allow an originating bank to achieve tax benefits. From the perspective of laws applicable to specific types of financial asset, these affect the specific provisions of securitisation transaction documents and/or selected security structure, rather than a general transaction structure. For example, when structuring a securitisation involving Polish assets, one should be aware of certain limitations related to consumer loans (since the Polish Law on Consumer Credit stipulates stricter debtor notification rules) or lease receivables (while still being a 'true sale' transaction, the scope of receivables' assignment and transfer should be tailored to mitigate certain legal risks specifically related to a lease under the Polish Civil Code), etc.
In the case of special purpose vehicles established under the IRAA for the purposes of risk transfer, The IRAA does not stipulate any mandatory contract conditions in relation to a special purpose vehicle, but the relevant provisions result from Regulation 2015/35. The contractual arrangements relating to the transfer of risk from an insurance or reinsurance undertaking to a special purpose vehicle shall ensure that the special purpose vehicle is at all times fully funded in accordance with Article 326 of Regulation 2015/35 (Article 319).
In accordance with Article 320 of Regulation 2015/35, the contractual arrangements relating to the transfer of risk from an insurance or reinsurance undertaking to a special purpose vehicle and from the special purpose vehicle to the providers of debt or financing shall ensure that:
If there are connected transactions which could undermine the effective transfer of risk, then the transfer of risk shall not be deemed to be effective in all circumstances.
Article 321 of Regulation 2015/35 regulates the rights of the providers of debt or financing mechanisms. In accordance with this provision, the contractual arrangements relating to the transfer of risk from an insurance or reinsurance undertaking to a special purpose vehicle, and from the special purpose vehicle to the providers of debt or finance, shall ensure that: