May 2015
Practice Group(s):
Restructuring &
Insolvency
The end of bank enforcement titles and new
perspective at distressed debt market in Poland
By Lech Giliciński & Piotr Moskała
Unconstitutional enforcement privileges
On April 14, 2015 the Polish Constitutional Tribunal has analyzed the constitutional
status of bank enforcement titles (“BETs”). The idea behind BETs is quite simple – create
a shortcut for banks to accelerate the debt collection process by skipping court
proceedings for payment. On the basis of debtor’s (or third party collateral provider’s)
declaration on submission to enforcement made usually along with execution of the loan
facility agreement, the creditor (being specifically a bank) may, in case of debtor’s
default, issue a BET allowing it, after being granted an enforcement clause, to turn
directly to a court bailiff with a view to start collection activities. Despite the fact that
Polish law allows to expedite the debt collection on the basis of a submission to
enforcement, BETs may be issued solely on the basis of a debtor’s written declaration,
whereas a standard submission to enforcement requires the execution of a notarial deed
which involves the payment of notarial fees. Consequently, banks have an exclusive
access to fast enforcement without increasing borrowing costs.
The Tribunal found the privilege inconsistent with the constitutional principle of equal
treatment. The violation of the Constitution was based on multiple dimensions of the
discussed mechanism – it encroaches not only on the position of other creditors, but
disrupts a delicate balance of lender and borrower under a loan agreement, as well.
Consequently, the provisions of the Banking Law dated August 29, 1997 pertaining to
BETs were repealed by the Tribunal, effective as of August 1, 2016 and hence no BET
can be issued after that date. Until then, the legislature has time to create new
mechanisms substituting BETs, yet conforming to the Constitution.
Impact on debt market
As it was raised by the Tribunal, Polish law offers alternative institutions to BETs. One of
them is the above-mentioned notary declaration on submission to enforcement, yet it
involves additional costs which may be seen as unattractive from the perspective of
overall costs of various categories of loans, notably consumer loans. Another way is to
make the debtor fill in a blank promissory note which is costless, but requires court
proceedings (in a form of proceedings by writ of payment) before passing to
enforcement. As a result, unless a legislative change occurs, the alternate scenarios are
the rise of borrowing prices or higher demand for collection services.
From the practical perspective, the BETs were deeply rooted in the banking practice in
Poland and their elimination from available enforcement mechanisms will revolutionize
collection procedures of banks’ debts. It is more likely than not that Polish banks will tend
to more eagerly put distressed debt portfolios on the market, especially in relation to
consumer and mortgage loans, whose borrowing costs may be significantly affected by
notarial fees. Polish securitization funds may also be used more frequently as the banks’
selling distressed loans to such entities enjoy a special treatment under the Polish CIT
The end of bank enforcement titles and new perspective at distressed debt
market in Poland
rules. Therefore, we expect a further growth of structures involving the investors’ use of
securitization funds for the acquisition of distressed loans and their subsequent servicing
by professional collection firms.
Authors:
Lech Giliciński
lech.gilicinski@klgates.com
+48.22.653.4215
Piotr Moskała
piotr.moskala@klgates.com
+48.22.653.4305
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