The goal of the changes in the new act is primarily to create better conditions for raising funds through issuance of bonds, expand the range of institutions and instruments available to issuers, and support the market for long-term non-treasury debt securities. In the new act, the Sejm has consolidated and clarified the legal terminology, thus eliminating many doubts in interpretation.
Under the provisions of new Bond Act entering into force as of 1 July 2015, a bond indenture will be a mandatory document regardless of the type of bonds issued on or after the date indicated. Most importantly, it will be possible to amend the bond indenture, even after completion of the issue, upon consent of the issuer pursuant to a resolution by the assembly of bondholders. This will enable flexibility of action when the deteriorating financial condition of the issuer makes it difficult for the issuer to perform its obligations. Moreover, the issuer will be empowered to amend the bond indenture unilaterally with respect to provisions of a technical character, where the amendment does not affect the rights and duties of the parties.
The new act also clarifies that the bondholders have a right to satisfy their claims, with priority over the issuer’s other creditors, not only out of the assets of a venture wholly financed with the proceeds of the bonds, but also out of the assets of ventures at least partially financed with the proceeds of the issue. This expands the sources of the pool of assets from which the bondholders may seek to enforce their claims. This is clearly a positive change which should encourage potential bondholders to invest their capital in a given venture.
The new act will enable bonds to be issued by special-purpose vehicles, i.e. companies established solely for the purpose of the bond issue, recognizing their operations as economic activity (i.e. organized and continuous), which has previously been doubtful. This will make it much easier for SPVs to raise capital. Moreover, issuers will be permitted to publish documents, information and notices connected with the issue of bonds on the issuer’s website instead of in a nationwide newspaper, which should generate significant savings compared to the current fees connected with reporting obligations.
The new act introduces the institution of the assembly of bondholders, as the representative of the entirety of holders of a given series of bonds. Although appointment of an assembly of bondholders will be optional, it will enable bondholders as a group to exert a real influence over the actions taken by the issuer in connection with the bonds. The act will introduce detailed formal requirements for convening and conducting sessions of the assembly of bondholders and for the validity of its resolutions, as well as the possibility of challenging its resolutions in a manner similar to challenging resolutions of shareholders under the Commercial Companies Code.
One of the new instruments that should be mentioned is perpetual bonds, i.e. with no maturity date, which essentially are not subject to redemption (apart from circumstances provided for in the act) but entitle the bondholders to receive interest for an indefinite time. This will be an attractive method for financing the operations of issuers, better securing the interests of bondholders in the event of the issuer’s insolvency, and for investors provides a concept for investing capital in a high-yield instrument.
Another interesting solution is subordinated bonds, which as a measure of the risk of the issuer’s operating activity may not be secured. If the obligations under the subordinated bonds are not paid in bankruptcy or liquidation, they would be payable only after satisfaction of the claims of holders of non-subordinated bonds.
The provisions of the current Bond Act have raised some doubts with respect to the limitations period for bondholders’ claims for interest payments. To eliminate these doubts, the new act introduces a clear 10-year limitations period for payment of benefits, including interest payments connected with bonds.