Source: https://knowledge.schoenherr.eu/pg/financing-in-times-of-crisis/
Timestamp: 2020-04-03 06:30:46
Document Index: 660145478

Matched Legal Cases: ['Art. 987', 'Art.136', 'Art.137', 'Art. 138', 'Art. 302', 'Art. 991', 'Art. 987', 'Art. 991', 'Art. 991', 'Art. 991', 'Art. 359', 'Art. 359', 'Art. 359', 'Art. 721', 'Art. 2']

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Select chapter…All chapters…Existing financings / utilized debtNew financings / committed debtUpdate COVID19 – Status 23 March 2020
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1Financing in times of crisis
Banking and finance analysis: The banking and finance experts of Schoenherr Attorneys at Law have compiled a comprehensive Central and Eastern European overview of the practical legal implications to be considered in finance transactions in the context of the ongoing coronavirus pandemic (COVID19).
How can macroeconomic implications of a crisis, which are not specific to a certain borrower or lender (or a group of borrowers or lenders), affect financing transactions. This overview is published in the context of the ongoing 2020 COVID19 pandemic and will be updated regularly as the situation evolves – for more information on the legal effects of COVID19 visit https://www.schoenherr.eu/coronavirus-info-corner/.
Introductory note: Bosnia and Herzegovina (“B&H”) is composed of two self-governed entities, Federation of Bosnia and Herzegovina (“FBH”) and Republic of Srpska (“RS”), each having separate banking legal regimes. This guide deals with regimes in both entities in parallel.
2Existing financings / utilized debt
1Does debt documentation in your jurisdiction typically foresee termination rights for the lender upon the occurrence of a crisis? If so, are eg customary material adverse effect (MAC) provisions enforceable in such instance?
Yes, not only “LMA style” project documentation but also usual “in-house” loan agreements typically contain MAC provisions that entitle a lender to terminate an agreement and to cancel commitments. Moreover general terms and conditions (GTCs) of Austrian banks usually contain similar clauses targeting a deterioration of the condition of a borrower, borrower group or the value of the collateral granted.
However, the lender’s rights under such MAC provisions are limited by law and such provisions could be invalid if not objectively justified. In particular, careful legal assessment is recommended in case a MAC event would be based on the occurrence of a crisis event only and thus without immediate (threatening) effect on the financial condition or the business of a borrower, its assets or the granted collateral itself. Additional statutory protection rules (content checks) apply and should be assessed if a MAC clause is foreseen under the GTCs of a lender only.
No specific statutory “force majeure” provisions exist and are typically not contractually foreseen that would entitle a borrower to prevent a MAC termination by a lender in case of a crisis.
Yes, not only “LMA style” documentation but also usual “in-house” loan agreements typically contain MAC provisions that entitle a lender to terminate an agreement and to cancel commitments. Moreover general terms and conditions (GTCs) of banks in B&H usually contain similar clauses targeting a deterioration of the financial condition of a borrower.
However, the lender’s rights under such MAC provisions are limited by law and such provisions could be invalid if not objectively justified (ie in line with mandatory legislation, public policy and good conduct of business). In particular, careful legal assessment is recommended in case a MAC event would, be based on the occurrence of a crisis event only and thus without immediate (threatening) effect on the financial condition or the business of a borrower. Additional statutory protection rules (content checks – interpretation of such in favour of the borrower) apply and should be assessed if a MAC clause is foreseen under the GTCs of a lender only.
Yes, not only “LMA style” loan documentation but also usual “in-house” loan agreements typically contain material adverse change provisions (MAC) that entitle a lender to terminate an agreement and to cancel commitments. Similar clauses targeting deterioration of the condition of a borrower, borrower group or the value of the collateral granted are also contained in the general terms and conditions (GTC) of some Bulgarian banks.
However, the lender’s rights under such MAC provisions are limited by law and such provisions could be invalidated in court if not objectively justified. In particular, MAC provisions cannot be enforced due to the occurrence of a crisis per se and their enforceability should be assessed on a case-by-case basis. A specific-case-based approach is usually applied requiring that the relevant forum considers, inter alia, the direct effect of the crisis to the borrower’s position, contingency measures adopted by the borrower, and the degree of care exercised by the parties to the loan relationship.
Whereas “LMA style” project documentation typically contain material adverse effect provisions (MAC) that entitle a lender to terminate an agreement and to cancel commitments, such clauses are not often seen in standardized “in-house” corporate loan agreements.
Moreover, the lender’s rights under such MAC provisions are limited by law and such provisions could be invalid if not objectively justified. In particular, careful legal assessment is recommended in case a MAC event would be based on the occurrence of a crisis event only and thus without immediate (threatening) effect on the financial condition or the business of a borrower, its assets or the granted collateral itself. Additional statutory protection rules (content checks) apply and should be assessed if a MAC clause is foreseen under the GTCs of a lender only.
Yes, besides LMA standard debt documentation, Czech banks commonly include MAC related termination provisions either directly in their loan agreements or in their GTCs that entitle the lender to one-sided termination, cancellation of commitments or change in fees and/or interest rates together with compensation for any new costs. Such MAC provisions generally include, among others, the inability to fulfil debtor´s obligations under the debt documentation, deterioration of debtor´s financial position or the value of provided collateral or the inability of the lender to enforce its rights and claims arising out of the debt documentation.
The termination cannot be unjustified and as the current epidemic does not automatically constitute an event considered to have a material adverse effect, lenders should proceed cautiously and seek legal advice while formulating the reasons for MAC induced termination. This being said, the termination and other negative impacts are even more difficult to justify in case of consumer loans due to the statutory protection of consumers against possible unfair terms. To ease the burden of proving whether the COVID19 epidemic, in fact, constitutes a force majeure, the Chamber of Commerce of the Czech Republic has the authority to issue certificates of force majeure after evaluating each applicant on a case by case basis. We note, however, that such a certificate is primarily issued for the purposes of international trade and its potential applicability in banking and finance remains to be seen.
Yes, not only “LMA style” project documentation but also usual “in-house” loan agreements typically contain MAC provisions that entitle a lender to terminate an agreement and to cancel commitments. Moreover in corporate financings, general terms and conditions (GTCs) of Hungarian banks usually contain similar clauses targeting a deterioration of the condition of a borrower, borrower group or the value of the collateral granted. However, general terms and conditions (GTCs) of Hungarian banks usually do not include MAC provisions in case of consumer financings.
Careful legal assessment is recommended in case a MAC event would be based on the occurrence of a crisis event only and thus without immediate (threatening) effect on the financial condition or the business of a borrower, its assets or the granted collateral itself.
Yes, not only “LMA style” project documentation but also usual “in-house” loan agreements typically contain MAC provisions that entitle a lender to terminate an agreement and to cancel commitments. Moreover, general terms and conditions (GTCs) of Montenegrin banks usually contain similar clauses targeting a deterioration of the value of the collateral granted, leading to termination when the borrower fails to act on the lender’s request for additional collateral. Some GTCs even prescribe deterioration of the financial condition of the borrower as a termination event.
However, the lender’s rights under such MAC provisions are limited by law and such provisions could be invalid if not objectively justified (i.e. in line with mandatory legislation and social mores). In particular, careful legal assessment is recommended in case a MAC event would be based on the occurrence of a crisis event only and thus without immediate (threatening) effect on the financial condition or the business of a borrower, its assets or the granted collateral itself. Additional statutory protection rules (content checks- interpretation of such in favor of the borrower) apply and should be assessed if a MAC clause is foreseen under the GTCs of a lender only.
Yes, not only “LMA style” documentation but also usual “in-house” loan agreements typically contain MAC provisions that entitle a lender to terminate an agreement and to cancel commitments. Moreover general terms and conditions (GTCs) of Macedonian banks usually contain similar clauses targeting a deterioration of the condition of a borrower, borrower group or the value of the collateral granted.
However, the lender’s rights under such MAC provisions are limited by law and such provisions could be invalid if not objectively justified (ie in line with the constitution, laws and good conduct of business). In particular, careful legal assessment is recommended in case a MAC event would be based on the occurrence of a crisis event only and thus without immediate (threatening) effect on the financial condition or the business of a borrower, its assets or the granted collateral itself. Additional statutory protection rules (content checks – interpretation of such in favour of the borrower) apply and should be assessed if a MAC clause is foreseen under the GTCs of a lender only.
Yes, not only “LMA style” project documentation but also usual “in-house” loan agreements typically contain MAC provisions that entitle a lender to terminate an agreement and to cancel commitments. Moreover general terms and conditions (GTCs) of Polish banks usually contain similar clauses targeting a deterioration of the condition of a borrower, borrower group or the value of the collateral granted.
However, the lender’s rights under such MAC provisions are limited by law and such provisions could be invalid if not objectively justified. In particular, careful legal assessment is recommended in case a MAC event would be based on the occurrence of a crisis event only and thus without immediate (threatening) effect on the financial condition or the business of a borrower, its assets or the granted collateral itself.
