In response to the COVID-19 crisis, the Romanian government issued an emergency ordinance (Emergency Ordinance No. 37/2020) introducing deferral of loan payments, which came into force on 30 March 2020 with approved and published implementation rules expected to be published in the next few days.
What is the aim?
The aim of the Deferral Ordinance is to allow debtors to defer payments of principal, interest and fees for loans granted before 30 March 2020 for a period ranging between one and nine months (at the borrower’s election) but ending no later than 31 December 2020.
Who does it apply to?
Both individuals and legal entities can benefit from the deferral rights introduced by the Deferral Ordinance.
The right to request deferral of payments applies to loans as well as financial leasing agreements.
The Deferral Ordinance does not expressly apply to non-Romanian bank or non-bank lenders that are not established in Romania. The Ordinance's impact on loans extended by such entities in bilateral or syndicated transactions is not clear. Furthermore, the Deferral Ordinance does not apply to debt owed to international financial institutions.
How does it work?
To benefit from a deferral, a debtor must send a request to its lender setting out the terms of the deferral it seeks. The Deferral Ordinance establishes a cut-off date for the submission of deferral requests. This date must fall within 45 days after 30 March 2020, which is when the Deferral Ordinance entered into force.
Until the implementation norms are published, it is unclear what practical operations the criteria lenders must follow for their approval, although the Deferral Ordinance provides for the following eligibility criteria:
- the eligible agreements have not yet reached their final maturity date and were not accelerated before 30 March 2020;
- either no amounts were overdue under the relevant agreements as of the date (16 March 2020) when the state of emergency was declared in Romania or the respective debtors have already paid the overdue amounts in full prior to the date of their payment deferral request;
- the debtor’s revenues should have been directly or indirectly affected by the COVID-19 pandemic (to be described in detail under the implementation norms of the Deferral Ordinance); and
- in relation to debtors who are legal entities:
- the affected debtor obtained an emergency state certificate, which proves either a partial or complete business interruption having occurred pursuant to the measures taken by the authorities under the state of emergency; or that its revenue or receipts have decreased by 25% in March 2020, compared to its average revenues or receipts for the months of January and February 2020. (At the time of this update the procedure for the issuance of emergency state certificates is not operational, which may lead to practical delays in the submission or appraisal of deferral requests); and
- they are not insolvent at the moment of submitting the deferral request, according to information available on the online database of the National Trade Registry Office.
What happens to the interest?
According to the Deferral Ordinance, except for consumer mortgage loans, regular interest will continue to accrue on the amounts due, although it is not payable and instead will be capitalised on the outstanding loan balance existing at the end of the deferral period. The capitalised amount will increase pro rata to the remaining repayment instalments until the extended final maturity date of the loan.
For more information on this eAlert and how to best protect your business against COVID-19 measures, contact your regular CMS advisor or local CMS experts: Ana Radnev, Cristina Reichmann, Adina Nanescu, Nona Cernov-Vivirschi, Andreea Armanu.
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