Our company has invested its financial surpluses in bonds issued by another company. For a long time, we have been confirmed in our belief that we have deposited our capital well, as the company has regularly paid out the interest. Unfortunately, the last payment was not made when due. We are now considering the possibility of making a demand for early redemption of our debt securities.

If the issuer stops making payments due on its bonds, the bondholder is entitled to demand that such bonds be redeemed early. The Act of 29 June 1995 on bonds (applicable to debt issued before 30 June 2015) does not stipulate any additional requirements that need to be met in order for this right to be exercised. It is therefore enough for a delay to occur – whether or not the issuer is at fault – for the bondholder to be entitled to demand early repayment. Pursuant to the new Act of 15 January 2015 (applicable to securities issued after 1 July 2015), the bondholder may make such demand immediately if a delay in the payment of interest is attributable to the issuer. If the delay has been caused by circumstances not attributable to the issuer, the demand may be made three days after the delay occurred.

“In addition, the Act stipulates that the terms of issue may provide for a period of involuntary delay entitling bondholders to demand redemption shorter than three days. This means that the new Act provides for the practice of tolerating short, involuntary delays on the part of issuers, while allowing for a more strict treatment of issuers in the market play of issuers and investors and the practice of capital markets,” explains Leszek Rydzewski, an attorney from the FKA Furtek Komosa Aleksandrowicz law firm.

The regulations are thus quite liberal as regards the possibility of making the demand by bondholders. A slight delay of the issuer in making due payments is enough for such right to arise on the part of the holder.

Experts warn, however, that entities investing in bonds should think twice before rushing to exercise this right. “They should be aware of the consequences of such demand, and consider it as a last resort,” Leszek Rydzewski says.

Late payment of interest most often means the issuer has financial problems. “In such situation, a demand for immediate redemption of bonds may cause a disruption of financial liquidity to such an extent that it may trigger a domino effect. A demand for early redemption may result in an event of default under other agreements which provide for the issuer’s funding, for example providing grounds for the termination of loan agreements by banks, or leases by leasing companies. This in turn may force the issuer to file for bankruptcy,” Rydzewski explains.

Practice shows that in bankruptcy proceedings creditors may have a hard time recovering the full amount of their receivables. In the light of such regulations, it appears that an amicable solution of the deadlock may be a better option. For example, the creditor company may enter into an agreement with the bond issuer to postpone the payment of a coupon for the next interest period in exchange for an additional premium. This will give the debtor more time to improve liquidity, e.g. by finalising contracts and thus obtaining funds necessary to pay its liabilities to creditors.

Legal basis

Article 24 Section 2 of the Act of 29 June 1995 on bonds (i.e. Journal of Laws of 2014, item 730) – applicable to bonds issued before 30 June 2015.

Article 74 Section 2 of the Act of 15 January 2015 on bonds (Journal of Laws of 2015, item 238) – applicable to bonds issued after 1 July 2015.