No specific statutory “force majeure” provisions exist and are typically not contractually foreseen (taking into account the weaker position of a borrower) that would entitle a borrower to prevent a MAC termination by a lender in case of a crisis.
Yes, not only “LMA style” loan documentation but also usual “in-house” loan agreements typically contain some form of material adverse effect provisions (MAC) that entitle a lender to terminate an agreement and to cancel commitments. These are also usually seen in the general terms and conditions (GTCs) of Romanian banks in the form of clauses targeting a deterioration in the condition or prospects of a borrower, borrower group or the value of the collateral granted.
However, the exercise of a lender’s rights under a typical MAC provision can be invalidated in court if not adequately justified. In particular, careful legal assessment is recommended in case a MAC event would be based on the occurrence of a crisis event only and thus without immediate (threatening) effect on the financial condition or the business of a borrower, its assets or the granted collateral as such.
Additional statutory protection rules (eg express consent) may apply and should be assessed if a MAC clause is foreseen under the GTCs of a lender only.
Having said this, defending against a lender’s termination right under a MAC provision by claiming “force majeure” is usually not an option (and force majeure protection is typically contractually excluded).
Yes, not only “LMA style” documentation but also usual “in-house” loan agreements typically contain MAC provisions that entitle a lender to terminate an agreement and to cancel commitments. Moreover general terms and conditions (GTCs) of Serbian banks usually contain similar clauses targeting a deterioration of the condition of a borrower, borrower group or the value of the collateral granted.
However, the lender’s rights under such MAC provisions are limited by law and such provisions could be invalid if not objectively justified (ie in line with mandatory legislation, public policy and good conduct of business). In particular, careful legal assessment is recommended in case a MAC event would be based on the occurrence of a crisis event only and thus without immediate (threatening) effect on the financial condition or the business of a borrower, its assets or the granted collateral itself. Additional statutory protection rules (content checks – interpretation of such in favour of the borrower) apply and should be assessed if a MA C clause is foreseen under the GTCs of a lender only.
Generally, yes, “LMA style” project documentation typically contain MAC provisions that entitle a lender to terminate an agreement and to cancel commitments.
In addition “local form” bank loan agreements typically foresee certain termination rights in case of material adverse changes, which usually refer to circumstances linked to the borrower’s ability to comply with the loan agreement or with his ability to repay the debt. Similarly, general terms and conditions (GTCs) of Slovak banks usually contain clauses targeting a deterioration of the condition of a borrower or borrower group.
The termination based on a contractual termination right cannot be unjustified (and may be subject to statutory limitations), careful legal assessment is recommended in case a MAC event would be based on the occurrence of a crisis event only and thus without immediate (threatening) effect on the financial condition or the business of a borrower, its assets or the granted collateral itself. In addition, such provisions in consumer loans should be assessed more carefully as it would be even more difficult to justify termination on such grounds due to the statutory protection of consumers against possible unfair terms.
In the context of COVID19, the occurrence of a crisis may not per se trigger a MAC if such crisis does not have an implication for the borrower itself.
Generally yes. In addition to “LMA style” precedents – which will contain a variation of the recommended MAC form – also “local form” bank loan agreements typically foresee termination/acceleration/commitment cancelation rights in case of material adverse changes. In case of “local form” documents, MAC provisions tend to be phrased more broadly than the LMA precedent – most notably, sometimes referring to circumstances not affecting the borrower directly (eg general adverse movements in the economy) – but are, more often than not, linked to the borrower’s ability to comply with the loan agreement.
That said, the enforceability of MAC provisions – especially if formulated broadly / exercised by reference to circumstances external to the specific borrower – may have its limits and will need to be assessed on a case-by-case basis. In principle, lenders will be able to rely on MAC provisions where termination/acceleration is justifiable due to borrower-specific circumstances. On the other hand, it is not a given that MAC clauses can be enforced due to the occurrence of a crisis per se. Limited case law related to rebus sic stantibus / force majeure scenarios would appear to lean in favor of a specific-case-based approach and require that the relevant forum considers, inter alia, the direct effect of the crisis to the borrower’s position, contingency measures adopted by the borrower, and the degree of care exercised by the parties to the loan relationship.
Yes, not only “LMA style” project documentation but also usual “in-house” loan agreements typically contain MAC provisions that entitle a lender to terminate an agreement and to cancel commitments. Moreover in corporate financings, general terms and conditions (GTCs) of Turkish banks usually contain similar clauses targeting a deterioration of the condition of a borrower, borrower group or the value of the collateral granted.
The enforceability of MAC provisions will need to be assessed on a case-by-case basis since the Turkish Supreme Court implements an approach taking into account the direct effect of a crisis to the parties’ position and performance of their obligations, scope of a MAC provision (ie explicit wording of such circumstances), measures taken in order to mitigate its effects and alternative solutions implemented in lieu of termination of the agreement.
Therefore in the context of COVID19, the current pandemic does not automatically constitute an event considered to have a material adverse effect and lenders should proceed cautiously and seek legal advice considering a MAC induced termination.
No specific statutory “force majeure” provisions exist for loan agreements.
2Are there statutory rights to terminate a financing agreement in such instance?
Austrian law further provides for – to a certain extent mandatory – extraordinary termination rights in respect to loan agreements (Art. 987 Austrian Civil Code) in case maintaining the credit relationship would be unbearable for important cause (aus wichtigen Gründen unzumutbar) for a party . This relatively new law introduced as a consequence of the last financial crisis is so far relatively untested. Thus, careful legal assessment is recommended in case an extraordinary termination would be based on the occurrence of a crisis only.
No, B&H laws do not per se provide for extraordinary termination rights for already fulfilled obligations i.e. utilized financing. For unfulfilled obligations such termination rights exist however (see below).
Bulgarian law provides for a general “change in the commercial circumstances” provision, whereby the court may, upon request by a party, amend or terminate the agreement, in full or in part, when circumstances, which the parties have not been able and bound to foresee, have occurred and the preservation of the agreement is contrary to fairness and good faith.
However, this provision is not specific to financing contracts and is rarely relied on by lenders for termination and/or adjustment of bank loan agreements. There is almost no case law on the application of the provision.
Croatian law provides for two possible solutions. If the crisis renders the fulfilment of the obligation of one party impossible (nemogućnost ispunjenja), the agreement is terminated by force of law. If one party has already fulfilled its obligation (e.g. the lender has paid out the loan to the borrower) that party can request repayment pursuant to rules of unjustified enrichment.
If a crisis does not render the fulfillment of a contractual obligation impossible, but rather makes the fulfillment excessively burdensome for one party, that party may request that a court decide on the amendment or termination of the agreement (izmjena ili raskid zbog promijenjenih okolnosti). For example, in case a lender has already disbursed the loan to the borrower, the borrower could request an amendment or the termination of the agreement. The party making such a request is obliged to inform the counterparty prior to filing a motion with the court.
In both cases it is imperative that the crisis occurred after the conclusion of the agreement and was not foreseeable at the time the agreement was concluded and that the parties could not have been prevented such circumstances.
There are no statutory rights to terminate a financing agreement due to a crisis, nevertheless, there are some general provisions which may be used for certain extraordinary situations. The general principle is that if, after the conclusion of an agreement, circumstances change to the extent that the performance thereof becomes more onerous for one of the parties, it does not affect that party’s duty to fulfil its obligations. There are two exceptions – substantial change in circumstances and objective impossibility to fulfil the obligation.
In the case that there is such a substantial change in circumstances that creates a gross disproportion in the rights and duties of the parties by disadvantaging one of them either by disproportionately increasing the cost of the performance or disproportionately reducing the value of the subject of performance, the affected party has the right to claim the renegotiation of the contract with the other party if it is proved that it could neither have expected nor affected the change and that the change occurred only after the conclusion of the contract or the party became aware thereof only after the conclusion of the contract.
In our experience, however, the application of these statutory provisions is almost always explicitly excluded in the debt documentation. Both lenders and debtors should be well aware of the existence of these provisions and their possible impact, especially in the light of the current situation. An event such as the ongoing epidemic induced crisis, however, has never fully tested the possibilities of these provisions.
Furthermore, Czech law states that an obligation might become extinguished if it becomes impossible to fulfil as a consequence of unforeseen and objectively unexpected events, where more difficult conditions or higher costs do not provide sufficient grounds to establish the impossibility of fulfilment.
Under the Hungarian Civil Code, a financing agreement can be terminated (among others), if (i) any material changes took place in the debtor’s (financial) circumstances and the debtor fails to provide adequate guarantees, (ii) it became impossible to use the loan for the purpose specified in the agreement, or (iii) the value of the collateral has significantly depreciated and the debtor has not supplemented it.
However in respect to COVID19, it is currently uncertain whether all the statutory termination rights set out in the Hungarian Civil Code are applicable due to the emergency package being issued by the Hungarian government.
No, Montenegrin law does per se not provide for extraordinary termination rights for already fulfilled obligations i.e. utilized financing. For unfulfilled obligations such termination rights exist however (see below).
No, Macedonian law does per se not provide for extraordinary termination rights for already fulfilled obligations ie utilized financing. For unfulfilled obligations such termination rights exist however (see below).
