THE FINANCIAL SHIELD OF THE POLISH DEVELOPMENT FUND

We set out below selected issues proposed within a so-called financial shield to be provided by the Polish Development Fund (hereinafter also: “PFR”).

The financial shield essentially consists of two government financial support programs for enterprises:

– PFR Financial Shield for Large Enterprises

– PFR Financial Shield for Small and Medium-sized Enterprises

whose legal basis is regulated in art. 21a section 1 of the Act on the system of development institutions dated 4 July 2019 [Journal of Laws of 2019, item 1572, as amended], allowing the Council of Ministers to entrust PFR with the implementation of such programs. Thus – unlike the existing anti-crisis solutions – most likely the financial shield will not be regulated directly in the legal act.

The main assumptions of the financial shield have already been published, while the detailed principles of the program will be presented after obtaining the consent of the European Commission for its implementation. Due to the above, individual solutions of the financial shield may still be modified.

In subsequent tax alerts we will inform you about any changes and additional clarifications of current doubts as to the manner of implementation and the scope of support offered.

If you have additional questions or concerns, please contact us.

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PFR Financial Shield for Large Enterprises

Addressees of the program

Entrepreneurs who cumulatively meet the following conditions will be able to benefit from support under the PFR Financial Shield for Large Enterprises:

– belong to the so-called large enterprises i.e.:

• employ at least 250 employees (according to PFR explanations, this applies to total employment in the capital group);
• their turnover exceeds EUR 50 million or the balance sheet total exceeds EUR 43 million (according to PFR explanations this would relate to the turnover and balance sheet total on a consolidated basis);
• it is worth noting that in some cases entrepreneurs who do not meet the above conditions will also be able to benefit from the support;

– they faced one of the following situations:

• a decrease in economic turnover of at least 25% in any month after 1 February 2020 compared to the previous month or the corresponding month of the previous year;
• a loss of the ability to produce/provide services or receive products/services by the purchasers due to the lack of availability of components or resources in connection with COVID-19;
• a lack of receipt of payment for sales due to the COVID-19 in an amount exceeding 25% of the amount due;
• lack of access to the capital market or credit limits in connection with new contracts due to disruptions in the functioning of the financial market;
• taking part in the Sector Program;

(due to the current wording of the provisions contained in the PFR information brochure, we cannot exclude that the above conditions would have to be met jointly)

– bankruptcy, liquidation or restructuring proceedings were not initiated against them;

– their beneficial owner – in the meaning of anti-money laundering (AML) regulations – is a Polish resident and settling taxes for the last 2 financial years (if applicable) on the territory of Poland (it seems that this condition can be considered met in the event of transfer of tax residence to Poland within 9 months of the date of granting support; due to the imprecise definition of this condition, it is currently difficult to clearly determine which entrepreneurs will be able to meet it);

– their business activities were carried out as on 31 December 2019;

– lack of arrears in payments of taxes and social security contributions on 31 December 2019 or as at the date of financing (not applicable to deferrals/ installments);

– they do not carry out specific kinds of economic activities:

• production and trade of arms and ammunition,
• in the field of products or services that may result in the restriction or violation of individual freedoms and / or human rights;
• in sensitive areas due to ethical and moral reasons, e.g. tobacco products, gambling, animal testing.

PFR may also make the amount of financial support conditional upon the commitment to maintain a specific level of employment. According to the information provided to us, no details have yet been provided for this condition.

Types and the method of obtaining the support

Under the program, the entrepreneur will be able to benefit from three types of support:

– Liquidity financing;

– Preferential financing;

– Investment financing.

In order to obtain support, the entrepreneur should submit an application to PFR. It is worth noting that although the program has not yet been launched, it is now possible to submit preliminary applications for funding.

Liquidity financing

An entrepreneur may obtain Liquidity financing until 31 December 2020. It may take the form of:

– loans;

– purchase of liabilities or receivables;

– bonds;

– warranties.

The maximum liquidity financing period will be 2 years with the possibility of extension by one year.

The financing will be interest bearing, with interest calculated based on the 3M WIBOR rate and the margin depending on the funding period – up to 1.8%.

The entrepreneur will be able to obtain financing in the amount corresponding to the forecasted liquidity gap, arose in particular as a result of COVID-19, but not more than PLN 1 bilion.

