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Luxembourg

Law and regulation of Covid-19 loan moratoriums in Luxembourg

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?

No.

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

No, for the moment no bill has circulated, only a bill regarding the setting up of a guarantee scheme (up to EUR 2.5 billion) for loans granted by credit institutions to companies in temporary financial difficulty following the COVID-19 pandemic.

The following undertakings and aid are excluded from the scope of such scheme:  

  • companies whose main activity consists in the promotion, holding, renting and trading of real estate
  • companies whose main activity is the holding of participations in other companies 
  • aid in favour of companies which were in difficulty before 1 January 2020 in accordance with paragraph 18, Article 2 of Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market pursuant to Articles 107 and 108 of the Treaty on the Functioning of the European Union. 

For completeness’ sake, please note that certain banks have decided to implement credit moratorium schemes up to 6 months on a case-by-case and discretionary basis, the terms of such schemes having not been publicly disclosed. Until now, over 7,000 credit moratoria have been granted by the principal banks in Luxembourg for a cumulative value in excess of EUR 2 billion.

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

N/A

See point 1.1 above.

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

N/A

See point 1.1 above.

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

N/A

See point 1.1 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?

N/A

See point 1.1 above.

2. Parties and agreements affected by the Relevant Act

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

N/A

2.2 Who are the affected Lenders?

N/A

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

N/A

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)?

N/A

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

N/A

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

N/A

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?

N/A

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)?

N/A

Authors

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Portrait ofVivian Walry
Vivian Walry
Partner | Avocat à la Cour
Luxembourg
Portrait ofBenjamin Lievin
Benjamin Lievin
Senior Associate | Avocat à la Cour
Luxembourg