On 6 April 2020, the implementing Rules (the “Rules”) of GEO 37/2020 on certain facilities for the loans granted by credit institutions and non-bank financial institutions to certain categories of debtors (“GEO 37/2020”) entered into force. While the Rules detail aspects such as the eligibility criteria for the beneficiaries of the suspension of the payment obligation and the mechanism by which such suspension is granted, it also creates a few uncertainties and raises several questions, which result in operational difficulties for the relevant parties, who are already dealing with difficult situations.
This legal update concerns the novelties brought by the Rules for the implementation of the provisions of GEO 37/2020 – for details regarding the content thereof, please refer to our material available HERE.
Loans in relation to which the suspension may be obtained
The loans in relation to which the suspension may be obtained are those (i) granted before 30 March 2020 inclusive; (ii) that reach their final maturity after 30 March 2020 inclusive, (iii) the payment of which was not accelerated before 30 March 2020 inclusive; and (iv) that did not record any outstanding amounts as at 16 March 2020 or if there were any, they were paid by the date the debtor requested the suspension.
Debtor eligibility criteria
The Rules detail the criteria that must be met by the debtors requesting the suspension, which vary according to the category of debtors. We note that the more extensive wording used in the Rules, regarding the eligibility criteria for legal entities, is insufficiently correlated with the wording of GEO 37/2020, thus triggering a potential interpretation that obtaining the state of emergency certificate is no longer mandatory for the debtors which are legal entities to the extent such debtors would provide an affidavit ascertaining that their activity was totally or partially interrupted pursuant to the competent public authorities’ decisions in the context of the emergency state. An official interpretation on this matter would be necessary and desirable in order to have a consistent interpretation and applicability of such extraordinary measures implemented in relation to ongoing contractual relationships. For further details regarding the certificate for emergency situations, please refer to our material available HERE.
Debtors who are natural persons
The suspension request submitted by debtors, natural persons, must be accompanied by a sworn statement attesting that:
- their revenues and/or their family revenues have been affected either directly or indirectly following the serious situation caused by the Covid-19 pandemic compared to the level of revenues recorded before the state of emergency was declared; and
- they are unable to perform their loan payment obligations, as a result of the occurrence of causes such as:
- the debtor or his/her family members are in technical unemployment as a result of the employer’s business closure/slowdown;
- the debtor or his/her family members have been laid-off;
- the debtor’s or his/her family members’ salary has been reduced;
- the debtor has been placed in institutional quarantine or self-isolation;
- the debtor becomes sick with Covid-19.
The situations listed above are not complete and other similar situations may be taken into consideration.
Debtors other than natural persons
Debtors other than natural persons must not be insolvent on the date of the request in order to benefit from the suspension. Moreover, their suspension request must be accompanied by a sworn statement confirming that their revenues were directly or indirectly affected by the severe situation caused by the Covid-19 pandemic and are unable to perform their loan payment obligations. More specifically:
- in the case of self-employed persons, individual undertakings and family businesses, liberal professions or professions practiced under a special law, the activity has been interrupted as a result of the decisions issued by the public authorities, during the state of emergency, with the following consequences: the contraction of the market, the reduction in the number of employees, the decrease in the number of suppliers, etc.;
- in the case of legal persons, they must hold the state of emergency certificate issued by the Ministry of Economy, Energy and Business Environment or the certificate for emergency situations ascertaining a decrease in the revenues or proceeds by at least 25% in March 2020 compared to the average of January and February 2020 or that their activity has been fully or partially interrupted as a result of the decisions issued by the competent public authorities during the state of emergency, which resulted in: the contraction of the market, the reduction in the number of employees, the decrease in the number of suppliers, etc.;
The rules stipulate that, in the case of legal persons, the request must be filed by their legal representative, but companies must take into account the provisions of their constitutive deeds and those of the company law in order to analyse which internal approvals are required in relation to the filing of such request, which could entail the amendment of the relevant financing loans.
What debts may be suspended
Corroborating the provisions of GEO 37/2020 with the provisions of the Rules, it seems that the suspension should be applied at the request of the debtor, the credit period being extended with the duration of the suspension. However, given that the criterion regarding the payment of instalments to date is established by reference to 16 March (the date on which the state of emergency was declared and from which the effects of the pandemic probably began to be felt), the regime of instalments falling due between 16 March and the date on which the debtor communicates the suspension request is unclear.
