Poland: COVID-19 - Impact on obligations under financial instruments
Certain companies have financed their activities through the use of bonds or similar debt instruments. Issuers of such securities should as soon as possible analyse their ability to service their obligations towards their holders. In the event of a negative result of such a review, they should explore possibilities to suspend the performance of their duties under the issued instruments.
Polish law provides for two major cases, in which, a party could invoke extraordinary circumstances in order to be exempted from its obligations.
An event of force majeure can become the basis for exemption of a party from its obligations under an issuance of bonds or other debt instruments, irrespective of whether it is expressly regulated in the terms and conditions of such financial instruments, or not.
The occurrence of force majeure results in liberating the issuer from liability for breach of its pecuniary or other obligations, if there is a causal link between the non-performance and the event of force majeure. Such a company will not, in principle, be obliged to redress damage. However, the extent of such release has to be verified case by case.
Bearing in mind that COVID-19 is an epidemic and given the recent acts of Polish authorities consisting in limiting the possibility to enter or leave Poland, certain issuers might face difficulties in meeting their obligations resulting from the issued debt instruments. It is advisable to make a review of the terms and conditions of such financial instruments in order to analyse if force majeure could be legally effectively applied.
EXTRAORDINARY CHANGE OF CIRCUMSTANCES
Given that the issuance of bonds is in general considered as creating a contractual relationship between the issuer and the bondholders, issuers should also examine if they could be entitled to rely on the possibility to request a civil court to change the manner in which their obligations under bonds have to be performed, determine the amount of monetary obligations, or even terminate the relationship created on the basis of the bonds’ issuance.
As in the case of force majeure, the terms and conditions need to be reviewed individually in order to establish if the events which occurred, could allow to conclude that the required criteria were met to allow one or both parties to rely on the above-mentioned provisions of the Polish Civil Code.
The current situation related to COVID-19 seems to form a possible basis for the application of the described provisions of law.
Each issuer should perform a review of the underlying terms and conditions of each debt instrument under which the discharge of obligations might be endangered. Apart from terms and conditions, it is advisable to analyse any other documents which formed the basis of the offering such as for example: information memorandum, issue prospectus, etc.
It is equally important to assess, as soon as possible, the impact of the coronavirus on the issuer’s ability to perform its obligation and if there are reasonable grounds to consider that COVID-19 might have such a negative influence on it, to appropriately disclose this fact to the holders of their instruments.
In the event of listed companies or issuers of bonds or similar instruments introduced to trading on a regulated market, multilateral trading facilities (MTFs) or other types of organised trading facilities (OTFs), the disclosure should be made pursuant to the provisions of the Market Abuse Regulation.
On 11 March 2020 ESMA has issued a recommendation according to which issuers should:
- disclose as soon as possible any relevant significant information concerning the impacts of COVID-19 on their fundamentals, prospects or financial situation in accordance with the Market Abuse Regulation;
- provide transparency on the actual and potential impacts of COVID-19, to the extent possible based on both a qualitative and quantitative assessment on their business activities, financial situation and economic performance in their 2019 year-end financial report if these have not yet been finalised or otherwise in their interim financial reporting disclosures.
Should you be facing difficulties in meeting your obligations under bonds or similar debt instruments or receiving information from issuers on their inability to perform agreements, we strongly suggest to make a review of the underlying terms and conditions. Each case requires a separate analysis both of the invoked circumstances and the legal basis for exemption from civil liability.