Under Polish civil law (Article 357 of the Polish Civil Code), there is a provision stating that if following an extraordinary change of circumstances, the performance would be faced with excessive difficulties or threaten one of the parties with substantial loss, which the parties did not foresee when concluding the contract, the court may, after considering the interests of the parties, define the mode of performing the obligations and the degree of the performance, and even decide upon termination of the contract, if the principles pertaining to the life of the community would call for that. However, until now not many courts have ruled based on this provision (which may change due to COVID19 crisis). Please note that in practice application of the above provision of law would require a possibly lengthy court procedure, which would not be useful.
Also, there is a very broad provision (Article 5 of the Polish Civil Code) that states: One cannot exercise a right in a manner which would contradict its socioeconomic purpose or the principles of community life. Such act or omission shall not be considered the exercising of that right and shall not be protected. In extraordinary circumstances (e.g. crisis) one may use that provision as a line of defense.
For revolving credit facilities and unless otherwise agreed, the lender is allowed to terminate the contract unilaterally only for “justified reasons concerning the borrower”, but is required to allow the borrower 15 days to repay the amounts owed (Article 2.195 of the Romanian Civil Code). Even in this case, careful legal assessment is recommended in case an unilateral termination would be based on the occurrence of a crisis as such.
No, Serbian law does per se not provide for extraordinary termination rights for already fulfilled obligations i.e. utilized financing. For unfulfilled obligations such termination rights exist however (see below).
Generally, there are certain statutory rights to terminate a financing agreement in case of the occurrence of a MAC (.ie. thwarting the purpose of an agreement) – Article 356 of the Commercial Code. However, changes in the economic condition of a debtor or overall (macro)economic or market changes in general are explicitly excluded and thus the occurrence of a given crisis does not per se allow for a statutory termination. Further, Slovak civil law provides for the option to terminate an agreement in case of objective impossibility to fulfil an obligation. The current COVID19 crisis would however hardly cause objective impossibility to fulfil an obligation pursuant to Slovak law.
Slovenian civil law does provide for a general rebus sic stantibus provision – enabling one party to demand the termination of an agreement via court in case of (unforeseeable) change of circumstances, whereas the other party may prevent the termination if it offers a fair adjustment of contractual terms. That said, this provision is not specific for financing contracts and is rarely relied on (in and of itself) by lenders for termination and/or adjustment of bank loan agreements.
In addition, certain default (non-mandatory) statutory provisions could generally be relied upon by lenders with a view to terminating/accelerating a loan agreement, however, these would typically be overridden by a standard slate of contractual creditor protection provisions (events of default giving rise to an acceleration obligation).
There are no statutory rights to terminate a financing agreement due to a crisis, nevertheless, there are some general provisions under the Turkish Code of Obligations (“TCO”) which may be used for certain extraordinary situations. These are impossibility of performance (Art.136), partial impossibility of performance (Art.137) and excessive difficulty of performance (Art. 138).
If the crisis renders the fulfilment of the obligation of one party impossible (ifa imkansızlığı) due to reasons that are not attributable to such party, the obligor shall be released from performing the related obligations. If such party has already fulfilled its obligation (eg the lender has paid out the loan to the borrower) such party can request repayment pursuant to rules of unjustified enrichment. The obligor is required to duly and in a timely manner notify the creditor of the impossibility of the performance of the obligations and to take necessary precautions to mitigate losses.
If a crisis renders the fulfilment of the obligation of one party impossible (kısmi ifa imkansızlığı) due to reasons that are not attributable to such party, the obligor shall be released from obligations which are affected by such circumstances. However, if it is clearly understood that the contract would not be concluded if such impossibility would have been foreseen by the parties in advance, then all of the obligations under such contract shall cease to apply.
If a crisis does not render the fulfillment of contractual obligations partially or wholly impossible, but rather makes the fulfillment excessively burdensome (aşırı ifa güçlüğü) for one party to such extent that demanding performance from the obligor would violate the principle of good faith and if the debtor has not discharged his/her debt yet or has discharged his/her debt by reserving his/her rights arising from excessive difficulty of performance, such party may seek a court decision with respect to the adaptation of the contract to new circumstances.
3Can the economic terms of a loan be changed unilaterally due to the occurrence of a crisis?
In principal yes, GTCs of the Austrian lending community often foresee the right to adjust margins or to request the granting of additional collateral in case of a material deterioration of the financial condition of a borrower or its assets or a significant decrease of the value of the collateral granted (eg substantial deterioration of stocks held by a borrower). Again, such GTCs may be subject to legal limitations (see above).
According to the court practice, unilateral change of interest rate is null and void, unless the borrower agrees to such change.
On the other hand, granting of additional collateral in case of a material deterioration of the financial condition of a borrower (again subject to legal limitations, please see above) or its assets or a significant decrease of the value of the collateral granted (e.g. substantial deterioration of stocks held by a borrower) is deemed valid provided that such additional collateral granting is envisaged under the relevant contract. In respect to new financings please see below (II New financings / committed debt).
In principal yes, GTCs of Bulgarian banks often foresee the right to adjust margins or to request the granting of additional collateral in case of a material deterioration of the financial condition of a borrower or its assets or a significant decrease of the value of the collateral granted (eg substantial deterioration of stocks held by a borrower). Again, such GTCs may be subject to legal limitations (see above).
Economic terms of a loan may generally only be changed through the agreement of both parties or by court. The right to unilaterally change terms of the agreement may, to a very limited extent, be stipulated in the agreement; however, further careful legal assessment is recommended prior to exercising such right. On that note, the agreement must specify grounds which would allow one party to unilaterally change terms of the agreement, while the obligations of each party must remain determinable.
The Czech law contains certain provisions that enable the lender to unilaterally modify some terms of an economic nature in the debt documentation. These provisions are of a general nature and are not necesarily aimed at the occurrence of a crisis.
Firstly, the law grants the right to the lender to demand compensation for the declining value of the collateral from the debtor. Secondly, the law expressly provides for the possibility to unilaterally change the GTCs (or a price list) and the economic terms contained therein given that (i) the GTCs are a part of the documentation, (ii) the possibility is expressly agreed, (iii) the changes can only be made to a reasonable extent, preferably agreed in advance, (iv) there is an agreement on how the change of the GTC shall be notified to the other party and (v) the right of the debtor to refuse the change of the GTC is agreed and the process of termination is duly described without being associated with any special obligation of the debtor. For further details, please see also the MAC clauses described above.
Apart from the statutory right to unilateral change, the clauses regarding modification of, for example, the amount of fees and costs resulting from an unexpected event or in relation to investigation thereof, are rather common in the contractual documentation of the banks. The changes of the interest rates are less common, although they are generally allowed under the broad contractual freedom provided under the Czech law.
In general, financial institutions are allowed to make any change to the terms and conditions of client contracts unilaterally if it is not to the disadvantage of the client. Otherwise, interest rates, fees and other contract terms and conditions may be unilaterally modified to the disadvantage of the client only if it is expressly permitted in a separate section of the loan agreement under specific conditions or circumstances. Such changes in contractual conditions relating to interest rates and fees, if to the disadvantage of clients, must be published fifteen days prior to the operative date.
In principal yes, GTCs of Montenegrin banks often foresee the right to adjust the interest rate or to request the granting of (additional) collateral in case of a significant decrease of the value of the collateral granted. Again, such GTCs may be subject to legal limitations (see above). However, it is possible that measures adopted by state authorities aimed at mitigating the effects of a specific crisis could prohibit the change of the economic terms of the loan.
According to the obligation specificity principal (prescribed under the law and applicable in the practice of authorities), a unilateral change of interest rate could be null and void if the underlining basis of such change is unspecified (such as change of GTCs, market circumstances and other undetermined or undeterminable criteria).
On the other hand, granting of additional collateral in case of a material deterioration of the financial condition of a borrower (again subject to legal limitations, please see above) or its assets or a significant decrease of the value of the collateral granted (eg substantial deterioration of stocks held by a borrower) is deemed valid provided that such additional collateral granting is envisaged under the relevant contract. In respect to new financings please see below (2. New financings / committed debt).
In principal yes, GTCs of the Polish lending community often foresee the right to adjust margins or to request the granting of additional collateral in case of a material deterioration of the financial condition of a borrower or its assets or a significant decrease of the value of the collateral granted (eg substantial deterioration of stocks held by a borrower). Such GTCs may be subject to legal limitations.
In principal yes, GTCs of the Romanian lending community often foresee the right to adjust margins or to request the granting of additional collateral in case of a material deterioration in the financial condition of a borrower or its assets or a significant decrease of in the value of the collateral granted (although requests to supplement collateral may be subject to legal limitations). Again such GTCs would be subject to legal limitations (see above).
According to the court practice, unilateral change of interest rate is null and void if the underlining basis of such change is unspecified (such as change of GTCs, market circumstances and other undetermined or undeterminable criteria).
