New economic measures implemented in the context of the COVID-19 pandemic: postponement of the instalments under credit facilities granted by credit institutions and non-bank financial institutions
On 30th March 2020, Government Emergency Ordinance no. 37/2020 (“GEO”) providing certain measures with respect to the loans granted by credit institutions and non-bank financial institutions to certain categories of debtors, was published in the Romanian Official Gazette.
According to the recitals, the stated aim of this ordinance is to implement certain measures to support SMEs experiencing severe liquidity shortages and individuals facing revenue shortfalls. In this note we will briefly present the measures introduced by GEO, attempting, where applicable, to point out potential ambiguities and inadequacies.
The main support measure envisaged is the deferral of instalments payable under loan or leasing agreements.
The financial institutions that have to apply the provisions of the GEO cover a wide scope, including credit institutions (i.e. banks), non-banking financial institutions (such as leasing companies), and branches of foreign credit institutions or non-banking financial institutions. We note that such list does not include financial institutions providing services in Romania based on free movement of services – those several institutions from other Member States (not having established any branches on Romanian territory) which have notified BNR in this respect. Therefore, we do not consider that this GEO may be construed as applicable to financing granted by the latter to Romanian debtors although such financing exists, even of very high value.
From the opposite perspective, the scope of debtors which are parties to loans/leasing agreements eligible for the GEO provisions includes, as expected, individuals, individual and family companies, certified natural persons, individuals engaged in liberal professions and other regulated professions, as well as legal entities, other than credit institutions covered by GEO 99/2006. Such provision raises at least the following questions:
- As noted from the recitals, this provision appears as aiming to support the small and medium-sized enterprises facing a liquidity crisis. However the definition provided by Article 1 para. (b) of the GEO makes no distinction in this respect. Moreover, by expressly specifying the exemption of credit institutions, it may be construed that the Government has in fact considered not only the category of SMEs as beneficiaries, but also any legal entity, even large and very large companies, which are not credit institutions.
- The aforementioned exception from the end of the definition included in Article 1 para. (b) of the GEO refers only to credit institutions under GEO 99/2006, therefore excluding non-bank financial institutions, operating under Law 93/2009. By contrast, the category of the creditors under GEO explicitly includes non-banking financial institutions, therefore appearing that, by way of example, a leasing company that is obliged to defer instalments owing to it, may in turn obtain deferrals for the payment of instalments related to its own financing facilities.
The possibility of obtaining deferral of instalments is subject to compliance with the following additional requirements:
- Pursuant to Article 2 para. (4) of the GEO, the deferral can only be granted for loans which have reached maturity or for loans that have not been subject to an acceleration from the bank, prior to the date of declaring the state of emergency – we consider this last requirement to be usual in such context, as the debtor has already proved that it was not in a position to continue paying the instalments. However, such provision presents certain problems, which raise the following questions:
- What happens to the loans in respect of which the bank accelerates following the 16th March 2020, yet prior to the date the debtor will have submitted a deferral request related to the instalments? It should be noted that, at least theoretically, early maturity date may be stated in respect of certain loan agreements and for other circumstances than failure to pay the instalments.
- According to Article 2 para. (5) of the GEO, postponement may be granted exclusively for the loans not recording any outstanding debts as of 16th march 2020 i.e. the date of the declaration of the state of emergency or, alternatively, for the debtors which will have fulfilled their payment obligation in respect of the said outstanding debts amounts up to the date of submitting the request related to the suspension of the payment obligation referred to in para. (1). We consider the following considerations appropriate to this requirement:
- GEO further appears to fail to meet its purpose included in the recitals, respectively to support individuals facing difficulties related to the instalment payments, following the revenue decrease (see below): the existence of the outstanding debts represents a past event that, as a matter of principle, is distinctly evaluated in financing agreements, the creditor being regularly able to charge penalties or, alternatively, to accelerate (another request underlined below). By contrast, the financial difficulty that generates such postponement of the instalments represents a future event, occasioned by the COVID-19 crisis. Consequently, considering there is no certain link between the causes of the existing delays and the difficulties occasioned by the COVID-19, GEO appears to impose a regime of penalties applicable to the debtors that have recorded outstanding debts.
