Government Decision No. 270 of 2 April 2020 approving the implementation rules (the Implementation Rules) to Government Emergency Ordinance No. 37 of 30 March 2020 regarding the moratorium on loan and leasing payments (the Moratorium Ordinance)[1] has now been passed.
Although the Implementation Rules do not include significant clarifications, there are a few important details we wish to flag as regards their application to legal entities.
Who is considered directly or indirectly affected by the COVID-19 pandemic according to the Implementation Rules? By way of reminder, the Moratorium Ordinance provides that, among others, only legal entities (except credit institutions) whose incomes have been directly or indirectly affected by the COVID-19 pandemic can apply for the moratorium.
No definitions of these direct/indirect concepts have been included in the Moratorium Ordinance or in the Implementation Rules. It is however our understanding that the evidence that a legal entity has been directly or indirectly affected by the COVID-19 pandemic can (only) be made with both (I) the prescribed emergency certificate evidencing (a) an at least 25% revenues decrease in March 2020 (compared with average in January and February); or (b) that their activity is completely or partially interrupted because of the authorities’ decisions[2], and (II) such legal entity’s own statement that its revenues were affected by the pandemic and that it is under impossibility to comply with the payment obligations.
What should banks analyse? The borrower must meet certain requirements/conditions in order to be able to apply for the moratorium. The banks are expected to assess compliance with these conditions. As per above, the debtor must be directly or indirectly affected by the COVID-19 pandemic; it is unclear whether the purpose of the Implementation Rules is (A) to simply require the banks to tick the boxes as to the formal existence of the statement and emergency certificate or (B) to look into the factual situation of the borrower (and for example analyse whether it is indeed affected by the pandemic). We believe the former approach should prevail. This impacts on the degree of the operational risks for the banks. Moreover, suspended mortgage loans to individuals would benefit from a guarantee from the Romanian State; if the lenders’ analysis should consider factual aspects also and if such analysis is flawed, the respective lender may face difficulties in receiving payment under the State guarantee. It is unclear what is the approach is to be followed if the borrower and the bank disagree on the moratorium rules (scope or implementation) – considering the urgency for such new regulations to be applied.
What are the effects of the moratorium on co-borrowers, guarantors and other parties? The Implementation Rules provide that (i) any guarantee/security originally given continues and (ii) the contract amendments reflecting the Moratorium Ordinance are enforceable by the effect of the law against any co-debtor, guarantor (including any personal guarantor) and any other party to the credit agreement only if such party’s prior consent has been obtained.
The manner in which these two provisions tie together is unclear. Our reading is as follows:
- any third-party guarantee or security (either provided by the borrower or the third party) is not terminated by the operation of the law (i.e. as a result of the moratorium);
- such third-party guarantee or security would continue following the moratorium and during the extended maturity; and
- unless the consent of the relevant third party debtor is obtained, the third party guarantee/security is limited to the original monetary limits of the obligation not adjusted upwards by the moratorium (e.g. the additional interest payable by the debtor as a result of the moratorium may not be claimed from the third party).
The Romanian law providing for moratorium for loan repayments by the Romanian borrowers seems to be of public order/immediate application nature and trump the governing law of the loan agreement. However, the governing law of the loan agreement or the guarantee should govern the effects towards the co-borrowers (which are not subject to moratorium) or the guarantors.
[1] For our brief analysis of the Moratorium Ordinance, please refer to: https://www.rtpr.ro/emergency-journal/moratorium-on-loan-and-leasing-payments-how-does-this-work/
[2] For our briefing on the conditions when such emergency certificates are issued, please refer to: https://www.rtpr.ro/emergency-journal/certificates-for-state-of-emergency-scope-and-issuance-procedure/
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