Extraordinary measures in response to COVID-19 epidemic: Slovenian mandatory moratorium on bank loans
On 20 March 2020 the Slovenian Parliament adopted an emergency law (Zakon o interventnem ukrepu odloga plačila obveznosti kreditojemalcev – ZIUOPOK) concerning mandatory moratoriums to be approved by Slovenian banks to Slovenian borrowers at their request, with a view of preventing substantial damage to the economy and maintaining financial stability.
The law shall enter into force one day after its publication in the Official Gazette. The measures imposed thereunder shall be effective for 18 months as of cessation of the reasons for them, which shall be established by a resolution to be adopted by the Slovenian Government.
The law is applicable to the following lenders:
- banks and savings banks with seat in Slovenia;
- Slovenian branches of banks of EU member states, licensed to perform banking services in Slovenia;
Eligible borrowers include:
- companies with seat in Slovenia;
- co-operatives, societies, institutes, foundations, physical persons employing workers, self-employed persons, all with seat / permanent residence in Slovenia (as applicable);
- physical persons (i.e. consumers) who are Slovenian citizen and have permanent residence in Slovenia
General description of the measure:
The bank shall be obliged to grant to the borrower (at its request) a 12-month suspension of all payment obligations and a corresponding prolongation of repayment schedule (including final maturity date). The measure shall apply to all payment obligations from loan agreements which have fallen due after 12 March 2020, being the date of official declaration of COVID-19 epidemic in Slovenia.
The provisions of this law shall apply also to loan agreements which are concluded during the validity of the law.
Conditions to achieve moratorium:
- A borrower must submit to the bank an application for moratorium within 6 months as of official termination of the COVID-19 epidemic in Slovenia.
- The application shall contain certain mandatory components which differ depending on characteristics of the borrower:
- large companies need to state and reason that they are paying mandatory contributions, taxes and other duties, however, as result of the COVID-19 crisis, continued payments of obligations from the loan agreements could cause liquidity problems in such extent that solvency could be jeopardised;
- other companies, co-operatives, societies, institutes, foundations, physical persons employing workers, self-employed and farmers need to state and reason that they are paying mandatory contributions, taxes and other duties, however, as result of the COVID-19 crisis, they cannot assure continued payments of obligations from the loan agreements;
- all of the above categories need to include in the application also:
- a description of their business position (including a plan for re-establishing liquidity);
- a statement that they have no outstanding tax/social contributions obligations as at 31 December 2019 (or that they benefit from a moratorium thereon or have the right to pay them in instalments).
As an exception, the borrowers from the second indent above whose activity has been temporarily barred under COVID-19 related measures (e.g. stores offering non-food products, providers of certain non-urgent services) do not need to provide the description of their business position / plan for re-establishing liquidity, and do not need to provide any reasoning for the moratorium;
- physical persons only need to state and reason that, as result of the COVID-19 crisis, they cannot assure continued payments of obligations from the loan agreements, and provide a description of facts and circumstances related to such crisis which have affected their financial position.
- Provided that the above conditions are fulfilled, the banks are obliged to approve the described moratorium and conclude appropriate annexes with the borrowers, upon which the moratorium will take legal effect.
If the bank denies approval of a complete and justified application, it may be fined in the range between EUR 80,000 to EUR 250,000, a member of its management board with a fine between EUR 2,500 to EUR 10,000, and its other responsible person with a fine between EUR 800 to 10,000.
Those borrowers, which are obliged to include in their applications a description of their business position, will during the moratorium have certain monthly reporting obligations.
Possibility to terminate:
The bank will be able to terminate the moratorium before its expiry:
- if the borrower (other than a physical person):
- fails to provide monthly reports;
- no longer qualifies for the moratorium (e.g. due to improvement of its business situation);
- provides false information in the application;
- if the borrower who is a physical person provides false information in the application.
II. CHALLENGES OF IMPLEMENTATION IN PRACTICE
Generally, the discussed law is relatively short and does not specifically (or in sufficient detail) address several topics which will need to be considered by the banks in implementation.
Most notable questions include:
- What is the practical reach of applicability of this law to “new” loan agreements concluded during validity its validity, and can this result in a new credit crunch in Slovenia?
- What is the effect of this law onto obligations payable to the banks under syndicated facilities which include non-Slovenian lenders / agents?
- What is the effect of this law onto loans secured with state or quasi-state guarantees, where the banks are not allowed to change credit terms?
- Will the banks be able to charge higher interest rates (payable after expiry of the moratorium), if so provided in the loan agreement, e.g. due to occurrence of events of default other than payment delay (e.g. in case of breach of financial covenants)?
- How will the moratorium affect credit rating of the borrower; and how should moratoriums be considered in view of prudential requirements applicable to the banks?
- How to achieve legal certainty in assessing whether or not the borrower’s application is grounded (particularly in view of the fines)? How to prevent potential misuse by those clients whose payment ability was problematic even before the epidemic, and did not materially deteriorate as a result of the epidemic?
- Does the law affect only receivables from loans or also receivables from other banking transactions (guarantees, factoring, overdrafts)? What will be the effect on hedging agreements?
- Details of calculation and maturity/payment of interest at the end of the moratorium in view of the provision that the amounts of instalments may not be changed?
- Are the banks allowed to charge any costs in respect of the annexes to be concluded?
If you need any help in relation to this new Slovenian law, please do not hesitate to contact us.
While we #stayhome, we will be most glad to provide our advice.