In principal, yes if so agreed contractually (again subject to general limitations applicable to civil or commercial law). Generally, the GTCs of most (or all) domestic lenders typically allow a lender to change finance terms unilaterally but this usually does not extend to the underlying commercial basis of a loan (e.g. the margin; unless due to a contractual breach – e.g. of specified undertakings). Further statutory restrictions apply in case of consumer loans (e.g. certain specification of the substantive reason for the amendment).
Generally, unilateral adjustment of contract terms sits uncomfortably with the general principles of Slovenian law. That said, Slovenian bank loan agreements often include provisions providing the lender’s right to impose certain terms of the agreement in case of changes in market circumstances (including changes in capital markets, borrower’s financial position, assets, etc.) – such as an increase in the applicable interest rate and/or an obligation to provide additional collateral on the occurrence of such event. Similarly to (broadly formulated) MAC provisions in “local form” bank loan agreements (see above), the enforceability of such provisions would need to be assessed on a case-by-case basis.
As per the TCO, general provisions of economic terms of a contract may only be changed through the agreement of both parties and the right to unilaterally change terms of the agreement may be stipulated in the agreement only on the condition that such provision shall not be to the disadvantage and in the detriment of the counter-party.
4Is there a statutory moratorium of creditors' claims or a freeze in covenants (eg if a borrower's business is closed by the authorities due to a crisis)?
Generally no. Austrian law does not per se foresee statutory “force majeure” events that protect a borrower form failing to meet its payment obligations or to comply with financial covenants due to a crisis.
Generally no. B&H laws do not per se foresee statutory “force majeure” events that protect a borrower form failing to meet its payment obligations or to comply with financial covenants due to a crisis.
On the other hand, the laws do provide for a voluntary moratorium granted by a bank in case of deterioration of the financial condition of a borrower or other conditions which the borrower cannot affect.
In the context of the current, COVID-19, both the FBiH and RS Banking Agencies have, in order to mitigate the negative effects of the pandemic, adopted decisions on a moratorium on repayment of loans. According to the decisions, the banks are obliged to define appropriate measures, including moratorium, that will help their clients to establish a sustainable business model and to settle credit obligations. The borrowers are entitled to a moratorium for the duration of the emergency state declared due to the pandemic and up to 6 months when combined with other measures, starting with approval by bank.
Generally no. Bulgarian law does not per se foresee statutory moratoriums that protect a borrower from failing to meet its payment obligations or to comply with financial covenants due to a crisis.
In the context of the ongoing COVID19 crisis, on 24 March 2020 in the State Gazette of Bulgaria, the Measures during the Emergency Situation Act (the “Act“) was published, thereby disapplying the consequences for private law entities/individuals (i) of payment delay – as default interest and liquidated damages, as well as (ii) of all non-monetary consequences – as debt acceleration, rescission of contracts and retaking of property. Normal contractual interest (i.e. different from default interest) will continue to accrue.
Generally, no. In case a “force majeure” event occurs, this may either lead to the termination of the agreement by force of the law or the right of the borrower to request an amendment or termination from the court (see above). Croatian law does not foresee a statutory moratorium.
At the moment, there is no state-wide statutory moratorium, however, it cannot be ruled out in the near future given the rapidly evolving precautions taken by the Czech government. Based on the recent news and rumours, there are several options which are being considered or proposed by some experts and political parties, including a moratorium regarding the enforcement of debts, a moratorium on the initiation of an insolvency proceeding or a loan freeze for a certain time period. Unfortunately, there is no official proposal or draft bill yet.
The Czech National Bank believes that a moratorium is a desirable approach by the banks as temporary solidarity towards debtors establishes a much firmer grounds for future debt repayment as opposed to lengthy judicial disputes. However, this decision should be made individually by the banks themselves. In fact, in response to a recommendation of the Czech Banking Association, some banks already introduced loan freeze programs up to three months for their clients (also including mortgages and leases) in cases where the debtor’s inability to pay is in direct correlation to COVID-19 pandemic. In our opinion, this step most likely signalizes that a state-wide moratorium is unlikely at this point (despite talks of such intervention from some political parties). In the event of problems with the repayment of a loan arising from ongoing preventive measures, we recommend contacting the respective bank and requesting a deferred payment without hesitation, whether this option is explicitly offered by the bank or not.
There is no statutory provision that would allow for such moratorium.
In the context of the ongoing COVID19 crisis, a recently issued governmental decree does provide the possibility to suspend payment obligations related to loan, credit and financial leasing agreements until 31 December 2020. For further details regarding the recent moratorium please see below.
Generally no. Montenegrin law does not per se foresee statutory “force majeure” events that protect a borrower form failing to meet its payment obligations or to comply with financial covenants due to a crisis.
In the context of COVID19, the Central Bank of Montenegro has enacted temporary measures for the mitigation of adverse effects on the financial sector, including a moratorium of up to 90 days on payment of loans (kredit) (issued by banks and micro-financial institutions) and settlement of financial leasing obligations (including a prohibition on charging default interest or fees during such moratorium). The moratorium is envisaged as a right of the borrower (the banks must notify the borrowers of this possibility). The borrower is free to decide to use it, and the bank is bound by this decision. If a borrower exercises such right, the bank is obliged to suspend all payments towards the repayment of the loan and the bank may not initiate enforcement procedures.
Generally, no. Macedonian law does not per se foresee statutory “force majeure” events that protect a borrower form failing to meet its payment obligations or to comply with financial covenants due to a crisis.
Macedonian authorities have not yet imposed any moratorium on repayment of loans and settlement of financial leasing obligations, nor have they introduced any suspension of the payment of interest on loans.
However, it is expected that the government will adopt a decree that involves a suspension of debt payments for individuals and legal entities for at least 90 days.
Generally no. Polish law does not per se foresee statutory “force majeure” events that protect a borrower from failing to meet its payment obligations or to comply with financial covenants due to a crisis. On the other hand, Polish doctrine and jurisprudence have developed the meaning of “force majeure”. The invocation of force majeure depends on the specific circumstances of the given case.
However, there are some plans to introduce special measures to handle the COVID19 crisis (see below).
Generally no. Statutory “force majeure” protection exists and is designed to protect debtors facing an impossibility to perform obligations, but does not address specifically borrowers’ payment obligations or financial covenants.
Generally no. Serbian law does not per se foresee statutory “force majeure” events that protect a borrower form failing to meet its payment obligations or to comply with financial covenants due to a crisis.
In the context of the current, COVID19, the National bank of Serbia has, as a preliminary measure for ensuring stability of financial system adopted a decision on a moratorium on repayment of loans and settlement of financial leasing obligations (incl a prohibition to charge default interest or fees during such moratorium). The moratorium is envisaged for all debtors, who do not reject a “banks’ offer” (which banks must mandatorily make), and involves a suspension of debt payments for at least 90 days, i.e. for the duration of the emergency state declared due to the pandemic (projected for 90 days).
Generally no. Slovak law does not per se foresee statutory “force majeure” events that protect a borrower form failing to meet its payment obligations or to comply with financial covenants due to a crisis.
However in relation to the ongoing COVID19 crisis, the Slovak government plans to implement certain measures, one of them being discussed is a 3-month deferral of instalments for certain businesses (e.g. service providers). This is however still subject to negotiation with the domestic banks. As an offset, the Slovak government is considering a deferral of the bank levy. Due to the recent change in government, nothing is certain yet.
Generally no. Save for the aforementioned rebus sic stantibus provision, there is no general provision providing for debt moratoria in crisis events – other than in the context of opening of official insolvency or preventive restructuring proceedings against a particular borrower (where a temporary moratorium will apply to the affected lenders).
That said, the Slovenian legislator is currently in the process of enacting a package of laws aimed at mitigating the effects of the COVID-19 pandemic. One of the measures is a special intervention law enabling affected borrowers to apply for a moratorium. See also III below.
Generally no. Turkish law does not per se foresee statutory “force majeure” events that protect a borrower from failing to meet its payment obligations or to comply with financial covenants due to a crisis.
In the context of the ongoing COVID19 crisis, all enforcement and bankcruptcy proceedings (pending and new) and interim attachment proceedings have been suspended until 30 April 2020 except for enforcement proceedings initiated for child support payments pursuant to the Decree to Suspend Enforcement and Bankruptcy Proceedings as published on 22 March 2020.
5Are borrowers obliged to treat all creditor classes equally (eg with respect to interest payments etc) during a crisis?
Generally no. Under Austrian law there is no statutory general obligation to treat all creditor classes equally outside insolvency (unless otherwise agreed contractually).
However, in case a debtor is (about to become) insolvent in terms of Austrian insolvency law (i.e. illiquid or over-indebted), to avoid any adverse consequences (e.g. claw-back claims in case of subsequent insolvency proceedings, liability of management) it must be carefully assessed in each individual case whether payments to any creditor are admissible or not.
Once Austrian insolvency proceedings are opened, the principle of equal treatment of creditors applies and there is a specific classification of claims (e.g. insolvency claims, secured claims, subordinated claims, right to separate segregation) that needs to be respected. Further, the successful completion of out-of-court restructurings (on a contractual basis with the consent of all creditors concerned) usually requires that all creditor classes are treated equally.
