Michał Kulig


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Michał Kulig


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20 February 2024

Lending Focus - February 2024 – 4 of 10 Insights

The loan market in Poland: examination of the "submission to enforcement" and recent changes

  • Briefing

What is STE? 

Lenders who have experience of the loan market in Poland may already be familiar with the concept of the statement on submission to enforcement (in Polish “oświadczenie o poddaniu się egzekucji”), in short referred to as “STE”.

STE is present in almost every financing transaction in Poland and will apply to a broad range of transactions including acquisitions, real estate, working capital, project finance, where there is at least one Polish debtor (borrower or guarantor) or transaction security is located in Poland. To the uninitiated, the idea may appear exotic; not having a direct equivalent in most other jurisdictions. STE is not considered to be a separate security instrument from the lender’s security package, which may include pledges over shares, pledges over assets, security assignments of rights or mortgages over real property. Its aim is to facilitate enforcement against the debtor’s assets through an enforcement procedure rather than to create a security interest over a particular asset. In facility agreements with a Polish element based on the Loan Market Association (the LMA) documentation, STE is nevertheless typically listed within the “Security Documents” or “Transaction Security” definition.

There are specific requirements as to execution in relation to STE. It is executed by way of the debtor’s (either borrower’s, guarantor’s or other security grantor’s) statement in the form of a notarial deed, which requires physical execution in front of a Polish notary. The notarial costs typically do not exceed approx. EUR 1,000.

Why is it required?

Under Polish law, in order to initiate court enforcement against a debtor, a court bailiff (in Polish: komornik sądowy) requires an enforcement title (in Polish: tytuł egzekucyjny) appended by a court with an enforcement clause (in Polish: klauzula wykonalności). Typically, a valid and binding court judgment (ie either a judgment of a court of second instance or a judgment of a court of first instance which was not appealed against) constitutes an enforcement title. 

The benefit of having STE in place is that such a document also constitutes an enforcement title. Accordingly, if a lender possesses STE duly signed by a debtor, it does not need to initiate standard court proceedings to obtain a court judgment establishing that the lender has a due and payable claim against the debtor but it may proceed directly to the enforcement stage. In our experience, initiating court enforcement by way of reliance on STE allows the lender to save a lot of time and is also more cost-effective. Obtaining a valid and binding court judgment establishing the lender’s due and payable claim against the debtor may take (in some cases) even up to a few years, while enforcement based on STE may take less than 6 months.

A point worth noting here is that, if a registered pledge over the debtor’s assets (such as shares or bank account receivables) is established under Polish law, the lender may have an option to use out-of-court enforcement methods provided for in the pledge agreement, such as takeover of the pledged assets, which do not require the court enforcement procedure. Nevertheless, if the lender does not want to use or cannot use such out-of-court enforcement methods (for example if court enforcement proceedings have already been initiated in relation to the pledged assets), it can rely on STE to initiate proceedings through the court bailiff. Accordingly, it is market standard in Poland that not only the direct debtor but also a grantor of security (in particular an entity establishing a pledge over shares) establishes STE in favour of the lender.

Specific requirements and recent changes 

Establishing a valid STE is subject to a number of formal requirements, including some additional ones introduced by amendments to art. 777 of the Polish Code of Civil Procedure which came into force at the end of 2022. The major requirements are:

  • As mentioned above, STE has to be executed by the debtor in the form of a notarial deed in front of a Polish notary. Since Polish notarial documents cannot currently be executed remotely or electronically, the physical presence of a debtor’s signatory is required. Accordingly, often a notarial power of attorney (and in some jurisdictions also an Apostille clause) must be prepared in advance, which may affect the timing of the transaction.
  • Typically, STE must specify a maximum amount up to which the lender may enforce its claim against the debtor – the market standard with respect to securing a claim under a facility agreement is to establish a “buffer” over the nominal amount of the loan, to take into account the interest, fees and ancillary costs including the costs of enforcement. Usually, the maximum amount limiting enforcement is equal to 150% of the nominal amount of the loan, but it should be confirmed by the parties in each case.
  • The deadline for the lender to initiate enforcement proceedings under STE must be specified – the market standard in relation to facility agreements is to indicate the final maturity date of a loan and additional 3 calendar years in line with the Polish statute of limitations for this type of claim.
  • The standard conditions for the lender to initiate enforcement proceedings against the debtor under STE are: 
    (i) delivery by the lender of a letter requesting the debtor to pay the amount due
    (ii) non-payment by the debtor within the timeframe specified by the lender.
    Consequently, the debtor needs to establish an address in Poland for the purpose of delivery of correspondence under the STE regime.
  • As a new requirement, STE must also specify:
    (i) the legal relationship between the lender and the debtor (typically a facility agreement, often also a framework agreement providing for hedging transactions)
    (ii) the date of establishment of the debtor’s obligation (typically the availability period under the facility agreement and the final maturity date are indicated)
    (iii) the substance of the debtor’s obligation – the essentials with respect to facility agreements arspane the debtor’s obligation to pay the nominal amount of the loan with interest; however, also a short summary of additional fees (such as prepayment or commitment fee) and ancillary payments may be prepared by a notary or lawyer
    (iv)in the case of mutual agreements (such as facility agreements), a description of the lender’s obligations (such as the obligation to make a loan available to the borrower).

With all of these formal requirements to consider (non-observance of which may result in the court refusing to append STE with an enforcement clause, which may in turn stop the lender from initiating enforcement proceedings), we highly recommend that the process of establishing STE is supervised by qualified counsel.

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our Banking and Finance team in Warsaw.

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