Legal update GEO 37 2020
Legal update GEO 37 2020
Suspension of payment obligations for credit and leasing contracts. Emergency Government Ordinance no. 37/2020
Considering the worsening of new coronavirus spread, in Romania the state of emergency was established by Decree no. 195/2020 regarding the establishment of the state of emergency in the territory of Romania and numerous measures were adopted aimed at restricting or even suspending certain economic activities.
Since significant economic imbalances have already appeared and are anticipated, several measures have been adopted to protect and support the business environment, notably regarding small and medium-sized enterprises (“SMEs”), but also to the population, in order to combat this negative impact.
Within the package of legislative documents adopted by the Romanian authorities in order to support the business environment, the Emergency Ordinance no. 37/2020 regarding the granting of facilities for loans granted by credit institutions and non-bank financial institutions to certain categories of debtors (“GEO no. 37/2020”), through which a series of measures applicable to legal entities, other professionals or enterprises, as well as individuals as consumers.
GEO no.37/2020 provided facilities
GEO no. 37/2020 establishes the measure of suspending, at the debtor request, the obligation to pay the installments related to the loans, representing capital rates, interest and commissions, granted to the borrowers by the creditors until the date of entry into force of this emergency ordinance, for a period up to 9 months, but not later than 31.12.2020 (“suspension of payment obligations”).
GEO no. 37/2020 regulates:
(i) domain of facility application de aplicare al facilitatii, regarding the contracts, creditors and debtors to which the measure is applicable;
(ii) general conditions for accessing the facility by the borrowers;
(iii) specific conditions for accessing the facility, applicable to natural persons debtors and legal persons or professionals debtors;
(iv) facility effects;
(v) the procedure through which the facility can be accessed;
(vi) measures instituted in favor of creditors.
Application domain. Contracts. Creditors. Barrowers
GEO no. 37/2020 is applicable regarding:
(a) credit contracts or (b) leasing contracts which meet the following general conditions:
(i) the Romanian law is applicable to them;
(ii) the loan did not reach maturity prior to the entry into force of GEO no. 37/2020;
(iii) the creditor did not declare the anticipated maturity of the loan prior to the entry into force of GEO no. 37/2020;
Concluded between creditors:
(i) credit institutions;
(ii) non-banking financial institutions
(iii) branches of foreign credit institutions and non-banking financial institutions operating in the territory of Romania;
(i) natural persons, category in which are included and natural persons who are professional:
– authorized natural persons;
– individual and family businesses;
– the liberal professions and those practiced under special laws, regardless of the form of exercise of the profession;
Note: In the GEO no. 37/2020 it is not clear whether, where reference is made to natural persons, the norms refer also to the category of natural persons who have the quality of professional.
(i) legal entities.
General conditions to acces the facility
At the date of establishing the state of emergency on the territory of Romania – not at the date of entry into force of GEO no. 37/2020 – the debtors do not record overdue payments due;
Exceptionally, the debtors who recorded arrears on the date of the establishment of the state of emergency, could benefit from a facility if they make their outstanding payment prior to requesting the suspension of the payment obligation;
The debtors’ incomes have been directly or indirectly affected by the serious situation generated by the COVID-19 pandemic, according to the rules of application of this emergency ordinance.
Note: the application rules are to be elaborated by the Ministry of Public Finance and to be approved by Government decision within 15 days from the entry into force of GEO no. 37/2020.
Specific conditions to acces the facility
Note: from the interpretation of the text, it seems that these specific conditions must be met by debtors legal persons and natural persons who have the quality of professionals, excluding only natural persons who have the quality of consumers.
The debtors mentioned above must meet one of the following alternative conditions:
a) interrupt all or part of the activity as a result of the decisions issued by the competent public authorities according to the law, during the emergency state decreed and hold the certificate of emergency situations issued by the Ministry of Economy, Energy and Business Environment – that is, the debtors hold an emergency certificate of type 1 (blue); or
b) hold the certificate for emergencies issued by the Ministry of Economy, Energy and Business Environment, which establishes, based on the declarations on the own responsibility of the debtors, the diminution of incomes or receipts by at least 25% in March 2020, in relation to the average January and February 2020 – ie the debtors hold a type 2 emergency certificate (yellow); or
c) they are in a situation of “partial or total interruption of the activity as a result of the decisions issued by the competent public authorities during the decreed state of emergency”;
Note: from the defective way in which the text of GEO no. 37/2020 does not appear if this last alternative condition was provided as a stand-alone condition, in which it would not be necessary to obtain the emergency certificate or it is a simple formulation error, which overlaps with the hypothesis from point a).
Cumulatively, the debtor must not be insolvent on the date of requesting the suspension of the credit repayment, according to the information available on the website of the National Trade Register Office.
The effects of accesing the facility
capital rates, interest and commissions, for a period of maximum 9 months, which cannot exceed the date of 31.12.2020.
