POLAND Law and Practice Contributed by: Michał Wielhorski, Mateusz Prokopiuk, Małgorzata Wąsowska and Klaudia Michalec, act legal Poland
as well as notarial fees plus VAT if the security is established by notarial deed. 3.5 Legal Requirements Before an Entity Can Give Valid Security Depending on the provisions of the company’s articles of association, it may be necessary to obtain the approval of the relevant governing body to establish a mortgage over real estate belonging to the company. In the area of financial assistance, the current rule is that it is permissible for a joint stock company to directly or indirectly finance the acquisition or subscription of its own shares – in particular, through the granting of loans or the establishment of security, including mortgages on real estate. 3.6 Formalities When a Borrower Is in Default The most commonly used security interest established over real estate is a mortgage, where the lender usually requires the mortgage to have the highest priority. In such case, the lender’s position is secured owing to the fact that there are no other mortgages with a higher priority encumbering the property. The enforcement of a claim secured by a mort - gage on real property is a multi-stage process that is initiated by the public bailiff on the basis of enforcement title. The process ends – if the debt is not satisfied by the borrower – with a public auction of the real estate. 3.7 Subordinating Existing Debt to Newly Created Debt An existing secured debt may be subordinated to a newly created debt, with the proviso that this requires the agreement and appropriate structuring of the legal relationship between the
creditors. Such subordination may occur volun - tarily by contract (ie, the subordination agree - ment) or, in specific cases, by law (the law may grant priority to specific claims). The subordi - nation mechanism may be deemed ineffective owing to bankruptcy or restructuring provisions. 3.8 Lenders’ Liability Under Environmental Laws A creditor holding or enforcing security over real estate – as a rule – cannot be classified as an entity using the environment and consequently is not liable under the principles of liability for environmental damage prevention and remedia - tion, which are governed by the Remediation Act (see 2.7 Soil Pollution or Environmental Con- tamination ). 3.9 Effects of a Borrower Becoming Insolvent Security interests, such as a mortgage, do not expire as a result of the debtor’s bankruptcy. Mortgage creditors have priority in the satisfac - tion of their claims; the amount obtained from the sale of the encumbered real estate is allocated first to satisfy the claims of mortgage-secured creditors. There are, however, exceptions. 3.10 Taxes on Loans In the case of debt financing, the main tax benefit is the ability to deduct interest as an expense, provided the requirements of the Cor - porate Income Tax (CIT) Act are met. Interest is deducted on a cash basis, up to the higher of PLN3,000,000 or the amount calculated based on the EBITDA formula. Debt financing costs must be excluded from deductible expenses if the excess exceeds either of these amounts. The CIT Act also allows for the deduction of notional interest in the case of equity financing, but up to PLN250,000 annually.
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