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Bulgaria

Law and regulation of Covid-19 loan moratoriums in Bulgaria

Table of contents
  1.  Description of the legislation
    1.  Is there a moratorium on loans legislation implemented in your jurisdiction?
    2. If no: Are there any ongoing discussions regarding a potential introduction of such measures?
    3.  What is the name of the relevant legislation (the “Relevant Act”)?
    4.  What is the duration of the measures (period of moratorium)?
    5. Does the legislation provide for an extension of the period of moratorium?
    6. Is the moratorium mandatory, or can each borrower opt out should they wish to simply continue payments, or opt in if they want to be protected by the moratorium?
  2. Parties and agreements affected by the Relevant Act
    1. Is the moratorium available for both corporate and consumer loans?
    2. Who are the affected Lenders?
    3.  Does it make a difference whether loans are granted by a foreign entity and governed by foreign law?
  3. Impact on the loan agreements
    1.  Is there a cut-off date with respect to loan agreements to which the Relevant Act will apply (e.g. not applicable to loan agreements entered into after the cut-off date)?
    2.  Does the moratorium apply to principal only, or also to interest and/or fees?
    3. Will the maturity of the loan automatically be extended by the moratorium period?
    4.  Are repayments and interest which have become due and payable under the contract before the Relevant Act has come into force covered by the moratorium?
    5. Will lenders be able to terminate a loan due to an event of default other than non-payment (e.g. breach of financial covenants)?
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1. Description of the legislation

1.1 Is there a moratorium on loans legislation implemented in your jurisdiction?

Yes.

1.2 If no: Are there any ongoing discussions regarding a potential introduction of such measures?

Not applicable.

1.3 What is the name of the relevant legislation (the “Relevant Act”)?

Manner for deferring and settling of due obligations towards banks and their subsidiaries – financial institutions in relation to the introduced by the National Assembly state of emergency on 13 March 2020 in relation to the pandemic COVID-19.

1.4 What is the duration of the measures (period of moratorium)?

Payments of amount can be extended by up to 6 months, but not later than 31 December 2020.

1.5 Does the legislation provide for an extension of the period of moratorium?

No.

1.6 Is the moratorium mandatory, or can each borrower opt out should they wish to simply continue payments, or opt in if they want to be protected by the moratorium?

Borrowers can opt in if they want to fall under the operation of the moratorium. Otherwise, they have the right to continue making payments on the dates already agreed.

Borrowers that might opt in are those experiencing or who might experience difficulties in satisfying their obligations in pursuant to the restrictions introduced by the state of emergency and/or the pandemic COVID-19. Each lender shall determine the criteria under which it will determine if the borrower is eligible to opt into the moratorium. 

2. Parties and agreements affected by the Relevant Act

2.1 Is the moratorium available for both corporate and consumer loans?

Yes. However, the Relevant Act does not apply to credit institutions who are borrowers themselves.

2.2 Who are the affected Lenders?

Credit institutions (and their subsidiary financial institutions) that have approved the application of the Relevant Act and have published information on its application by them.

2.3 Does it make a difference whether loans are granted by a foreign entity and governed by foreign law?

This is not specified in the Relevant Act, but in our opinion, it applies only to Bulgarian credit institutions (members of the Association of Banks in Bulgaria) and their subsidiary financial institutions – meaning, if a loan is granted by a Bulgarian lender, under foreign law, the measures of the Relevant Act will apply. 

With respect to foreign entities granting a loan to a Bulgarian borrower/obligor, applicable would be the general Act on measures and actions during the state of emergency, declared by the National Assembly on 13 March 2020, which provides that until the state of emergency is lifted, banks and financial institutions cannot, in case of delay of payment:

  • impose default interest and penalties
  • declare the obligation as due and payable
  • rescind the contract, and/or
  • seize items of the borrower.

3. Impact on the loan agreements

3.1 Is there a cut-off date with respect to loan agreements to which the Relevant Act will apply (e.g. not applicable to loan agreements entered into after the cut-off date)?

The moratorium applies to loan agreements concluded before 31 March 2020.

3.2 Does the moratorium apply to principal only, or also to interest and/or fees?

The moratorium can, pursuant to mutual agreement between the borrower and the lender, apply to both principal and interest, or only to principal.

3.3 Will the maturity of the loan automatically be extended by the moratorium period?

The moratorium does not impose automatic extension of the maturity date but provides that payments can be extended for a maximum period of 6 months, but not later than 31 December 2020.

3.4 Are repayments and interest which have become due and payable under the contract before the Relevant Act has come into force covered by the moratorium?

Repayments of principal and interest that have become due and payable under the contract before the Relevant Act entered into force can be covered by the moratorium, if they were not due and payable for a period of more than 90 days as of 1 March 2020.

3.5 Will lenders be able to terminate a loan due to an event of default other than non-payment (e.g. breach of financial covenants)?

Generally, yes, but in our opinion, borrowers would be able to provide evidence that breaches of financial covenants relate to the state of emergency.

Authors

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Portrait ofGentscho Pavlov
Gentscho Pavlov
Partner
Sofia
Portrait ofIvan Gergov
Ivan Gergov
Partner
Sofia