Law and regulation of Covid-19 loan moratoriums in France

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”)?

No mandatory rules applicable to a moratorium of loans (strictly speaking) have been taken but voluntary moratorium rules and mandatory stay measures have been implemented.

An emergency law to face the COVID-19 epidemic has been adopted on 22 March 2020, which authorises the French Government to issue measures by ordinances. Pursuant to this law, ordinance n. 2020-306 dated 25 March 2020 on the extension of time limits and adaptation of procedures during the Emergency Period (as defined below) has been taken and supplemented by ordinance n. 2020-427 dated 15 April 2020 laying down various provisions relating to time limits (all together the "Ordinance").

Article 4 of the Ordinance provides that any penalty, acceleration or termination clause due to a default of a counterparty (including a borrower) will not take effect if such default has occurred during a legal protection period defined by the Ordinance. Such legal protection period (the "Legal Protection Period") starts on 12 March 2020 and ends at the end of a 1-month period after the end of the Emergency Period (i.e. as of today 24 June 2020 but the French Government has announced that such period will be extended for a two-month period). The “Emergency Period” is the period during which emergency health measures (such as confinement) may be taken by the French Government. On the date hereof, the Emergency Period extends until 24 May 2020 but the French Government has announced that such period will be extended for a two-month period.

Following the end of the Legal Protection Period, penalty, acceleration or termination clauses the effects of which have been suspended during the Legal Protection Period shall take effect once again at the end of a period starting at the end of the Legal Protection Period and equal to the number of days elapsed between (i) 12 March 2020 (or, if later, the date on which the defaulted obligation has arisen) and (ii) the date on which such defaulted obligation should have been executed, except if, at the end of such period, the relevant debtor has properly performed the relevant defaulted obligation.

With respect to any obligation whose term expires after the end of the Legal Protection Period, penalty, acceleration or termination clauses the effects of which have been suspended during the Legal Protection Period shall take effect once again at the end of a period equal to the number of days elapsed between (i) 12 March 2020 (or, if later, the date on which the defaulted obligation has arisen) and (ii) the end of the Legal Protection Period. The provisions described in the present paragraph do not apply to payment obligations.

In addition, the course of periodic penalty payments (astreintes) and the application of penalty clauses included in loan agreements and which took effect before the beginning of the Legal Protection Period shall be suspended during such Legal Protection Period.

The Ordinance also provides that for contracts that (i) may be terminated only during a specified delay or (ii) are renewable if no denunciation is made within a specified period, this delay or period shall be extended, if it expires during the Legal Protection Period, by 2 months after the end of the Legal Protection Period.

In addition, voluntary measures on the loans moratorium have been announced by the French Banking Federation (FBF) and BPI (French public banking group).

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

Mandatory stay measures – the Legal Protection Period starts on 12 March 2020 and ends at the end of a 1-month period after the end of the Emergency Period (i.e. as of today 24 June 2020). The Emergency Period extends until 24 May 2020 but may be shortened or extended. See above as to when penalty, acceleration or termination clauses the effects of which have been suspended during the Legal Protection Period shall take effect once again.

Voluntary measures announced by BPI – duration of 6 months from 24 March 2020 

Voluntary measures announced by FBF – from 15 March 2020. 

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

See above.

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?

According to the report to the President of the French Republic with respect to the supplement to the Ordinance (the "Report"), the parties may exclude the application of the provisions of the Ordinance described above. However, surprisingly, an official circular dated 17 April 2020 commenting the Ordinance n° 2020-427 has indicated that those provisions should be considered as overriding mandatory provisions (loi de police) within the meaning of article 9 of the Rome I Regulation.

2. Parties and agreements affected by the Relevant Act

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

Mandatory stay measures: all type of loans.

Voluntary measures: mainly focusing on corporate loans (but these measures also apply to many other types of financing as factoring lines, for example).

2.2 Who are the affected Lenders?

Mandatory stay measures: all lenders.

Voluntary measures: any banking institution registered by the FBF and BPI entities (in practice, Bpifrance Financement).

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

It has been discussed whether the provisions of the Ordinance are of public order (d'ordre public) or overriding mandatory provisions (loi de police) within the meaning of article 9 of the Rome I Regulation. According to the Report, the parties may exclude the application of the provisions of the Ordinance described above. However, surprisingly, an official circular dated 17 April 2020 commenting the Ordinance n° 2020-427 has indicated that those provisions should be considered as overriding mandatory provisions (loi de police) within the meaning of article 9 of the Rome I Regulation.

If the provisions of the Ordinance are of public order or overriding mandatory provisions, it would be arguable that they could apply to non-French law governed loan agreements entered into with French borrowers or guarantors or having effects in France.

The voluntary measures are applied by members of the French Banking Federation (FBF) or by BPI entities.

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)?

In practice, all type of contracts are concerned by these measures and the Ordinance may apply to loans for which a default occurs during the Legal Protection Period or with respect to obligations the term of which ends or passes during the Legal Protection Period.

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

Mandatory stay measures: this question is not directly applicable, but penalty, termination or acceleration clauses are suspended whether the default of payment relates to principal, interest or fees.

Voluntary measures: there is no general provision on this question, which shall be addressed with each relevant credit institution.

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

Will the maturity of the loan automatically be extended by the moratorium period?    Mandatory stay measures: this question is not directly applicable.

Voluntary measures: there is no general provision on this question, which shall be addressed with each relevant credit institution.

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?

Mandatory stay measures: this question is not directly applicable, but these measures concern only defaults that occur during the Standstill Period or with respect to obligations the term of which ends or passes during the Legal Protection Period.

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)?

Mandatory stay measures apply to breaches of all kinds of obligation.

Portrait of Grégory Benteux
Grégory Benteux
Partner
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Alexandre Bordenave
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