The entrepreneur may allocate co-financing to make current payments by the enterprise, including:

– salaries;

– purchase of goods and materials or other operating costs for producing a product or a service;

– public law obligations;

– other objectives related to the financing of current operations as set out in the agreement with PFR.

However, the entrepreneur cannot allocate financing to:

– making payments to owners or related entities, unless such settlements are made during normal operations and this is allowed by an agreement concluded with PFR;

– purchase of shares or stocks for redemption;

– mergers and acquisitions;

– refinancing or early repayment of current financial debt.

The entrepreneur will repay the capital based on the agreed repayment schedule, depending on the assessment of financial forecasts. PFR may have the right to convert financing into equity.

The detailed terms of financial support and the obligations/commitments of the entrepreneur will be set out in the agreement.

Preferential financing

The entrepreneur may obtain Preferential financing by 31 December 2020, in the form of a loan forgivable up to 75% of its value. Waiver of the loan (as a non-returnable financing) is aimed at partial or total coverage of damage suffered by the entrepreneur as a result of COVID-19 disease and may be granted up to the estimated amount of this damage. The amount of the loan waiver may be additionally dependent on the condition of maintaining the level of employment.

In order to obtain this financing, the entrepreneur must meet the following conditions:

– present a restructuring plan and financial projections that justify the achievement of financial profitability after the end of the COVID-19 crisis and pass the process of simplified audit (so-called: due diligence) conducted by PFR and

– record a cash loss on sales in at least one month after 29 February 2020,

or

– note an increase of the enterprise’s projected debt level due to COVID-19 disease to a level that threatens its financial stability.

The maximum repayment period for preferential loans is 3 years, with an option to extend them by one year.

The financing will be interest bearing, with interest calculated based on the 3M WIBOR rate and the margin depending on the funding period – up to 1.8%.

The entrepreneur will be able to obtain financing in the amount corresponding to the forecasted liquidity gap, arose in particular as a result of COVID-19, but not more than PLN 750 milion.

The entrepreneur may allocate financing for the enterprise’s ongoing operational activities and restructuring activities.

However, the entrepreneur cannot allocate financing to:

– making payments to owners or related entities, unless such settlements are made during ongoing operations and this is allowed by an agreement concluded with PFR;

– purchase of shares or stocks for redemption;

– mergers and acquisitions;

– refinancing or early repayment of current financial debt.

The entrepreneur will repay the capital based on the agreed repayment schedule, depending on the assessment of financial forecasts. PFR may have the right to convert financing into equity.

The detailed terms of financial support and the entrepreneur’s commitments/obligations will be set out in the agreement.

Investment financing

The entrepreneur may obtain Investment financing by 31 December 2020. It may be granted, in particular, through the acquisition/taking up by PFR of the following equity instruments:

– shares;

– stocks;

– subscription warrants;

– bonds or loans convertible into stocks.

PFR may assume the abovementioned equity instruments:

– on market conditions or

– within state aid support (the maximum amount of the PFR financing may not exceed the enterprise’s financial loss as a result of the COVID-19 pandemic).

Equity instruments may be assumed on market conditions in one of the following ways:

– from issuers on a regulated market (PFR may not assume more than 50% of a share issue)

– enterprises on the private market (PFR cannot assume more than 50% of an issue)

– on other terms, subject to meeting the Private Investor Test.

In order to obtain this financing, the entrepreneur must meet the following conditions:

– present a multiannual strategy or restructuring plan that justifies the achievement of financial profitability

– present financial projections and, in the case of financing within the state aid, calculations of the Financial Loss due to COVID-19

– obtain a positive result of the simplified review carried out by PFR or in the form of so-called vendors due diligence.

PFR Financial Shield for Small and Medium-sized Enterprises

Addressees of the program

Entrepreneurs who will meet the following conditions will be able to benefit from the support under the PFR Financial Shield for Small and Medium Enterprises:

– they employ a minimum of 1 employee (excluding the owner) and a maximum of 9 employees, and their annual turnover or balance sheet total does not exceed EUR 2 million [hereinafter: Micro-enterprises];

– they employ a minimum of 10 and a maximum of 249 employees, and their annual turnover does not exceed EUR 50 million or the balance sheet total does not exceed EUR 43 million [hereinafter: SMEs].