  Our company has invested its financial surpluses in bonds issued by another company. For a long time, we have been confirmed in our belief that we have deposited our capital well, as the company has regularly paid out the interest. Unfortunately, the last payment was not made when due. We are now considering the possibility of making a demand for early redemption of our debt securities.
If the issuer stops making payments due on its bonds, the bondholder is entitled to demand that such bonds be redeemed early. The Act of 29 June 1995 on bonds (applicable to debt issued before 30 June 2015) does not stipulate any additional requirements that need to be met in order for this right to be exercised. It is therefore enough for a delay to occur – whether or not the issuer is at fault – for the bondholder to be entitled to demand early repayment. Pursuant to the new Act of 15 January 2015 (applicable to securities issued after 1 July 2015), the bondholder may make such demand immediately if a delay in the payment of interest is attributable to the issuer. If the delay has been caused by circumstances not attributable to the issuer, the demand may be made three days after the delay occurred.
“In addition, the Act stipulates that the terms of issue may provide for a period of involuntary delay entitling bondholders to demand redemption shorter than three days. This means that the new Act provides for the practice of tolerating short, involuntary delays on the part of issuers, while allowing for a more strict treatment of issuers in the market play of issuers and investors and the practice of capital markets,” explains Leszek Rydzewski, an attorney from the FKA Furtek Komosa Aleksandrowicz law firm.
The regulations are thus quite liberal as regards the possibility of making the demand by bondholders. A slight delay of the issuer in making due payments is enough for such right to arise on the part of the holder.
Experts warn, however, that entities investing in bonds should think twice before rushing to exercise this right. “They should be aware of the consequences of such demand, and consider it as a last resort,” Leszek Rydzewski says.
Late payment of interest most often means the issuer has financial problems. “In such situation, a demand for immediate redemption of bonds may cause a disruption of financial liquidity to such an extent that it may trigger a domino effect. A demand for early redemption may result in an event of default under other agreements which provide for the issuer’s funding, for example providing grounds for the termination of loan agreements by banks, or leases by leasing companies. This in turn may force the issuer to file for bankruptcy,” Rydzewski explains.
Practice shows that in bankruptcy proceedings creditors may have a hard time recovering the full amount of their receivables. In the light of such regulations, it appears that an amicable solution of the deadlock may be a better option. For example, the creditor company may enter into an agreement with the bond issuer to postpone the payment of a coupon for the next interest period in exchange for an additional premium. This will give the debtor more time to improve liquidity, e.g. by finalising contracts and thus obtaining funds necessary to pay its liabilities to creditors.
Legal basis
Article 24 Section 2 of the Act of 29 June 1995 on bonds (i.e. Journal of Laws of 2014, item 730) – applicable to bonds issued before 30 June 2015.
Article 74 Section 2 of the Act of 15 January 2015 on bonds (Journal of Laws of 2015, item 238) – applicable to bonds issued after 1 July 2015.
Our company has invested its financial surpluses in bonds issued by another company. For a long time, we have been confirmed in our belief that we have deposited our capital well, as the company has regularly paid out the interest. Unfortunately, the last payment was not made when due. We are now considering the possibility of making a demand for early redemption of our debt securities.
If the issuer stops making payments due on its bonds, the bondholder is entitled to demand that such bonds be redeemed early. The Act of 29 June 1995 on bonds (applicable to debt issued before 30 June 2015) does not stipulate any additional requirements that need to be met in order for this right to be exercised. It is therefore enough for a delay to occur – whether or not the issuer is at fault – for the bondholder to be entitled to demand early repayment. Pursuant to the new Act of 15 January 2015 (applicable to securities issued after 1 July 2015), the bondholder may make such demand immediately if a delay in the payment of interest is attributable to the issuer. If the delay has been caused by circumstances not attributable to the issuer, the demand may be made three days after the delay occurred.
“In addition, the Act stipulates that the terms of issue may provide for a period of involuntary delay entitling bondholders to demand redemption shorter than three days. This means that the new Act provides for the practice of tolerating short, involuntary delays on the part of issuers, while allowing for a more strict treatment of issuers in the market play of issuers and investors and the practice of capital markets,” explains Leszek Rydzewski, an attorney from the FKA Furtek Komosa Aleksandrowicz law firm.
The regulations are thus quite liberal as regards the possibility of making the demand by bondholders. A slight delay of the issuer in making due payments is enough for such right to arise on the part of the holder.
Experts warn, however, that entities investing in bonds should think twice before rushing to exercise this right. “They should be aware of the consequences of such demand, and consider it as a last resort,” Leszek Rydzewski says.
Late payment of interest most often means the issuer has financial problems. “In such situation, a demand for immediate redemption of bonds may cause a disruption of financial liquidity to such an extent that it may trigger a domino effect. A demand for early redemption may result in an event of default under other agreements which provide for the issuer’s funding, for example providing grounds for the termination of loan agreements by banks, or leases by leasing companies. This in turn may force the issuer to file for bankruptcy,” Rydzewski explains.
Practice shows that in bankruptcy proceedings creditors may have a hard time recovering the full amount of their receivables. In the light of such regulations, it appears that an amicable solution of the deadlock may be a better option. For example, the creditor company may enter into an agreement with the bond issuer to postpone the payment of a coupon for the next interest period in exchange for an additional premium. This will give the debtor more time to improve liquidity, e.g. by finalising contracts and thus obtaining funds necessary to pay its liabilities to creditors.
Legal basis
Article 24 Section 2 of the Act of 29 June 1995 on bonds (i.e. Journal of Laws of 2014, item 730) – applicable to bonds issued before 30 June 2015.
Article 74 Section 2 of the Act of 15 January 2015 on bonds (Journal of Laws of 2015, item 238) – applicable to bonds issued after 1 July 2