(i) the possibility of exceeding the maximum period of credit with a period equal to the duration of suspension of payment obligations;
(ii) in the case of the borrowers natural persons for whom the extension of the maturity of the loans exceeds the age limit, the creditors will proceed to the restructuring of the loans so that the borrowers will fit the age limit at the date of the maturity of the loan;
(iii) the interest due by debtors corresponding to the outstanding amounts suspended to the payment shall be capitalized on the balance of the existing credit at the end of the suspension period, and the capital thus increased shall be paid in installments for the remaining period until the new maturity of the loans, after the period suspension.
Note: for the interest by which the capital is increased, the interest will be due, according to the conditions of the credit / leasing contract.
Exception from the capitalization of the interest: for the mortgage loans contracted by natural persons, the interest related to the period of suspension represents a distinct and independent debt in relation to the other obligations arising from the contract.
Note – exception consequences:
– the interest due for this debt is 0% and will be paid seasonally by the debtors, in 60 equal monthly installments, starting with the month immediately following the end of the deferral period;
– the payment of this distinct debt is guaranteed 100% by the Romanian state, by guarantee letters;
– in case the state pays the creditors certain amounts based on the letters of guarantee, they will constitute budgetary debts and will be recovered from the debtors by the competent fiscal bodies of the National Agency for Fiscal Administration, according to the provisions of the Code of fiscal procedure;
– the debtors owe accessory tax obligations that are calculated and communicated by the competent fiscal bodies of the National Agency for Fiscal Administration according to the Code of fiscal procedure.
Procedure through which the facility can be accesed
The debtors must send to the creditors a request that fulfills the following conditions:
– It is transmitted in letter format or by electronic mail, to the contact details specified in the credit agreement or through another remote communication channel offered by the lender; or
– If the debtor cannot transmit the request in the form above, he can formulate it orally, by telephone, to a dedicated telephone number that will be announced by each creditor on his web page, in which case the creditor has the obligation to register call;
– It is transmitted within 45 days from the entry into force of the present emergency ordinance (30.02.2020).
Note: it is recommended to send the request through a method that allows the recipient to confirm the receipt.
The creditor analyzes the request and approves it in the conditions provided in the rules of application of this emergency ordinance.
Note: The extension of the contractual duration has effects from the date of the communication of the suspension request addressed to the creditors, provided that the requests are approved by the creditors.
The ammendment of the credit agreements is produced by the effect of the law, without the conclusion of additional documents, and the creditor notifies to the debtor the contractual clauses modified for the implementation of the provisions of GEO no. 37/2020 within 30 days of receiving the request.
Measures established in favor of creditors
In certain conditions, shown above, the interest on the suspended rates is capitalized, and the borrowers will owe the interest for this in the terms of the credit agreement;
The payment of the interest related to the period of suspension for the mortgage loans contracted by natural persons, which does not capitalize, but is going to constitute a distinct debt, is guaranteed in 100% by the Romanian state, through the MFP;
To this end, the MFP is authorized to send the F.N.G.C.I.M.M. in view of issuing guarantee letters on behalf and on behalf of the state in favor of creditors;
The granting and running of state guarantees is made on the basis of a guarantee agreement concluded between the F.N.G.C.I.M.M. and creditors. The model of the guarantee agreement is approved by order of the Minister of Public Finance within 15 days from the entry into force of this emergency ordinance;
Each creditor communicates the F.N.G.C.I.M.M. on his own responsibility the total value of the guarantee commitment resulting from the cumulation of the payment amounts according to the payment schedules of the amounts representing the interest due by the debtors.
The purpose of the measure established by GEO no. 37/2020 is to allow debtors affected by the COVID-19 pandemic to benefit, upon request, from the suspension of payment obligations related to credit or leasing contracts for a period from one month to nine months, but which does not exceed dated 31.12.2020.
At this time, in relation to certain clarifications of GEO no. 37/2020 and compared to the lack of methodological norms to which GEO no. 37/2020 refers, the conditions in which a debtor can access the facility for suspending payment obligations are not finalized.
Some of the solutions adopted appear to be unjustified or insufficiently correlated – for example, although the facility was adopted in relation to a long-term problem, which is why it can extend for up to 9 months, it is inexplicable why it can only be accessed by the debtors who suffered reductions of the receipts in March, excluding, at least apparently, those whose receipts begin to fall in the following months, for the same reasons.
The suspension of the payment obligations of the borrowers will also bring additional obligations, arising from (i) the extension of the credit period, (ii) the capitalization of the interest, in the case of certain credits, with the consequence of the increase of the total interest paid, (iii) the risk arising from the guarantee offered by the state , in the case of mortgages concluded by natural persons.
Following the application of this facility, the creditors will either receive a higher interest or benefit from the guarantee of certain debts through guarantee letters issued by the state, thus reducing the risks that could have affected them by implementing the facility to suspend the obligations of the payment.