October 8, 2010 marked the adoption of the Law, which has crucial importance for the issuers of corporate bonds (interest, trust, discount) - Law number 2601.
Legislative changes to the Law of Ukraine "On securities and stock market" aimed at addressing two key issues the bonds: (a) the problem of issuer default of corporate bonds, including bonds of trust and (b) issue a limited number of persons who may act as issuers of trust bonds, wrote the SPS.
Since 2009, the default has become a mass phenomenon and an inherent part of the global financial crisis. The legislator has recognized the global financial crisis force majeure, which allowed many companies to suspend the project and delay the implementation of treaty obligations . But the crisis as an act of God can not postpone or change the terms of the performance of public obligations arising under an open bond issues. As a result, the issuers of bonds are in the situation inevitable default on bonds issued under the conditions forced the suspension of activities.
Under the "default" legislation involves the inability of the bond issuer to pay the owners of the bonds in the terms established by the terms of issue, interest income on bonds and / or repay part or the full value of the bonds (part 1 section 1 of the Securities Commission Decisions in the wording of 26.10.2006, № 322 ). In turn, the redemption of the bonds - is paying a nominal value of bonds or the provision of goods within the time stipulated by the terms of the placement.
Feature of the default is that no one is obliged to declare and only the presence of all these traits suggests its occurrence. Uniqueness of default as a special legal effect is that it has no legally prescribed consequences to the issuer, nor in the plane of criminal, administrative, fiscal responsibility, nor in the plane of civil legal implications.
Moreover, very often the issuer, which in fact can not perform its obligations under the bonds issued lawfully avoid the situation of default, due to the fact that investors do not make it to maturity of bonds in time (typical target bonds). Exacerbated the problem of default ban for the issuer to change the registered prospectus after the placement, regardless of the nature of change (paragraph 10 of Chapter 1 of the Order № 322).
In the Law number 2601 to address the problem of defaulting on bond issues the legislator provided for the right of the issuer to extend the term of the bonds, however, with the following specific requirements:
(A) binding the consent of all investors for an extension of treatment and payment of registration or the fact of redemption issuer of the relevant issue (series), carried out at a nominal value of bonds. Analyzing the question of obtaining the consent of all investors by the issuer public bond issue on the prolongation of its circulation, raises several questions.
Initially, there are doubts about the possibility of each of the issuers to have information about the owners issued their bonds, since the records of ownership of bonds in paperless form of existence is separate from the person (Depository and selected investors, custodians).
To be sure, bond issuers target a better chance at part of the implementation of the rule, since each of the investors who bought bonds developer enters into a contract of reservation (reserve) or any other of its species.
However, the practice knows enough when investors are eliminated and do not sign contracts with the builder, which leads to inability to exercise control of the developer or the registration of owners of bonds. The second thorny issue of the document the feed of investor consent to extend the term of the bonds.
If we are talking about individuals, there is a need for notarization of the signatures in order to avoid possible risks. Appear to clarify this issue must make a Securities Commission, after approval of the Order of the extension of maturities and repayment of bonds.
The open question is the commercial feasibility of extending maturities and redemption of bonds if their issue (series), was purchased by the issuer, as this procedure has its own legal regulation (Securities Commission Decision number 322) and does not lead to negative consequences for the issuer (in fact to himself to fulfill the commitments he can not). The impression is that this option is provided by the legislator, especially for those developers who wish to re-launch its bond issuance, while avoiding the registration of a new release.
(B) the duration of the period for which may be extended circulation period and repayment of corporate bonds may not exceed the duration of the period defined by the prospectus of such bonds. Thus, if the issue was registered with maturity over 3 years and with a maturity of 1 year, then follow this norm, the issuer`s right of appeal for an extension before 3 years of age and maturity by 1 year.
The application of the rule for target bonds may lead to an inevitable violation of the rights of investors, buyers real estate under construction, which by virtue of ignorance of the specifics of the tool will agree to extend the term of the bonds, as an inevitable process, thereby denying themselves the right to make claims to the issuer, the developer, action / inaction which led to a default on the bonds.
Law number 2601 does not include real measures to counteract unfair actions of developers, issuers, who will resort to the extension of maturities in order to tighten the timing of impunity commitments. After all, in fact, the builder, guided by the norms of the Law number 2601, will extend the period of free use of previously received from the investors` funds.
(C) the extension should be done on the basis of the decision issuers, followed by registration in the Securities Commission of changes in the prospectus. After completion of registration of changes in the prospectus, which period will be 30 days, the issuer is obliged to publish the changes to the prospectus for 15 days from the date of registration of such changes. Given the fact that the bond issue prospectus is a public contract that is subject to mandatory publication, the amendments thereto can not enter into force prior to publication.
(D) use the procedure for extending treatment can bond issuers that have prospectuses (but not information about the bond issue), regardless of the duration of their registration. In accordance with paragraph 2 of section 2 of the Law № 2601 of its rules are extended to relations that arose before its entry into force.
Thus, the real practical arrangements for the extension of maturities and repayment of corporate bonds, we can not speak earlier assertions Securities Commission Order extending maturities and redemption. But the notion of "technical default" and has not found its legal reflection.
Law № 2601 - or may not be the target of the bonds?
For the first time at the level of the Law of the circle of persons who may act as issuers of bonds of trust.
Prior to the adoption of law number 2367 in accordance with the Securities Commission decision № 322 issuers target bonds could be persons who are owners or have the right to permanent use of the land on which to object is located housing. The presence of the rule limiting the range of issuers of bonds of trust was at odds with the provisions of the Law "On securities and stock market" and the law "On State Regulation of Securities Market", which in the Securities Commission is not assigned these powers to a narrowing range of issuers.
Following the innovations of the law number 2601, namely paragraph 10 of Article 7 of the Law of Ukraine "On securities and stock market" to the number of issuers of bonds would be targeted include: (a) land and land owners, which is planned for future construction of the facility; (b) legal entities that have entered into a contract of participation in housing construction with the executive authorities, local authorities, who may own, lease or permanent use of land, which will be located object.
Initially, attention is drawn to illogic rules regarding the availability of property rights to land from local authorities or bodies of executive power, which is contrary to the provisions of Article 92 of the Land Code of Ukraine.
Not accidentally, the law number 2601 is mentioned contract of participation in housing construction, as the document that governs the relationship between land-executive authority and the prospective issuer.
Any other type of contract (agency agreement, the agreement of joint activities, etc.) are subject to consultation with the Cabinet in accordance with the Order of Cabinet of Ministers N 703-p dated 7 May 2008 and again did not take into account the risks those investors who purchase these bonds issuers having a status of "psevdozastroyschika" as any contract beyond the control of the issuer may be terminated, and because it is based on the treaty line up the rights and guarantees on future real estate.
History contains a variety of options for termination of the contractual relationship of developers and investors attracted by their master, who delegated some of the functions of the customer building - this recognition agreements null and void, and not concluded, and their early termination.
It is impossible to exclude or to predict the risks and the elimination of the local government and executive authority as a landholder, which inevitably would bring the loss of land rights (article 142 ZKU) and as a consequence of the loss of rights to develop. This conclusion confirms the elimination of institutionalized regional council in the city of Kiev in line with the decision of the Kyiv City Council on September 9, 2010 N 7 / 4819.
Widening the circle of trust issuers of bonds by the inclusion of the number of persons not entitled to land, may repeat the sorrowful experience with CFF, developers involving persons with delegated functions of the customer and do not have rights to land.
And do not forget that the target bonds are not secured by real estate, which is released under, which leads to lack of investor-emptive rights to proivnestirovanny object.