Immigration law /

The Supreme Court confirms the bondholder’s right to seek satisfaction from the mortgage omitting the mortgage administrator

The Supreme Court adopted a resolution on February 27, 2020, in which it stated that the bondholder has the right to claim from the mortgagor satisfaction from real estate encumbered with a mortgage securing claims from bonds issued on the basis of the Act of 29 June 1995 on bonds (i.e. Of Laws of 2001 No. 120, item 1300, as amended).
A resolution of the Supreme Court was adopted in a case in which one of the bond bondholders issued under the previous Act on Bonds of 29 June 1995 sought to satisfy the claim for redemption of the bond from a material debtor who established a mortgage to secure the issuer’s obligations. Due to the multitude of bondholders secured by one mortgage, a mortgage administrator has been appointed.
In the course of the proceedings, the court of appeal raised serious doubts as to whether the bondholder has the right to pursue the claim against the property-related debtor under mortgage-backed bonds, or whether such entitlement is vested solely in the case of the mortgage administrator, and presented the matter to the Supreme Court for consideration.
When adopting a resolution, the Supreme Court settled the case in favor of the bondholder, granting him a legal standing to seek satisfaction from the material debtor, bypassing the mortgage administrator. Arguing its position, the Supreme Court stated, among others, that:
  1. the Act on Bonds of 1995 did not explicitly reserve the exclusive right of the mortgage administrator to exercise the rights arising from the mortgage,
  2. the position of mortgage administrator has certain similarities to the position of executor of a will, which also acts on his own behalf, but for the benefit of third parties (heirs) in all matters arising from the administration of the estate – however, this does not deprive heirs of their active and passive legal standing;
  3. the purpose of introducing the mortgage administrator institution to the Act on bonds was to strengthen the protection of bondholders’ interests,
  4. the provisions of the Act on Bonds do not provide a guarantee of due protection of the bondholders’ interests by the mortgage administrator, primarily due to the fact that the administrator’s choice is left to the issuer and depriving the bondholders of the possibility to change the administrator’s person, even in the event of improper performance of duties.
For the above reasons, according to the Supreme Court, the right to seek satisfaction from the mortgaged property by the bondholders themselves should be granted, omitting the mortgage administrator.
The resolution of the Supreme Court is of great importance in trading practice. It settles the existing doubts as to the possibility of enforcing the rights of bondholders as mortgage creditors in the event of the issuer’s refusal to buy the bonds. In a situation where a mortgage constitutes the only valuable collateral for a buyout claim, the possibility of bringing a lawsuit directly by the bond holder, without the need to cooperate with the mortgage administrator, may significantly facilitate obtaining satisfaction of the buyout claims.
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Author team leader DKP Legal Marcin Kręglewski
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