A flexible interpretation could be in the sense that, although the suspension applies from the date of the request, it could also cover periods prior to the request (i.e. those occurring after 16 March). A legislative clarification would be very useful in this regard, to help both relevant creditors and debtors work together as effectively as possible to overcome the current difficulties.
Procedure for the suspension of the payment obligation
Debtors may send the request for the suspension of the obligation to pay loan-related instalments to the creditors within 45 days from the date of entry into force of GEO 37/2020, i.e. by 14 May 2020. The request may be sent (i) in paper format – by post, (ii) by e-mail, or (iii) by telephone, to a special number allocated by the creditor for this situation. The creditor must analyse the request of the debtor and, within 15 days from its receipt, must inform the debtor of the approval or rejection.
If the suspension request is approved, the conclusion of addenda is not required. The amendment of contractual clauses, as well as the new repayment schedule for the loan and, for mortgage loans, the repayment schedule for the interest spread over 60 months, must be notified by the creditor to the debtor within 30 days from receiving the request, in paper format, by e-mail, or by another means of remote communication. The loan repayment schedule, reviewed after the payment obligation suspension facility was granted, will indicate the interest rate that is maintained at the level laid down in the initial loan agreement concluded between the debtor and the creditor.
The extension of the contractual term for the loan agreement has retroactive effects, from the date on which the debtor sent the suspension request to the creditor.
Situation of guarantors and other parties to the loan agreement
Although the Rules are not completely clear about the applicable deadline, it seems that the creditor must also notify any guarantors of the decision to suspend and, subsequently, to amend the contractual clauses and extend the guarantee. Nevertheless, we understand that the guarantor’s approval on the extension of the suspension effects to it and its guarantee is required. In practice, this mechanism could result in the fact that certain loans benefitting from suspension might remain partially unsecured (e.g. with respect to the period of time for which the maturity has been extended). It would be reasonable, however, that this legal provision is read and interpreted also in correlation with the provisions of the relevant guarantees, some of which may be comprehensive and already anticipating that they will continue to apply even if the initial agreements are amended or adapted.
Please note that the Rules stipulate that the effects of the amendments brought to agreements in the case of suspension extend to co-debtors as well, only with their approval (although, with respect to co-debtors, the Rules fail to stipulate any obligations to notify/inform in respect of the suspension). In practice, this provision, too, could lead to unclear situations, especially where (as is usually the case in loan agreements) co-debtors are jointly liable towards the creditor.
Additional information regarding the procedure for guaranteeing interest on mortgage loans
In the case of mortgage loans concluded with natural persons, the interest on the balance of the loan from the period for which the loan instalment payment was postponed will not be capitalized, but treated as a distinct debt of the debtor towards the respective creditor, with zero interest. This debt must be reimbursed by the debtor for a period of 60 months, in equal instalments, starting with the first month after the instalment payment suspension period ceases. The repayment of this debt derived from the interest on mortgage loans accrued during the suspension period is guaranteed by the Romanian state through FNGCIMM.
In order to benefit from this guarantee from the state, creditors must notify FNGCIMM within 5 days from the date of entry into force of the Rules (6 April 2020) about the conclusion of the guarantee agreement whose template is to be established by order of Ministry of Public Finance. The aspects regarding the issuance of the guarantee by FNGCIMM will be supplemented with the provisions of the guarantee conventions between the fund and creditors that we are waiting with great interest.
Under these agreements, letters of guarantee will be issued by FNGCIMM with respect to the debtors natural persons’ obligation to repay the interest accrued during the deferral period under mortgage loan agreements. To the extent that these debtors fail to pay the debts representing rescheduled interest on mortgage loans for 3 months in a row, the creditors may enforce the letter of guarantee from FNGCIMM. The amounts paid by the state for the enforcement of the letters of guarantee may be recovered from the relevant debtors as budgetary claims.
Taking into consideration the unclear aspects presented above and the difficulties in applying these rules in practice, we expect subsequent clarifications from the authorities, as well as a potential non-uniform application of the rules among creditors.