Under B&H laws there is no express statutory general obligation to treat all creditor classes equally during a crisis (unless otherwise agreed contractually).
However, to avoid any adverse consequences (e.g. voidable preference and claw-back claims in case of insufficient funds for debt repayment) it must be carefully assessed in each individual case whether payments to any creditor are admissible or not.
Once B&H insolvency proceedings are opened, the principle of equal treatment of creditors (pari passu) applies and there is a specific classification of claims (e.g. insolvency claims, secured claims, subordinated claims, right to separate segregation) that needs to be respected.
Generally no. Under Bulgarian law there is no statutory general obligation to treat all creditor classes equally outside insolvency (unless otherwise agreed contractually).
However, in case a debtor is (about to become) insolvent in terms of Bulgarian insolvency law (i.e. illiquid or over-indebted), to avoid any adverse consequences (e.g. claw-back claims in case of subsequent insolvency proceedings, liability of management) it must be carefully assessed in each individual case whether payments to any creditor are admissible or not.
Once Bulgarian insolvency proceedings are opened, the principle of equal treatment of creditors applies and there is a specific priority of each category of creditor that needs to be respected.
Outside of insolvency proceedings, generally no. Croatian law does not impose an obligation on borrowers to settle their obligations towards various creditors in a certain order. However, a borrower is generally obliged to not act to the detriment of creditors, especially if insolvency proceedings may be initiated in the near future.
There is no statutory obligation to treat all creditor classes equally during a crisis (or any other material adverse event as the case may be). Nevertheless, equal treatment of creditors (besides the fact that it is often laid down contractually) is regulated in insolvency law. In particular, the effectiveness of acts providing an unlawful advantage to certain creditors (or a close person thereof) may only be challenged in an insolvency proceeding. An act is to be considered “unlawfully advantageous” when the debtor acted (i) in favour of one or more of its debtors while bankrupt or (ii) in a way which led to its bankruptcy. Furthermore, favouring a creditor by an insolvent debtor to the detriment of another creditor is considered a criminal offence.
Generally no. Under Hungarian law there is no statutory general obligation to treat all creditor classes equally outside insolvency (unless otherwise agreed contractually).
However, in case a debtor is (about to become) insolvent in terms of Hungarian insolvency law (i.e. illiquid or over-indebted), to avoid any adverse consequences (e.g. triggering hardening periods, claw-back claims in case of subsequent insolvency proceedings etc.) it must be carefully assessed in each individual case whether payments to any creditor are admissible or not.
Under Montenegrin law there is no express statutory general obligation to treat all creditor classes equally during a crisis (unless otherwise agreed contractually).
Once Montenegrin insolvency proceedings are opened, the principle of equal treatment of creditors (pari passu) applies and there is a specific classification of claims (e.g. insolvency claims, secured claims, subordinated claims, right to separate segregation) that needs to be respected.
Under Macedonian law there is no express statutory general obligation to treat all creditor classes equally during a crisis (unless otherwise agreed contractually).
However, to avoid any adverse consequences (eg voidable preference and claw-back claims in case of insufficient funds for debt repayment) it must be carefully assessed in each individual case whether payments to any creditor are admissible or not.
Once Macedonian insolvency proceedings are opened, the principle of equal treatment of creditors (pari passu) applies and there is a specific classification of claims (eg insolvency claims, secured claims, subordinated claims, right to separate segregation) that needs to be respected.
Generally no. Under Polish law there is no statutory general obligation to treat all creditor classes equally outside insolvency (unless otherwise agreed contractually).
However, in case a debtor is (about to become) insolvent in terms of Polish insolvency law, to avoid any adverse consequences (e.g. claw-back claims in case of subsequent insolvency proceedings, liability of management) it must be carefully assessed in each individual case whether payments to any creditor are admissible or not. Also, the management board may be subject to criminal liability in case of unequal treatment of the creditors in case of the threat of insolvency (Art. 302 of the Polish Criminal Code).
Once Polish insolvency proceedings are opened, the principle of equal treatment of creditors applies and there is a specific classification of claims (e.g. insolvency claims, secured claims, subordinated claims, right to separate segregation) that needs to be respected. Further, the successful completion of out-of-court restructurings (on a contractual basis with the consent of all creditors concerned) usually requires that all creditor classes are treated equally.
No such obligation exists (unless otherwise agreed contractually), but both the creditor and the borrower should be mindful of suspect transactions that could be invalidated or even trigger liability of the management in a potential future insolvency of the borrower (e.g. is the borrower’s insolvency is declared within 2 years). Once insolvency proceedings are opened, the principle of equal treatment of creditors applies (subject to specific rights and priority of each category of creditors – secured/unsecured, tax creditors, employees, suppliers, etc.).
Under Serbian law there is no express statutory general obligation to treat all creditor classes equally during a crisis (unless otherwise agreed contractually).
Once Serbian insolvency proceedings are opened, the principle of equal treatment of creditors (pari passu) applies and there is a specific classification of claims (e.g. insolvency claims, secured claims, subordinated claims, right to separate segregation) that needs to be respected.
Generally no prior to insolvency of the borrower (unless there is an explicit contractual undertaking in this respect, which is not common for domestic documentation standards).
However there are few additional statutory rules arising from insolvency law which provide for equal treatment of creditors in general (subject to – rather long – hardening periods), in particular, the effectiveness of acts providing an unlawful advantage to certain creditors may be challenged in an insolvency proceeding, whereas the act is to be considered as “unlawfully advantageous” when the debtor acted in favour of a creditor while bankrupt or an act which led to the bankruptcy of such a debtor (or in favour of a close person thereof). Furthermore, favouring a creditor of an insolvent debtor to the detriment of another creditor is considered a criminal offence.
Once Slovak insolvency proceedings are opened, the principle of equal treatment of creditors applies and there is a specific classification of claims (e.g. secured claims, right to separate segregation) that needs to be respected.
As a matter of statutory law, generally no – the principle of equal treatment of creditors applies, in bright-line statutory terms, only in (pre)insolvency scenarios.
Outside insolvency, parties to financing arrangements are free to establish different classes of creditors in terms of repayment priority.
As of the onset of insolvency (which is deemed to have occurred when the borrower’s management should have, acting diligently, established that the borrower is insolvent within the meaning of Slovenian law), the obligation to treat creditors equally applies to the borrower, and any payment to any creditor must be carefully evaluated in order to avoid adverse consequences – such as claw-back claims in subsequent insolvency and management liability.
After the official opening of insolvency proceedings, the equal treatment principle is institutionalized – and claims are mandatorily classified into pre-defined categories (subordinated, unsecured, secured claims and rights of separation) and must be treated equally within such categories.
Under Turkish law there is no express statutory general obligation to treat all creditor classes equally during a crisis.
Once Turkish insolvency proceedings are opened, the principle of equal treatment of creditors (pari passu) applies and there is a specific classification of claims (eg insolvency claims, secured claims, subordinated claims, right to separate segregation) that needs to be respected.
3New financings / committed debt
1Can a lender impose a draw-stop (ie refrain from making available funds under a committed facility, revolving credit line, overdraft or similar financing instrument) on the occurrence of a crisis?
Contractually, loan documents usually stipulate the non-existence of a termination event (EoD) as a requirement for utilizations. Thus, utilizations may be refused based on the occurrence of a MAC (see details above). Further, contractual “market flex” conditions are also often foreseen in binding commitments by domestic banks.
Moreover, Austrian law (Art. 991 Austrian Civil Code) entitles a lender to refuse payouts if, after the conclusion of a loan agreement, circumstances arise which result in a deterioration of the financial condition of a borrower or respective collateral provided that such event endangers the repayment of the loan or the payment of interest (also taking into consideration potential enforcement proceeds form collateral). It is the same for Art. 987 (termination of a loan – see above), Art. 991 was passed in the context of the last financial crisis and is thus so far relatively untested.
It is advisable to carefully assess whether the requirements for Art. 991 are met in a given crisis. Further, it is recommendable to contractually address, specify or exclude the application of Art. 991 (which is not mandatory law) when entering into a new financing or amending existing financing as a consequence of a crisis.
Contractually, loan documents usually stipulate the non-existence of a termination event (EoD) as a requirement for utilizations. Thus, utilizations may be refused based on the occurrence of a MAC (see details above).
Moreover, B&H laws provide changed circumstances (promijenjene okolnosti) and impossible fulfillment (nemogućnost ispunjenja) as two extraordinary termination rights in respect to agreements in general – not exclusive to finance agreements.
Changed circumstances – If upon conclusion of the financing contract, due to crisis the ability of the lender to make available funds under a committed facility is hindered, the lender may request termination of the contract from the competent court. However, in case the borrower offers or accepts lender’s offer to fair contract amendments, the contract would not be terminated.
Careful legal assessment is recommended as to whether crisis alone would qualify as changed circumstance i.e. whether due to a crisis (i) it would be obvious that the contract does not correspond to the intention of the contracting parties, (ii) objectively (looking) it would be unjust to maintain the contract in force (iii) the lender could have taken into account (at the time of conclusion of the contract) or could have avoided or overcome the changed circumstances (i.e. a crisis).
