Anti-Corona Package 2 – Q & A

On 28 April 2020, the National Assembly of the Republic of Slovenia adopted the Act providing additional liquidity to the economy to mitigate the consequences of the COVID-19 epidemic (hereinafter also referred to as: Act). The Act entered into force on 1 May 2020, the day after its publication in the Official Gazette of the Republic of Slovenia.

The Act sets out (1) measures to provide additional liquidity to the economy, (2) amendments and supplements to some laws, and (3) a temporary measure related to the regulation under the Physical Assets of the State and Local Government Act, i.e. a measure relating to the obligation to pay rent.

In addition, in accordance with Act on the intervention measures to mitigate the consequences of the communicable disease SARS-CoV-2 (COVID-19) epidemic for citizens and the economy (ZIUZEOP), a state guarantee is also prescribed in relation to a measure of the deferral of borrower’s payment obligations. Pursuant to Article 65 ZIUZEOP, the Republic of Slovenia shall, as a guarantor, be liable to the bank or savings bank referred to in the first paragraph of Article 2 ZIUOPOK to fulfil the obligations of borrowers. More information on this matter you can read here: https://en.kbp.si/blog/2020/04/25/anti-corona-package-1-q-a/ and https://en.kbp.si/blog/2020/04/11/mega-act-ziuzeop-deferred-payment-of-credit-obligations-and-other-liabilities-1-5/.

Below we present you with the answers to the most pressing questions regarding the novelties of the regulation.

THE ACT PROVIDING ADDITIONAL LIQUIDITY TO THE ECONOMY TO MITIGATE THE CONSEQUENCES OF THE COVID-19 EPIDEMIC

Measures to provide additional liquidity to the economy

What is the subject of the measures?

The subject of the measures is to provide an ex lege guarantee of the Republic of Slovenia for the borrowing of borrowers. The guarantee is provided to cover the risk of banks and savings banks established in the Republic of Slovenia, or branches of banks of Member States established in the Republic of Slovenia, which, in accordance with the ZBan-2, may provide banking services in the territory of the Republic of Slovenia.

Which borrowers will be secured by a state guarantee?

Any legal or natural person engaged in an economic activity, regardless of legal form, shall be considered a borrower whose guarantee may be secured by a state guarantee. However, credit and financial institutions as defined in ZBan-2, ZZavar-1 and ZPIZ-2, are not eligible for collateral with a state guarantee.

To obtain a guarantee, the borrower must meet the following criteria:

  • on 31 December 2019 it was not considered to be an undertaking in difficulty as defined in point 18 of Article 2 of Regulation 651/2014/EU;
  • it has been facing liquidity problems since after 31 December 2019 due to business reasons related to the consequences of COVID-19 in the territory of the Republic of Slovenia;
  • it is not considered as a defaulter in accordance with the provisions of Regulation (EU) No. 575/2013 as amended, whereby the borrower as at 12 March 2020 should not have significant delays in settlement of its obligations to the bank as defined in the guidelines of the European Banking Authority;
  • it does not operate and is not registered in a country from the European Union’s List of jurisdictions that are not willing to participate for tax purposes and it does not have an owner in such country;
  • on the day of the application, outstanding liabilities arising from compulsory contributions, taxes and other charges have been settled, or the borrower is, on that day, in a situation where, in accordance with the law, the obligation for the payment of compulsory contributions, taxes and other charges has been differed, or instalment payments have been enabled;
  • it is included in the mandatory multilateral offsetting system.

What conditions must be satisfied in order for a loan agreement to be secured by a state guarantee?

A state guarantee is intended for loan agreements that meet the following criteria:

  • they are concluded after 12 March 2020 and no later than 31 December 2020;
  • the maturity of the loan does not exceed 5 years;
  • the loan is intended solely to finance the borrower’s core business (financing of new and completion of already started investments, working capital financing or financing of a repayment of liabilities stemming from loan agreements which were concluded in a period from 12 March 2020 until the entry into force of this Act and that fulfil the conditions under this Act);
  • the loan is not intended for financing affiliated companies or companies with financing abroad.

The maximum permissible total amount of the principal value of the loan, for which the Republic of Slovenia is responsible with its guarantee, is defined as up to 10% of sales revenue in 2019 and may not exceed the amount of labour costs for 2019. If the borrower is granted a deferral of payment of its liabilities for newly concluded loan agreements in accordance with the ZIUOPOK, the maximum permissible total amount of an individual borrower’s liability is the amount of its deferred liabilities.

What does a borrower have to submit to the bank to prove eligibility?

In the application the borrower must submit the following:

  • latest financial statements;
  • a description of its business position as a result of the consequences of COVID-19, together with an indication of the amount of total sales revenue in 2019 and the amount of labour costs for 2019;
  • the amount and maturity of the loan requested;
  • the purpose of the loan;
  • if it also has a loan which is subject to deferral under the act governing emergency measures on deferral of borrowers’ payment obligations, information about the amount of the borrower’s obligations under this loan;
  • a statement that the loan will be intended for financing in accordance with the conditions laid down for credit agreements in accordance with the Act.

