Both creditors and debtors were keenly anticipating the entry into force of the application guidelines for the GEO no. 37/2020 regarding the facilities granted for loans (the “GEO”) in order for them to bring clarifications and guidance on the application of the deferral of payments of loan instalments (the “Guidelines”). The premise of the regulation is that a great volume of requests will be submitted by debtors to creditors in a short period of time, up until the 14th of May 2020, requests that should be either accepted or rejected by creditors in 15 calendar days.

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The application guidelines for the GEO regarding the postponement of loan instalments: clarification or confusion?

Both creditors and debtors were keenly anticipating the entry into force of the application guidelines for the GEO no. 37/2020 regarding the facilities granted for loans (the “GEO”) in order for them to bring clarifications and guidance on the application of the deferral of payments of loan instalments (the “Guidelines”). The premise of the regulation is that a great volume of requests will be submitted by debtors to creditors in a short period of time, up until the 14th of May 2020, requests that should be either accepted or rejected by creditors in 15 calendar days.

However, the text of the Guidelines risks generating certain difficulties for both creditors and debtors regarding the manner of exercising and respectively, implementing the postponement of the loan instalments. We note that the Guidelines also contain certain drafting errors, some of which might make certain provisions of the guidelines impossible to apply.

  1. Who is the GEO applicable to?

The drafting of the Guidelines risks restricting the category of beneficiaries of the deferral of payments for loan instalments.

In the case of individuals, some clarifications were expected regarding debtors whose revenues “have been directly or indirectly affected by the serious situation generated by the COVID-19 pandemic”. Pursuant to the Guidelines:

  • The beneficiaries are those whose revenues are affected and (as the Guidelines add) find themselves in an impossibility to honour their payment obligations.
  • their revenues were affected as a result of (inexhaustive enumeration): the technical unemployment of the debtor/members of his/her family, dismissal of the debtor/members of his/her family, pay cut for the debtor/members of his/her family, placing the debtor/members of his/her family in institutionalized quarantine or isolation, sickness due to COVID-19 infection;
  • the members of the family are the spouse, the parents and the children which live with the debtor and contribute to the house expenses. (The mentioned provisions expressly refer to the members of the family in case of the loan agreements granted to individuals, but not in case of other types of debtors).

We consider that the new condition that the debtors should find themselves in an impossibility to honour thir payment obligations makes the provision subject to interpretation. One possible interpretation, which would facilitate the application of the guidelines, especially in the following period, would be that the legal provisions create a presumption that the listed situations lead to such an impossibility. The causes that may affect the revenues and lead to an impossibility to honour payment obligations are not limited to those enlisted in the Guidelines, and the debtors can invoke other causes by means of their statements.

As opposed to the GEO, besides natural persons, the Guidelines provide for two different categories of debtors and correlative hypotheses that can lead to the facilities offered by the GEO:

  • in the case of authorized persons, individual enterprises, family enterprises and liberal professions, these are eligible only if their activity has been interrupted completely or partially as a result of the decisions issued by the public authorities during the state of emergency, with the following consequences: the reduction of the commercial market, the reduction in the number of employees, the reduction in the number of suppliers etc., with no express requirement for obtaining a state of emergency certificate.
  • Other debtors will only benefit from the facilities under the condition that they obtain a state of emergency certificate, including type II (yellow) certificates which provide, based on the statement of the debtors, that their revenue suffered a reduction of 25% in March 2020, compared to the average of January and February 2020 or their activity was partially or totally interrupted as a result of the decisions issued by the competent public authorities during the emergency state decreed, with the following consequences: reduction in the reduction of the commercial market, the reduction in the number of employees, the reduction in the number of suppliers etc.

One question arises, namely why there is a different regime for the two categories of debtors, especially given that authorized persons, individual and family enterprises, as well as liberal professions can also obtain, pursuant to the legal requirements, state of emergency certificates. In the absence of other indications from the underlying motivation of the GEO or from official public statements, we are inclined to believe that this is also due to drafting deficiencies in the guidelines, which risk leading to unjustified discrimination.

  1. How is the GEO applied?

Debtors option must be communicated to the creditor before the 14th of May 2020 (and can request the postponement of their loan instalments for a period ranging from 1 month to 9 months, but no longer than the 31st of December 2020). The constraints on the debtor (including with respect to the time period for submitting a request) in a moment of economic instability, paired with the eventual capitalization of the interest (in the case of debtors other than natural persons with mortgage loans), will make their decision even more difficult.

The creditor has 15 calendar days to accept or reject the request, starting from the date when the request was received.