- Another questionable aspect of the ordinance is represented by the debtors recording outstanding debts prior to 16th March, 2020 which should be paid within the maximum 45 days time limit set-out by the GEO, in order to benefit from the deferral of future instalments. Therefore, persons able to pay the outstanding debts within a short term (and in respect of which the probability is that they are being delayed for reasons other than financial difficulties) may benefit from the deferral. By contrast, debtors not able to pay such outstanding debts, since, genuinely, it is possible that they are already facing financial difficulties, cannot benefit from the facility implemented by GEO.
- According to Article 2 para (6) of the GEO, the deferral can only be granted to persons able to justify that their income was directly or indirectly affected by the serious situation generated by the COVID-19 pandemic. As per the enforcement guidelines related to the GEO, proof of income affectation shall be provided by the certificate of emergency situations issued by the Ministry of Economy, Energy and Business Environment, attesting that the income and revenue were diminished in a percentage equal to at least 25% related to March, 2020, by reference to the average income of January and February 2020.
- Pursuant to Article 3 para. (1) of the GEO, the deferral is granted further to transmitting a request to the creditor in this regard, within 45 days following the entry into force of the GEO, by various available means of communication and shall be resolved by the creditor within 30 days, without having to execute certain addendums.
- The enforcement guidelines reiterate that loan agreements shall be automatically amended, without being required to sign addendums thereto. By contrast, the guidelines provide that the effects of the amendment shall extend ”lawfully to any co-debtors, guarantors including personal guarantors, subject to their prior consent”. Whereas the ”lawful” enforcement and the ”subject to their prior consent” enforcement are irreconcilable, the means of enforcement shall be further observed. Furthermore, the enforcement guidelines of the GEO allows the creditor to assess the fulfillment of the deferral conditions for each individual debtor.
- However, the enforcement guidelines do not provide clarification in respect of the means of applying the payment deferral by reference to different types of credits, such as the overdraft case, where only the interest is due on a monthly basis and the principal is fully repaid on the due date (those due prior to 31 December, 2020 being of interest).
- Under Article 6 para. (1) of the GEO, deferral is granted to debtors, being legal entities which are not subject to insolvency procedures and which totally or partially cease their activity following the decisions issued by the competent public authorities during the state of emergency decreed. They must also hold the certificate of emergency issued by the Ministry of Economy, Energy and Business Environment, establishing, based on the debtors’ affidavits, diminishing of revenues of at least 25% in March, by reference to the average of January and February 2020 or partial or total ceasing of activity following the issued decisions.
The deferral of payment facility shall have the following features:
- the payment obligation related to the outstanding instalments of the loans, representing capital ratios, interest and fees may be suspended for up to 9 months, but no longer than 31st December, 2020;
- the maximum credit period provided in the creditor’s regulations may be exceeded with a period equal with the term related to the suspension of the payment obligation, but not exceeding the regulated maximum age allowed for individual debtors;
- the interest payable by the debtors, corresponding to the outstanding debts with suspended payment pursuant to Article 2, shall be capitalized on the loan balance existing at the end of the suspension period, and the capital thus increased shall be paid in instalments for the remaining time-limit up to the maturity date of the loans;
- the interest for mortgages contracted by individuals related to the suspension period shall be calculated pursuant to the provisions of the mortgage agreement and shall represent a separate and independent claim by reference to the other obligations arising from the mortgage agreement, the interest related to such claim being 0% and the payment shall be performed in 60 equal monthly instalments, commencing with the month immediately following the end of the deferral period.
The payment of such interest is totally guaranteed by the State through the Ministry of Public Finance, which shall empower F.N.G.C.I.M.M. to issue letters of guarantee in this regard.