What is the duration and the amount of the guarantee?

A guarantee is an accessory legal transaction that follows the principal obligation. It is therefore logical that the duration of a single guarantee should not exceed the maturity of the loan (5 years), including any subsequent extensions in respect of which it was granted.

The amount of the guarantee depends on the classification of each borrower according to its size and number of employees. Entities having fewer than 250 employees and an annual turnover not exceeding 50 million EUR and/or annual balance sheet total not exceeding 43 million EUR and are classified as micro, small and medium entities in accordance with Regulation 651/2014/EU companies are entitled to a guarantee of 80% of the principal value. All other entities that do not meet the above conditions are considered as large companies and are entitled to a guarantee of 70% of the principal value.

In Article 6 the Act also stipulates that the request for the fulfilment of the guarantee obligation of the Republic of Slovenia is justified only if the bank and the Republic of Slovenia suffer proportional losses on equal terms. This provision of the Act is unclear and not specified any further.

What are the key features of the guarantee?

The Republic of Slovenia is, as a guarantor, responsible to the bank for fulfilling the borrowers’ obligations. Some general and specific restrictions apply in that regard. An essential general restriction is that the total amount of principal values of all loan agreements subject to the guarantee of the Republic of Slovenia may not exceed 2 billion EUR (guarantee quota). Specific restrictions apply to specific loan agreements concluded in accordance with the Act (Article 5). The guarantee is irrevocable, unconditional and is redeemed at the bank’s first written demand.

In the case of a guarantee, does the borrower have to pay a fee and to what extent?

Pursuant to the Act no fee will be charged or paid. However, the Act provides for an obligation to pay a “guarantee premium”, which is an annual premium, the amount of which is determined by the type of entities (whether it is a micro, small, medium-sized enterprise or a large enterprise) and by the duration of the loan (for the first year, for the second and third year, and for the fourth and fifth year). The amount of the premium is set according to the “basis points” as set out in Article 8 of the Act (from 25 basis points for micro, small or medium-sized enterprises or from 50 basis points for large enterprises for the first year up to 100 basis points for micro, small or medium-sized enterprises or up to 200 basis points for large enterprises for the fourth and fifth year). “Base Point” means 1/100 of a percentage point of the outstanding principal value of the loan.

How is the State’s guarantee obligation fulfilled?

Pursuant to the Act, the Republic of Slovenia authorizes SID Bank – Slovenian Export and Development Bank, d.d., Ljubljana (SID Bank) to carry out certain operations related to guarantees on its behalf and for its account.

In accordance with Article 9 of the Act, the guarantee obligation will be primarily fulfilled in cash, however the Act also provides for the issuance of bonds of the Republic of Slovenia or SID Bank, provided that these meet the conditions of an instrument by which the bank can safeguard its liability to the European Central Bank. To this end, the Government of the Republic of Slovenia will, with prior opinion from the Bank of Slovenia, issue a decree within 3 months from the day of the entry into force of the Act, which will prescribe the criteria according to which the said bonds will be considered an acceptable instrument.

In the case of borrowers classified as micro, small or medium-sized enterprises, forfeiture of the guarantee may be effected by payment from the budget of the Republic of Slovenia or by submission of a bond of the Republic of Slovenia, or, in the case of borrowers classified as large enterprises by payment from the budget of the Republic Slovenia or by submission of a SID Bank bond. The decision on the manner of execution of the guarantee obligation is at the discretion of the Republic of Slovenia, which in particular considers the liquidity capabilities of the budget of the Republic of Slovenia.

In addition to the method for the forfeiture of the guarantee, Article 9 of the Act provides for the possibility of transferring receivables. In the event that a default event has not yet occurred, the bank may offer SID Bank to purchase its receivables against the borrower in the amount of the unpaid nominal amount of the principal value of each loan, in the part covered by the guarantee of the Republic of Slovenia. If SID Bank accepts such an offer, it will fulfil the obligation by submitting the SID Bank bond.

What is the role of a bank? 

A bank which approves a loan in accordance with the Act, submits a loan application together with a copy of a loan agreement and other necessary or required documentation to SID Bank.

In order to redeem the guarantee, the bank shall submit a request for fulfilment of the guarantee obligation of the Republic of Slovenia to SID Bank no later than 6 months after the occurrence of the default event.

The Republic of Slovenia shall fulfil the guarantee obligation no later than 15 working days after receiving a formally complete claim for its fulfilment.

The Act also sets out a bank’s obligation to notify the borrower on filed request for a guarantee within 3 days after filing.

Who is responsible for the recovery and the management of claims from redeemed guarantees?

