In the wake of Russia’s recent introduction of new rules for debt repayment of foreign creditors, dividing foreign creditors according to whether or not they are based in a country that has sanctioned Russia (the “Decree”), creditors exposed to Russian entities have begun reviewing their repayment options. Some of them may consider themselves lucky to hold export credit insurance covering their political and/or commercial risk of financing from Russia. For these creditors, the time has come to test the value of their export credit insurance.
Currency transfers blocked as events insured under Polish export credit insurance
In Poland, export credit insurance is provided by the Polish Export Credit Agency (ECA) – KUKE SA – and this insurance is indirectly supported by the Polish state. Legally, it is a variation of typical property insurance. Therefore, the handling of claims with the Polish Export Credit Agency is similar to the traditional handling of property insurance claims, except for the legal framework of the former.
According to the conditions agreed in the export credit insurance policy, the impossibility of transferring foreign currency to Poland can be considered as an insured event under the export credit insurance provided by the Polish ECA. To obtain the proceeds of the insurance, the insured must file a claim, prove the insured event and demonstrate a causal link between this event and the damage suffered, as well as proof that the damage is a normal, direct and exclusive of this insured an event. Past experience shows that a borrower’s delay or default in repaying credit during a period of payment restrictions in his home country is often the harbinger of that borrower’s insolvency, which is an event separately insured under Polish export credit insurance.
Damage covered by Polish export credit insurance
The scope of damages insured under Polish export credit insurance is capped at the insured amount provided for in the relevant policy covering repayments of principal, interest on the principal amount and agreed charges provided for in the policy insurance. Default and other interest, deductible, other costs, costs of currency fluctuations and loss of profits are not covered by Polish export credit insurance.
The Polish ECA is also not liable for damage resulting from:
any action or inaction of the insured or the person acting on their behalf;
the provisions limiting the rights of the insured resulting from the contract covered by the export credit insurance, the export contract or any other guarantee/surety or other guarantee document,
any other agreement concluded between the insured and the debtor, without the consent of the Polish ECA
consent, after the entry into force of the contract covered by the insurance, which authorizes both parties to suspend or defer the payment of claims.
This last point is very important if parties to export credit agreements were considering signing waiver, consent or standstill agreements to suspend or defer payments. These agreements must be consulted and approved by the ECA.
The processing of applications to the Polish ECA is divided into three main stages. First, between the insured event and the start date of the damage provided for in the Polish export credit insurance, the creditor must notify the Polish ECA of the amount of the threatening damage. Then, the creditor files the declaration of loss with all the documents justifying the damage and the formalities required by the Polish regulations on export credit insurance. If all formal conditions are met, the Polish ECA will pay the damages. It is important to note that the Polish ECA is entitled to pay liquidated damages in accordance with the repayment schedule agreed between the parties to the relevant export credit agreement, regardless of any termination and acceleration of payments by the creditor. At its discretion, the Polish ECA may decide to pay the full damages earlier. In this case, he will deduct from the amount of the damages the interest on the principal which will not be due. In principle, the Polish ECA is obliged to pay the damages within 30 days of receipt of the claim request accompanied by the required documents justifying the damages, but at the earliest 30 days from the date of the start of the relevant damages. However, in the event of a dispute between the parties regarding the relevant export credit agreement, the Polish ECA may suspend payments until such dispute is finally resolved.
Obligations after payment of damages
Once the Polish ECA has paid the damages, its legal relationship with the insured is not yet concluded. The insured must cooperate with the Polish ECA and ensure that all guarantees under the export credit agreement are transferred to the ECA. In the event of partial payments, the insured is obliged to act against the debtor and to cooperate with the ECA. Understanding the issues of export credit insurance and properly preparing the processing of applications are the cornerstone of good cooperation with the ECA.
© Copyright 2022 Squire Patton Boggs (USA) LLPNational Law Review, Volume XII, Number 87