A new Act specifying certain measures related to repayment of loans during the COVID-19 pandemic came into effect on 17 April 2020. However, the possibility of postponing the repayment of certain loans entails some interpretation ambiguities as well as relatively unknown limitations for the borrowers.
The new Act lays down only the basic framework of rights and obligations. The lenders may also show leniency with regard to loans not covered by the Act or grant a postponement under more favourable conditions, based on an individual agreement with the borrower.
Disposal of assets during a moratorium
Where the borrower is a legal person, the Act prohibits the borrower from disposing of its assets during the moratorium period should such a disposal lead to any substantial changes in the structure, use or purpose of the assets or other than their negligible reduction. According to the explanatory memorandum, such acts also include distribution of profits and other funds of the company, payment of extraordinary bonuses or repayment of debts to affiliated parties.
During a moratorium, debtor companies must therefore approach their economic management also from this viewpoint, in addition to specific restrictions following from their loan contracts.
Types of loans covered by the Act
The Act applies, in general, to deferred payments, loans of money, credit facilities and similar financial services. Certain expressly listed types of loans are excluded, such as recurrent facilities (revolving loans, overdraft loans, credit cards) and deferred billing where the deferment is free of charge and is provided at arm’s length. However, this list of exclusions is ambiguous in several ways.
We believe that the mentioned types of loans are excluded in all cases, i.e. even where the current facility has already been fully utilised. Lease services are another issue. While operating lease is undoubtedly excluded, we believe that the Act does apply to financial lease with a hire-purchase arrangement. On the other hand, the Act should not cover activities such as factoring.
Moratorium period, “premature” and repeated applications for postponement
The moratorium period commences in the month following the borrower’s notice. While the Act explicitly covers postponement agreements concluded before the effective date of the Act, it remains silent as regards the possibility to first apply for a shortened moratorium period – until 31 July 2020, and subsequently for its prolongation until 31 October 2020. As we interpret the Act, this option is not available and the borrowers cannot benefit from such a “dual” moratorium.
Revocability of the borrower’s notice
It is also unclear in this respect whether the borrower may revoke its request for a moratorium. We believe that once a notice is delivered to this effect, it may only be revoked by agreement, and not unilaterally by the borrower.
Creditworthiness assessment
The Act requires that the effects of a moratorium should be disregarded in assessment of creditworthiness. All information transferred to the register of debtors should contain a flag denoting that the debtor has asked for a moratorium. Nonetheless, the general duty to assess the creditworthiness of applicants for a loan on a case-by-case basis remains applicable, including the necessity to reflect a moratorium.