Debt finance

Some of the key areas affecting the giving of guarantees and security are:

Capacity

It is important to check the constitutional documents of a company giving a guarantee or security, as they often provide that corporate authorization is required in connection with granting a guarantee or security.

Actio pauliana

If a third party has gained a benefit as a result of a legal transaction effected by a debtor to the detriment of its creditors (ie where the debtor became insolvent or became insolvent to a greater extent as a result of the transaction), each of the creditors may demand that the transaction be recognized as ineffective, if the debtor consciously acted to the creditors' detriment and the third party knew or with due diligence could have known about it (and it is alleged that the third party knew that the debtor acted to the creditors' detriment, if the third party remains in a permanent or close economic relationship with the debtor) or the third party obtained the benefit free of charge.

Insolvency and restructuring

Guarantees and security may be at risk of being set aside under Polish insolvency and restructuring laws if the guarantee or security was granted by a company a certain period of time prior to the onset of insolvency or restructuring proceedings.

Financial assistance

A joint-stock company may, directly or indirectly, finance the acquisition of or subscription for the shares that it issues, in particular by making loans, providing advance payments, or creating security, provided that the financing is granted on market terms and after the solvency of the debtor has been checked, the acquisition or subscription is for a fair price, the financing is made from the reserve capital created by the company for that purpose, and the financing is based on and is within the limits set out in an earlier resolution of the general assembly of the company. In the case of a limited liability company, the shareholders may not receive, under any title, any payments from the company's assets needed to fully finance the share capital.

Common forms of guarantees

Guarantees can take a number of forms.

A particular distinction worth remembering is between a performance guarantee and a payment guarantee:

• Performance guarantee is a term used to describe both performance bonds (in the context of trade finance) and ‘see to it’ guarantees (in other contexts):
  • A performance bond describes a financial undertaking used to protect a buyer against the failure of a supplier to deliver goods or perform services in accordance with the terms of a contract. The issuer of the bond undertakes to pay to the buyer a sum of money if the seller fails to deliver the goods or perform the contracted services on time or in accordance with the terms of the contract.
  • A ‘see to it’ guarantee is a promise by the guarantor to see to it that the primary obligor fulfils its obligations under the primary contract. If the primary obligor fails to fulfil its obligations under the primary contract, the guarantor will be in breach of its obligations under the guarantee.
• A payment guarantee is narrower in scope than a performance guarantee as it only covers the payment of money rather than other contractual obligations.

Common forms of security

Polish law provides for real and personal security interests.

Personal security interests include:

• suretyship;
• guarantee; and
• statement on submission to enforcement.

The following types of security interest in rem can be created under Polish law:

• a pledge (under Polish law a distinction can be made between a registered pledge, a civil pledge and a financial pledge);
• a mortgage;
• a security assignment of receivables; and
• a security transfer of assets.

Different types of security are suitable for securing different types of assets.

Under Polish law, it is possible to grant security over all of the moveable assets and rights of a Polish company or over individual assets. Granting security over all of a company's assets may be achieved by the establishment of a registered pledge. However, real property cannot be encumbered with a pledge. The only security interest that can be established over the real property is a mortgage.

Giving or taking security

Some documents creating security interest have to be executed in a special form, for instance:

• Statement on granting a mortgage has to be executed in the form of a notarial deed (there are certain statutory exceptions to this rule).
• Agreement for the establishment of a civil pledge over shares has to be executed in writing with signatures certified by a notary.
• Security assignment agreement and security transfer of assets have to be executed with a certified date.

Once granted, security often needs to be properly perfected before it is valid against third parties. Perfection formalities range from having the secured asset delivered to the security holder, registration of the security, and notice being given to third parties. For instance, registered pledges and mortgages have to be registered in the relevant registers.

Like guarantees, for a certain period after a new security interest has been granted (known as the hardening period), it is at risk of being set aside in certain circumstances under insolvency and restructuring laws.

In the case of a guarantor that is a limited liability company, the shareholders may not receive, under any title, any payments from the company's assets needed to fully finance the share capital.

For more information, see Tax issues – stamp taxes.