Impossible fulfilment – if upon conclusion of the financing contract it became impossible for the lender make available funds under a committed facility due to a crisis (for which neither party is responsible), obligations of both parties under a finance contract would be terminated.
In such case the lender would have to prove that it is not responsible for the fulfilment of its obligation (i.e. making available funds under a committed facility) becoming impossible.
Finally, the Obligation Act provides that in case financial condition of the borrower is such that it is uncertain whether the borrower will be able to repay the loan, the lender may refuse to make available funds under a committed facility, provided that the lender did not know about the repayment uncertainty at the time of contract conclusion and that financial standing of the borrower deteriorated after contract conclusion. However, the lender is obliged to make available funds under a committed facility if the borrower (or third party) grants adequate security.
Moreover, Bulgarian law on security interests entitles a lender to accelerate a loan (and therefore cancel future commitments) if, after the conclusion of a loan agreement, the borrower provides false information, the security becomes insufficient and is not supplemented in due time after a notice, or the borrower fails to repay other loans to the bank due to financial distress.
If contractually agreed as such, the Croatian Civil Obligations Code (Art. 359) allows one party not to fulfill its contractual obligations in case material circumstances of the other party deteriorate to such an extent that it is uncertain whether it will be able to fulfill its obligation or if this uncertainty arises for other serious reasons.
It is advisable to carefully assess whether the requirements for Art. 359 are met in a given crisis. Further, it is recommendable to address, specify or exclude the application of Art. 359 (which is not mandatory law) when entering into a new financing or amending existing financing as a consequence of a crisis.
Yes, the occurrence of a crisis can be considered a reason for imposing a draw-stop. Most banks include draw-stop provisions in their agreements and/or GTCs. However, such provisions are purely contractual as Czech law does not explicitly address a similar possibility or, conversely, a prohibition thereof.
Hungarian law grants the possibility to the lenders to refuse disbursement of a loan if, due to any material changes in the debtor’s circumstances or in the value or enforceability of the collateral, performance of the contract can no longer be expected, and the debtor fails to provide adequate guarantees despite of being requested to do so.
Moreover, Montenegrin law provides changed circumstances (promijenjene okolnosti) and impossible fulfillment (nemogućnost ispunjenja) as two extraordinary termination rights in respect to agreements in general – not exclusive to finance agreements.
Changed circumstances – If upon conclusion of the financing contract, the lender’s ability to make funds available under a committed facility is hindered due to a crisis, the lender may request termination of the contract from the competent court. However, in case the borrower offers or accepts the lender’s offer to fair contractual amendments, the contract would not be terminated.
Careful legal assessment is recommended as to whether crisis alone would qualify as a changed circumstance i.e. whether the crisis (i) could not have been predicted and (ii) whether it hinders the performance of the obligation of one party to such extent that the performance of the obligation would be too burdensome or would incur too large a loss. Court practice has taken the position that changed circumstances must be objective in nature. Such circumstances are natural disasters, measures of state authorities, economic phenomena etc.
Impossible fulfilment – if upon conclusion of the financing contract it became impossible for the lender to make available funds under a committed facility due to a crisis (for which neither party is responsible), obligations of both parties under a finance contract would be terminated.
In such case the lender would have to prove that it is not responsible for the impossibility of the fulfilment of its obligation (i.e. making available funds under a committed facility).
Finally, the Obligation Act provides that in case the financial condition of the borrower is such that it is uncertain whether the borrower will be able to repay the loan, the lender may refuse to make funds available under a committed facility, provided that the lender did not know about the repayment uncertainty at the time of contract conclusion or if the financial standing of the borrower deteriorated after contract conclusion. However, the lender is obliged to make available funds under a committed facility if the borrower (or third party) grants adequate security.
Moreover, Macedonian law provides changed circumstances (променети околности) and impossible fulfillment (невoзможност за исполнување) as two extraordinary termination rights in respect to agreements in general – not exclusive to finance agreements.
Careful legal assessment is recommended as to whether crisis alone would qualify as changed circumstance ie whether due to a crisis (i) it would be obvious that the contract does not correspond to the intention of the contracting parties, (ii) objectively (looking) it would be unjust to maintain the contract in force (iii) the lender could have taken into account (at the time of conclusion of the contract) or could have avoided or overcome the changed circumstances (ie a crisis).
Impossible fulfilment – if upon conclusion of the financing contract it became impossible for the lender make available funds under a committed facility due to force majeure (ie an event which cannot be foreseen, avoided or prevented and for which neither party is responsible), obligations of both parties under a finance contract would be terminated.
In such case the lender would have to prove that it is not responsible for the impossibility of fulfilment of its obligation (ie making available funds under a committed facility).
Moreover, Polish law (Art. 721 Polish Civil Code) entitles a lender to withdraw from the contract and refuse payouts if, after the conclusion of a loan agreement, circumstances arise which result in a deterioration of the financial condition of a borrower provided that such event endangers the repayment of the loan or the payment of interest (also taking into consideration potential enforcement proceeds form collateral).
Also, under Polish Bankruptcy Law, in the event of bankruptcy of a party to a loan agreement, the agreement expires if the loan has not yet been paid out.
Pursuant to the Polish Banking Law, when the borrower fails to comply with the conditions for granting the loan or loses his creditworthiness, the bank may reduce the amount of the loan granted, or give a notice of termination of the loan agreement (unless the debtor has commenced the restructuring procedures).
Contractually, loan documents usually stipulate the absence of a termination event (EoD) as a requirement for utilizations. Thus, utilizations may be refused based on the occurrence of a MAC (see details above). Further, contractual “market flex” conditions are also sometimes foreseen in binding commitments by domestic banks.
Moreover, Romanian law (Art. 2.195 of the Romanian Civil Code) entitles a lender to unilaterally terminate a revolving credit facility agreement, for “justified reasons concerning the borrower” – whereupon future utilizations are cancelled.
Moreover, Serbian law provides changed circumstances (promenjene okolnosti) and impossible fulfillment (nemogućnost ispunjenja) as two extraordinary termination rights in respect to agreements in general – not exclusive to finance agreements.
No, unless contractually agreed. Loan documents usually stipulate the non-existence of a termination event (EoD – e.g. by breaching financial covenants) as a requirement for utilizations. Thus, utilizations may be refused based on the occurrence of a MAC (depending on how it is drafted, see details above).
Typically, Slovenian bank loan contracts will provide for a right of the bank to deny a utilization request in case of a (continuing) default – which, in turn, will typically comprise a MAC (see above). It will depend on the formulation of the MAC clause – and the case-specific circumstances – if a utilization request may be lawfully denied in a particular instance.
On the other hand, there is no bright-line statutory provision enabling banks generally to impose a draw-stop on the occurrence of a ‘crisis’ (in and of itself). In the absence of adequate contractual protection (which would not be a typical instance), lenders could attempt to resort to general provisions regulating termination of the loan agreement and/or rebus sic stantibus (see above), however, the lawfulness of such actions would need to be assessed on a case-by-case basis.
Yes, the occurrence of a crisis can be considered a reason for imposing a draw-stop. Most banks include draw-stop provisions in their agreements and/or GTCs. However, such provisions are purely contractual as Turkish law does not explicitly address a similar possibility or, conversely, a prohibition thereof. As there is no prohibition for draw-stops in law and parties are free to determine the terms and conditions in the agreements to be signed, unless prohibited by law, such draw stop clauses will be enforceable.
2 Will contractual "no financial indebtedness" or negative pledge undertakings apply in respect to rescue financing provided by governmental or public funds made available for crisis prevention?
Whether or not consent of existing financiers needs to be sought for providing emergency financing to an existing capital structure will very much depend on the terms of the existing debt and the proposed emergency funds. Austrian law per se does not provide for a statutory freeze or override in respect to such contractual negative undertakings.
In the context of the COVID 2020 crisis, the currently envisaged emergency package – as it currently stands – does not contain a statutory override of no-financial indebtedness or negative pledge covenants. Companies must perform a thorough due diligence on existing debt documents prior to obtaining governmental rescue finance.
Whether or not consent of existing financiers needs to be sought for providing emergency financing to an existing capital structure will very much depend on the terms of the existing debt and the proposed emergency funds. B&H law per se does not provide for a statutory freeze or override in respect to such contractual negative undertakings.
Whether or not consent of existing financiers needs to be sought for providing emergency financing to an existing capital structure will very much depend on the terms of the existing debt and the proposed emergency funds. Bulgarian law per se does not provide for a statutory freeze or override in respect to such contractual negative undertakings.
Croatian law per se does not provide for a statutory freeze or override in respect to such contractual negative undertakings.
In the context of the COVID 2020 crisis, and as the emergency package currently stands (i.e. the announcements of measures to be taken), it does not contain a statutory override of no-financial indebtedness or negative pledge covenants. So far, financing measures have only been announced by the Croatian Agency for SMEs, Innovation and Investments (HAMAG BICRO), but no legislative amendments have been implemented yet. In that light, it is still too early to assess the impact on “no financial indebtedness” or negative pledge covenants; however, it is not very likely that they would be overridden by any new measures. If consent of existing financiers needs to be sought for providing emergency financing to an existing capital structure will very much depend on the terms of the existing debt and the proposed emergency funds.
