Parallel Debt

Parallel debt, referred to as "dług równoległy" in Polish, is a legal construct that has not been regulated by Polish law but is rooted in Anglo-Saxon legal culture. It is a complex institution that still generates controversy in the Polish legal system.

It is used to secure financing instruments for a debtor, aiming to minimize credit risk for investors and creditors, which can lead to reduced financing costs for the debtor. However, for the debtor, who must face increasing obligations, parallel debt can introduce additional constraints and burdens since it is security for creditors.

The essence of a parallel debt is to create a single receivable against the security agent, which represents the sum of all receivables (referred to as underlying receivables) from several creditors in a specific legal relationship. The security agent is, therefore, the creditor for the parallel debt but effectively acts as the administrator and enforcer of the debt on behalf of the creditors. According to the most common construction, each payment of underlying receivables leads to a corresponding reduction in the parallel debt owed to the security agent. Some legal scholars argue that the concept of solidarity among debtors under Polish law partially corresponds to the institution of parallel debt.

Case law related to parallel debt in Polish law is very limited. The Supreme Court issued a judgment on 9 October 2009, confirming that "parallel debt constitutes an independent financial obligation of the security agent, which, in the context of establishing security, should not be analyzed in terms of the primary obligations of the creditors, which form the basis for creating the parallel debt. According to the construction of parallel debt developed in practice, the aspect of the independence of parallel debt from primary obligations is justified by the concept of parallel debt, which is, in fact, an obligation of an undetermined amount. On the other hand, the statement of the separateness of the receivables arising from the parallel debt from the primary receivables is justified in the case of establishing security because determining the amount of the parallel debt is necessarily linked to determining the receivables, the reflection of which constitutes the parallel debt."

This institution is typically used in large corporations and financial institutions that require significant funds for projects or ongoing operations. Parallel debt is most commonly applied to corporate loans as collateral for bonds, for the purpose of financing investors' projects, or may also take the form of a guarantee or third-party surety, further securing the interests of creditors or investors.