The guidelines reiterate the fact that the amendment of loan agreements will operate automatically, without the necessity to conclude further addendums to the agreements. On the other hand, the guidelines provide that the effects of the amendment will be extended “by law to other codebtors, guarantors, including personal guarantors, … only with their prior consent”. Given the fact that references to “by law” and “with their prior consent” are irreconcilable, we expect an immediate rectification of this provision.

The guidelines however do not bring clarifications regarding the manner in which the postponement should be operated to different types of loan agreements, as, for example, in the case of overdrafts, where only the interest is owed on a monthly basis, and the principal is to be paid in whole at maturity (especially in the case of loans with a maturity date before the 31st of December 2020). Furthermore, from a technical point of view, an express mention that the postponement will operate for the current instalment due in the current month when the request had been formulated, would have been useful.

We consider that from the moment the guidelines enter into force, creditors have the obligation to take all the steps regarding the application of the GEO, including making available to the debtors a telephone number dedicated to registering the postponement requests. We reiterate that, in the case of the creditor’s approval (as a result of the conditions in the guidelines being fulfilled), the deferral of payment shall take effect beginning with the date that the request was submitted (including verbally by means of a telephone call, which is to be recorded by the creditor) and not from the date of approval by the creditor of the request for suspension of payment.

  1. Can the creditor use its discretion when analysing the debtor’s request?

Of interest to the creditors (credit institutions and non-banking institutions) is whether the postponement must be accepted only on the basis of the debtors’ statement, or whether the creditors can, at their discretion, further investigate the requests, before approving or rejecting them.

Pursuant to the Guidelines, the creditor will analyse if the conditions expressed by the art. 15 and art. 15 of the Guidelines are fulfilled regarding: (i) loan agreements (granted before the entering into force of the GEO, but with a maturity date after the date of entry into force, which have not been declared due and payable until the 30th of March 2020, and do not register outstanding amounts before the 16th of March 2020 – the establishment of the state of emergency – or the outstanding amounts have been paid until the date of submitting the request) and, respectively, with respect to (ii) the debtors, in order to benefit from the deferral of payments.

The premise of the regulation is that a great volume of requests will be submitted by debtors, in a short period of time, up until the 14th of May 2020 (45 calendar days from the date of entry into force of the GEO), requests that should be either accepted or rejected by creditors in 15 calendar days. This fact, corroborated with the option of the legislator to permit debtors to submit their statements and requests also by telephone, leads us to the conclusion that creditors cannot add to the conditions prescribed by the law, conclusion reinforced by the provisions of art 17 of the Guidelines. According to this, the creditor "grants at the request of the debtor the facility of suspension insofar as (the debtor) fulfills the conditions of articles 15 and 16, according to the option of the debtor".

In relation to the operation of the deferral of payment based on the debtor’s statement regarding the fulfilment of the conditions prescribed by the GEO, we mention that recent case law of the Supreme Court stated that an official of a bank with an entirely privately-owned capital is considered to be a public servant. As a consequence, if the statement is proved to be false or incorrect, or omits some elements that could influence the creditor’s decision to approve or reject the request, there could be contractual consequences based on the terms of the loan agreement (such as, for example, declaring the loan due and payable), as well as consequences in the field of criminal law, namely the conduct of the debtors could be qualified as the criminal offence of making false statements.

The potential sanctions which might be applicable in the case of abuses made by means of the statement, and also the fact that some debtors, other than natural persons with mortgage loans, might have to pay a capitalized interest rate (and thus bear even higher costs), could have a deterrent effect regarding possible abuses of the facilities offered by the GEO.

The obligation to set up provisions and other prudential requirements, that may be generated by the application of the GEO, are of interest to banks and non-banking financial institutions during this time. From this point of view, we consider that the use of the term “restructuring” by the Guidelines, when referring to the amendment of loan agreements, is unfortunate.

In the National Bank’s communique dated 24th of March 2020, it was expressly stated that this situation should be treated differently from the hypothesis of the renegotiation of the loan agreements, on an individual basis, associated with the notion of the debtor’s financial distress not as a result of the COVID-19 pandemic, and which should be qualified as “restructuring”. On the contrary, when the postponement of payment (as a result of a general measure or of direct negotiation with the clients) is determined by the current situation, the loan agreement should not be reclassified, and the credit institution should not constitute provision for the loan amount. 

 

The present article is for informational purposes only and does not represent a legal opinion. Therefore, we do not recommend making decisions based on this text without a prior analysis based on the facts and circumstances of each case​.