Based on the information available, the “COVID19 loans” provided by the government (see below) are considered regular loans. Contractual “no financial indebtedness” or negative pledge undertakings are thus to be applied in respect thereto. Therefore, the lender of an existing loan should be consulted and consent should be sought before applying for the COVID19 loan.
Whether or not consent of existing financiers needs to be sought for providing emergency financing to an existing capital structure, will very much depend on the terms of the existing debt and the proposed emergency funds. Hungarian law per se does not provide for a statutory freeze or override in respect to such contractual negative undertakings.
In the context of the COVID-19 crisis, the emergency package introduced so far does not contain a statutory override of no-financial indebtedness or negative pledge covenants but rather aims to address the issue structurally.
Whether or not consent of existing financiers needs to be sought for providing emergency financing to an existing capital structure will very much depend on the terms of the existing debt and the proposed emergency funds. Montenegrin law per se does not provide for a statutory freeze or override in respect to such contractual negative undertakings.
Whether or not consent of existing financiers needs to be sought for providing emergency financing to an existing capital structure will very much depend on the terms of the existing debt and the proposed emergency funds. Маcedonian law per se does not provide for a statutory freeze or override in respect to such contractual negative undertakings.
Whether or not consent of existing lenders needs to be sought for providing emergency financing to an existing capital structure will very much depend on the terms of the existing debt and the proposed emergency funds. Polish law per se does not provide for a statutory freeze or override in respect to such contractual negative undertakings.
In the context of the COVID19 crisis, the Polish regulator (KNF) has announced the Supervisory Impulse Package for Security and Development (the “Package“) and has invited the banks and other institutions to actively participate in this initiative. The Package aims to tackle the current situation, e.g. may result in a change to current accounting practice, fewer audits, minimizing supervisory responsibilities, etc. Moreover, currently the Polish government is working on the new law proposed by KNF, allowing banks – in relation to their existing customers – to extend the maturity, suspend repayment, or otherwise modify the credit terms and conditions in favour of the customer.
Whether or not consent of existing financiers needs to be sought for providing emergency financing to an existing capital structure will very much depend on the terms of the existing debt and the proposed emergency funds. Romanian law per se does not provide for a statutory freeze or override in respect to such contractual negative undertakings.
Whether or not consent of existing financiers needs to be sought for providing emergency financing to an existing capital structure will very much depend on the terms of the existing debt and the proposed emergency funds. Serbian law per se does not provide for a statutory freeze or override in respect to such contractual negative undertakings.
Whether or not consent of existing financiers needs to be sought for providing emergency financing to an existing capital structure will very much depend on the terms of the existing debt and the proposed emergency funds. Slovak law per se does not provide for a statutory freeze or override in respect to such contractual negative undertakings.
In the context of the COVID 2020 crisis, the currently envisaged emergency package – as it currently stands – does not contain a statutory override of no-financial indebtedness or negative pledge covenants. Currently, only negotiations with the financial and banking sector are planned in order to discuss the possibility of deferral of instalments.
The impact of emergency funding with the aim of crisis prevention will generally depend on the terms of existing debt as well as on the proposed emergency financing. There is per se no statutory freeze or override of the respective negative covenants available under Slovenian law in the context of emergency funding.
In the context of the COVID-19 pandemic, the currently envisaged set of emergency measures contains no override / exemption to these negative covenants.
In principle, the contractual “no financial indebtedness” and “negative pledge” covenants shall continue to apply. Borrowers may seek to obtain waivers in respect to each individual cases.
4Update COVID19 – Status 23 March 2020
1Jurisdiction specific impact on debt contracts
The ECB has announced various measures to allow and encourage the provision of liquidity to the real economy by its supervised bank and, to the extent possible, avoid regulatory constraints on lending. Those measures currently include that banks can fully use capital and liquidity buffers, enjoy temporary relief from Pillar 2 Guidance (economic capital of the banks as ECB expects each bank to meet) and liquidity coverage ratio and have more flexibility to fulfill (mandatory) Pillar 2 Requirements. Regulators may, within the framework of ECB’s guidance, also exercise more flexibility in respect of non-performing loans (see external website). Additional measures (such as additional EUR 750 billion liquidity by a new asset purchase program) will follow.
Liquidity support for companies by the Republic of Austria, in particular under a special COVID-19 act (currently up to EUR 38billion – see Austrian federal ministry: bmf.gv.at). Additional measures are envisaged under the COVID-19 II act, which will foresee financial support particularly for small and medium enterprises (eg. one-person enterprises, freelancers and non-profit organisations).
ABBAG (the State-entity that was also instrumental in the financial crisis) entrusted with implementing the emergency funding package put in place by the Republic of Austria.
No statutory moratorium for loans or similar debt instrument currently enacted.
Legislator clarifies that insolvency filing period is extended to 120 days also in case of pandemic (we think the 120 days already apply based on existing law but clarification is welcome).
FMA has issued a regulation prohibiting short selling in certain financial instruments that are listed on the Vienna Stock Exchange.
OeKB –credit funds program of EUR 2 billion for Austrian based export companies, which can apply for a credit line of 10 percent (large companies) or 15 percent (SMEs) of their export turnover with an individual maximum limit of EUR 60 million.
Moratorium for the period of up to 6 months / duration of the emergency state declared due to the pandemic in FBiH – measure adopted as response to COVID-19 aimed at overcoming the negative effects on citizens and businesses amid a realistic possibility in the given circumstances that borrowers and lessors might face difficulties in debt repayment (see external pdf);
Moratorium for the period of up to 6 months / duration of the emergency state declared due to the pandemic in RS – measure adopted as response to COVID-19 aimed at overcoming the negative effects on citizens and businesses amid a realistic possibility in the given circumstances that borrowers and lessors might face difficulties in debt repayment (see external pdf);
The ECB has announced various measures to allow and encourage the provision of liquidity to the real economy by its supervised bank and, to the extent possible, avoid regulatory constraints on lending. Those measures currently include that banks can fully use capital and liquidity buffers, enjoy temporary relief from Pillar 2 Guidance (economic capital of the banks as ECB expects each bank to meet) and liquidity coverage ratio and have more flexibility to fulfill (mandatory) Pillar 2 Requirements. Regulators may, within the framework of ECB’s guidance, also exercise more flexibility in respect of non-performing loans (see https://www.bankingsupervision.europa.eu). Additional measures (such as additional EUR 750 billion liquidity by a new asset purchase program) will follow.
Suspension of the consequences for private law entities/individuals – payment delay (as default interest and liquidated damages), and all non-monetary consequences (as debt acceleration, rescission of contracts and retaking of property).
On 19 March 2020, the Bulgarian National Bank applied a package of measures amounting to BGN 9.3 billion (approx. EUR 4.8 billion) related to COVID 19 pandemic. The core measures are designed to procure additional capital and liquidity strengthening, as follows:
converting the full banking system profit of BGN 1.6 billion (approx. EUR 818 million) into equity;
cancellation of the projected increases of the counter cyclical capital buffer for 2020 and 2021 the with effect amounting to BGN 700 million; (approx. EUR 358 million);
increasing the banking system liquidity by BGN 7 billion (approx. EUR 3.6 billion) by reduction of the commercial banks’ foreign exposures.
Encouraging liquidity support for companies is envisaged – for more details please visit our website.
Three-month moratoriums on enforcements by commercial banks is envisaged (for both individuals and companies); however, how such measures will be implemented is yet to be seen.
Possible deferrals for payments of instalments / annuities (for both individuals and companies).
In response to the economic burden caused by the declaration of the state of emergency, the Ministry of Industry and Trade will allocate up to CZK 30 billion to be distributed in a form of interest-free operating “COVID19 loans” in the maximum amount of CZK 15 million per debtor to small and medium enterprises by the Czech-Moravian Guarantee and Development Bank (Českomoravská záruční a rozvojová banka, a.s.) (ČMZRB). The first wave of applications of CZK 600 million has been depleted and closed on 20 March, the details concerning the second wave of CZK 5 billion will be published shortly. The extent of required collateral is to be determined on a case by case basis.
The Czech government is holding talks concerning the alleviation of the financial burden on citizens caused by the COVID-19 epidemic. These proposed financial aid packages would provide support for each individual affected.
The Czech government approved the so-called Liberation package alleviating some tax burdens on both individuals and legal persons.
The details are yet to follow, but the following measures have been introduced by the Hungarian government:
The annual percentage rate of consumer credit agreements not secured by mortgages/pledges concluded from 19 March will be limited. The annual percentage rate of such credits shall be the maximum of the central bank base rate + 5%.
A moratorium has been introduced under all retail and corporate financings. Capital, interest and fee payment obligations under all loan, credit and financial leasing agreements are suspended until 31 December 2020. Irrespective of the moratorium, debtors may of course continue performing their contractual obligations if they would like to.