In addition, to be able to take advantage of the program, entrepreneurs:

– must in any month after 1 February 2020, record a minimum 25% drop in turnover as compared to the previous or equivalent month last year;

– cannot have open bankruptcy, liquidation or restructuring proceedings;

– must have been operating on 31 December 2019;

– had not arrears in payments of taxes and social security contributions on 31 December 2019 or as at the date of granting a financing (not applicable to deferrals/ installments);

– their beneficial owner – within the meaning of anti-money laundering (AML) regulations – is a Polish resident and settling taxes for the last 2 financial years (if applicable) on the territory of Poland (it seems that this condition can be considered met in the event of transfer of tax residence to Poland within 9 months of the date of granting support; due to the imprecise definition of this condition, it is currently difficult to clearly determine which entrepreneurs will be able to meet it);

– they do not carry out specific kind of economic activities:

• production and trade of arms and ammunition,
• in the field of products or services that may result in the restriction or violation of individual freedoms and / or human rights;
• in sensitive areas due to ethical and moral reasons, e.g. tobacco products, gambling, animal testing.

Types and the method of obtaining the support

Under the program, an entrepreneur who conducts its business as a Micro-enterprise or SME may obtain support in the form of financial subsidies, which should be used to:

– cover the costs of conducting a business (except for costs relating to the acquisition, directly or indirectly of another entrepreneur);

– early repayment of credits (up to 25% of the subsidy value).

The entrepreneur may not allocate the funds received within this Program to payments to the owner and persons or entities associated with the owner of the enterprise.

In accordance with the assumptions of the Program, in order to receive a subsidy, the entrepreneurs will submit applications via online banking at selected banks. The list of banks mentioned above has not been published yet.

Financial Shield for Micro-enterprises

Amount of support

The amount of support for Micro-enterprises is calculated as the product of the number of employees and the base amount of the subsidy. The purpose of making the amount dependent on the number of employees is to adapt the support to the scale of the enterprise’s operations. The base amount of the subsidy, on the other hand, depends on the size of the decrease in the enterprise’s revenues (maximum PLN 36,000 in case of a decrease in revenues by 75-100%). As a consequence, the entrepreneur conducting its business as a Micro-enterprise will be able to receive a maximum of PLN 324,000 under the Program.

Support repayment rules

The loan (subsidy) received by the entrepreneur may be waived to the amount of 75% of the subsidy at the end of the twelfth calendar month (from the date it was granted). The waiver of the subsidies will be possible in the case of:

– continuation of the entrepreneur’s activity within the next 12 months from granting the subsidy – waiver of 25% of the subsidy;

– maintaining average employment within 12 months following the date of granting the subsidy – waiver of up to 50%. The reduction in employment means that the percentage of waived subsidy will be respectively lower.

The reimbursable part of the subsidy must be repaid in 24 equal, monthly installments, starting from the thirteenth calendar month following the date when the subsidy was received.

Financial Shield for SMEs

Amount of support

The support for SMEs is determined as a percentage of 2019 revenues and depends on the decrease of these revenues due to COVID-19 disease as compared to the numbers for the financial year 2019. The value of financial subsidies may equal 4%, 6% or 8% of the value of revenues with their decrease of at least 25%, 50% and 75% respectively.

The maximum amount of the subsidy may amount to PLN 3.5 milion.

Refund rules of a support

The loan (subsidy) received by the entrepreneur may be waived to the amount of 75% of the subsidy at the end of the twelfth calendar month (from the date it was granted). The waiver of subsidies will be possible in the case of:

– continuation of the entrepreneur’s activity within the next 12 months from granting the subsidy – waiver of the loan in the amount of 25%;

– a cash loss on sales in the enterprise – waiver of the loan up to 25% (depending on the amount of loss incurred);

– maintaining average employment within 12 months of date of granting the subsidy – waiver up to 25%. The reduction in employment means that the percentage of the waived subsidy will be respectively lower.

The reimbursable part of the subsidy must be repaid in 24 equal, monthly installments, starting from the thirteenth calendar month following the date when the subsidy was received.