Certain sectors are facing serious issues, such as tourism, hospitality, the entertainment industry, sport, cultural services and passenger transport. Thus, until June 30, the government has decided to release employers in these sectors from social contribution payment obligations. The government has also reduced the social contribution payment obligations of the employees: they are not obliged to pay pension contributions and the amount of their social healthcare contribution is reduced to the minimum.
Moratorium on debt payment for 90 days – measure adopted as response to COVID19 aimed at overcoming the negative effects on citizens and businesses due to possible difficulties in debt repayment.
Flexible restructuring of bank loans – restructured loans may be treated as new loans in the procedure of classification of assets and allocation of provisions for potential losses if the borrower is able to prove that his financial position has deteriorated or will deteriorate in the near future due to the negative influence of COVID19 on his business from the day that the virus was initially discovered and if the bank assesses that the credit capacity of the borrower will be improved after restructuring. The measure aims to release banks from new costs and burdens in connection with allocation of provisions (see external pdf).
The Macedonian government adopted a decree on the application of Bankruptcy Act (Закон за стечај) during a state of emergency. According to this decree, its provisions shall be applied for initiation of bankruptcy procedures and the initiation of preliminary procedures. Bankruptcy debtors who meet the requirements for opening either of these procedures, shall not be subject to bankruptcy proceedings and initiation preliminary procedures for the duration of the state of emergency. All initiated procedures against the bankruptcy debtor shall be postponed for the duration of the state of emergency. Note: The decree is yet to be published in the Official Gazette of Republic of North Macedonia. (see external link)
Governmental measures impacting the banking and financing sector are to be announced in the following days.
More favorable terms and conditions for existing loans – decision adopted by the Macedonian National Bank as response to COVID-19 (see external link).
Amendment of the Macedonian Law on Contractual Obligations reducing the percentage points of the statutory penalty – measure adopted by the Macedonia government as response to COVID-19 (see external link).
For more detailed information see https://www.schoenherr.eu/coronavirus-info-corner/.
The ECB has announced various measures to allow and encourage the provision of liquidity to the real economy by its supervised bank and, to the extent possible, avoid regulatory constraints on lending. Those measures currently include that banks can fully use capital and liquidity buffers, enjoy temporary relief from Pillar 2 Guidance (economic capital of the banks as ECB expects each bank to meet) and liquidity coverage ratio and have more flexibility to fulfill (mandatory) Pillar 2 Requirements. Regulators may, within the framework of ECB’s guidance, also exercise more flexibility in respect of non-performing loans (see https://www.bankingsupervision.europa.eu). Additional measures (such as additional EUR 750 billion liquidity by a new asset purchase program) will follow.The Polish regulator (KNF) also published the ECB guidelines on its website (see https://www.knf.gov.pl/aktualnosci?articleId=69239&p_id=18)
KNF has announced the Package and has invited the banks and other institutions to actively participate in this initiative (see: https://www.knf.gov.pl/knf/pl/komponenty/img/Pakiet_Impulsow_Nadzorczych_na_rzecz_Bezpieczenstwa_i_Rozwoju_69277.pdf). Currently the Polish government is working on the new law proposed by KNF allowing banks – in relation to their existing customers – to extend the maturity or otherwise modify the credit terms and conditions in favour of the customer.
The Polish Bank Association (ZBP) published the announcement on its website with the steps to be taken by Polish banks (e.g. the suspension of the payment of loans, leasing, factoring, facilitating contact by electronic means, etc.) (see https://www.zbp.pl/Aktualnosci/Wydarzenia/Komunikat-ZBP-w-sprawie-dzialan-pomocowych-podejmowanych-przez-banki); however, no actual steps have been taken yet and they may depend on the Polish legislation to be adopted by the government due to the current situation.
The government of Romania has increased the guarantee thresholds for SMEs by RON 5 billion (approx. EUR 1 billion), to be channeled towards working capital and investment financings, with 100% subsidized interest. The guarantees cover 90% for credit facilities of up to RON 1 million (approx. EUR 200,000) and 80% for credit facilities above such threshold;
Social security fund coverage of up to 75% of medium gross wage for employees in industries which are affected by COVID-19;
No statutory moratorium for loans or similar debt instrument currently enacted, but local banks are taking steps in this direction voluntarily and the topic is being discussed with authorities and regulators (http://www.zfenglish.com/banks-insurance/banks-call-for-amended-regulations-to-postpone-loan-payments-18991616).
Moratorium on debt payment for at least 90 days – measure adopted as response to COVID-19 aimed at overcoming the negative effects on citizens and businesses amid a realistic possibility in the given circumstances that borrowers and lessors might face difficulties in debt repayment (see https://nbs.rs/internet/english/scripts/showContent.html?id=15323&konverzija=nol).
Key Policy Rate reduced by 0.50 bp to 1.75% – measure adopted as response to COVID-19 for purposes of providing additional support to credit and economic growth (see https://nbs.rs/internet/english/scripts/showContent.html?id=15301&konverzija=no).
Additional FX Swap Auction – measure adopted as response to COVID-19 for support of financial system dinar liquidity (see https://nbs.rs/internet/english/scripts/showContent.html?id=15331&konverzija=no ).
Repo Purchase of Dinar Government Securities – measure adopted as response to COVID-19 aimed at facilitating liquidity management for banks (see https://nbs.rs/internet/english/scripts/showContent.html?id=15336&konverzija=no )
Shortly after appointment of the new Slovak government, adoption of several measures in relation to the COVID19 crisis was announced, amongst others that no court execution or public auction may be commenced until 30 April 2020 and the obligation of a debtor to file a petition for declaration of its bankruptcy (when illiquid or overindebted) is prolonged to 60 days (instead of 30 days).
Members of the government announced that the government is also considering different measures, one of them being discussed is a 3-month deferral of instalments for certain businesses (e.g. service providers). This is however still subject to negotiation with the banks. As an offset, the Slovak government is considering deferral of the bank levy. Due to recent change of government in Slovakia, nothing is clear yet.
The ECB has announced various measures to allow and encourage the provision of liquidity to the real economy by its supervised bank and, to the extent possible, avoid regulatory constraints on lending. Those measures currently include that banks can fully use capital and liquidity buffers, enjoy temporary relief from Pillar 2 Guidance (economic capital of the banks as ECB expects each bank to meet) and liquidity coverage ratio and have more flexibility to fulfill (mandatory) Pillar 2 Requirements. Regulators may, within the framework of ECB’s guidance, also exercise more flexibility in respect of non-performing loans (see https://www.bankingsupervision.europa.eu).
On 20 March 2020 the Slovenian National Assembly adopted an intervention act (Zakon o interventnem ukrepu odloga plačila obveznosti kreditojemalcev – ZUIOPK), the publication of which (in the Official Gazette) is expected shortly; the act will apply as of the following day thereafter. This act provides for a possibility of a moratorium (temporary standstill) for 12 (or more) months on payment obligations stemming from bank loan agreements which have fallen due after 12 March 2020 (official announcement of COVID-19 epidemic in Slovenia). The moratorium does not apply automatically; application by the eligible borrower and approval by the affected creditor is required. If the affected creditor denies the approval of complete and justified application for moratorium it faces a fine of up to EUR 250,000 and responsible board members a fine of up to EUR 10,000. The act affects banks and saving banks with a seat in Slovenia and Slovenian branches of EU banks, but does not apply to cross-border financing (Slovenian language text available at: https://imss.dz-rs.si/IMiS/ImisAdmin.nsf/ImisnetAgent?OpenAgent&2&DZ-MSS-01/6f9c947b67e80748902c1bcf063588eaaadaf0c2688e757256bbcebe2cd611be).
Expectedly as of late-March/April onwards, the Slovenian State will procure liquidity support for companies affected by COVID-19 epidemic in cooperation with SID bank (State-owned promotional development and export bank) and Slovenian Enterprise Found (“SEF”). The measures will reportedly include extension of additional credit lines (aggregate value (i) SID bank: EUR 50 million, (ii) SEF: EUR 25 million), relaxation of terms of existing (direct and indirect) financing, additional guarantees and other liquidity measures (currently up to EUR 915 million).
The Ministry of Ministry of Economic Development and Technology will reportedly provide a financial support (state aid) for companies in trouble (credit capacity of up to EUR 6 million and guarantee capacity of up to EUR 20 million).
The Banking Regulatory and Supervisory Authority has issued certain measures in respect to the effects of loan repayment difficulties which may be faced by banks due to COVID19 impacts: accordingly, the 90-day default period for classification of loans as NPLs has been increased to 180 days. In the same vein, the 90-day period triggering setting aside provisions has been increased to 180 days. The same will apply as 240 days in respect to financial leasing institutions.
No statutory moratorium for loans or similar debt instruments are currently enacted.
Enforcement and bankruptcy proceedings (pending and new) and interim attachment proceedings have been suspended until 30 April 2020 (except for enforcement proceedings initiated for child support payments) pursuant to the Decree to Suspend Enforcement and Bankruptcy Proceedings as published on 22 March 2020.
Minela Šehović