SID Bank is responsible for the recovery of individual claims from redeemed guarantees on behalf of the Republic of Slovenia and for the management of the acquired claims, even if SID Bank consensually transfers the management or recovery of the claims to the bank. SID Bank monitors and controls the procedures of the recovery and the management of claims and participates with banks on behalf and for the account of the Republic of Slovenia in important decisions in the process of the recovery or the management of the claim.

How is the recovery and the management of claims from redeemed guarantees carried out?

The recovery and the management can be carried out through a bank that has received a guarantee for a redeemed or transferred claim. In the proportion to the assumed risk, the bank shall transfer any amount of recovered recourse and received payment to the Republic of Slovenia, when recovering the claims from redeemed guarantees and managing individual claims.

When can SID Bank alone (and not through a bank that has received the guarantee) recover the redeemed guarantee directly from the debtor?

SID Bank may recover the redeemed guarantee directly from the debtor if, such recovery is faster or more economical than the recovery which would be otherwise managed by the bank according to the estimation of SID Bank.

How should a bank act if proceedings for insolvency or liquidation are brought against the borrower?

If proceedings for insolvency or liquidation are brought against the borrower, the bank must notify SID Bank of any claim it declares in proceedings and of the initiation of proceedings no later than 14 days before the deadline for declaring claims.

Are there any restrictions for borrowers who have been granted loans by the banks?

The following applies to the borrowers from time of the application for the loan until the cessation of the bank’s right to exercise the right to a guarantee:

  • the distribution of profits is prohibited;
  • business performance rewards for the members of the management are prohibited;
  • the purchase of treasury shares and ownership interest is prohibited;
  • payment of other financial liabilities to the parent or affiliated companies or owners is prohibited.

In case of an approved guarantee the bank includes a disclaimer on the prohibition of payments in the loan agreement.

When does the guarantee cease?

Conditions in respect of a loan as well as of a borrower for granting a loan are laid down. The bank is responsible for the assessment if these conditions are met in the process of deciding whether to grant a loan secured by a guarantee of the Republic of Slovenia.

The guarantee shall cease:

  • if the loan agreement was concluded in contravention with terms of this act and the violation occurred on the bank’s side;
  • if the bank determines that the borrower has provided false information in the application (in which case the bank establishes a claim of recourse against the borrower, since the violation has not occurred on the bank’s side);
  • or if the bank does not notify SID Bank of the initiation of insolvency or liquidation proceedings of the borrower no later than 14 days before the deadline for declaring claims.

How should the bank proceed in case if the guarantee has already been redeemed, but the guarantee has ceased (due to one of the reasons listed above)?

In case that the guarantee has already been redeemed the bank must reimburse all received amounts with statutory default interest from the date of receipt of the guarantee payment until the date of the repayment.

How should bank proceed in case when the issue of a bond of the Republic of Slovenia or SID Bank is envisaged as an instrument for redeeming the guarantee, but the guarantee has ceased?

All provisions regarding the cessation of the guarantee shall also apply in case of delivery of bonds of the Republic of Slovenia or SID Bank. The obligation arising from the bonds does not expire. The bank is obliged to reimburse the Republic of Slovenia and SID Bank the amount equal to the obligation of the issuer of the bond with default interest from the date of delivery of the bond.

What is the status of the claims arising from the guarantee?

Recourse claims of the Republic of Slovenia towards the borrowers arising from redeemed guaranties and bank’s claims arising from loan liabilities have the status of priority claim in the part where they represent unsecured claims as defined by the Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act.

Will more detailed rules be available regarding the enforcement of the provision of this intervention measure?

Article 17 of the Act sets out the legal basis for issuing a government decree, which will lay down more detailed rules regarding the enforcement of provisions. With the consent of the Bank of Slovenia, the Government will also prescribe the criteria and conditions pursuant to which the bonds issued under this act shall be considered as an acceptable instrument by which a bank may secure its liability towards the European Central Bank.

Amendments to Acts

Does the Act change the content of any existing laws?

Yes, the Act contains some changes of:

  • Slovenian Export and Development Bank Act (performance of counter-cyclical activities);
  • Act on prevention of late payments (performance of compulsory set-off in connection with the provision of a guarantee of the Republic of Slovenia for liquidity loans);
  • Public Funds Act (prolongation of the entrustment of a director of a public fund);
  • Implementation of the Republic of Slovenia’s Budget for 2020 and 2021 Act (determination of COVID-19 item, the possibility of borrowing form Treasury for up to three years to implement EU projects, increase in the amount of permissible state borrowing, increase in the guarantee quota due to the state guarantees for liquidity loans and increase in the lump sum for municipalities).

Temporary measure related to the regulation under the Physical Assets of the State and Local Government Act

What is the content of this measure?

Due to the spread of the disease and taken measures certain tenants of business premises owned by the Republic of Slovenia or local communities are not allowed to use and carry out their economic activities in such business premises but must nevertheless pay the rent. The Physical Assets of the State and Local Government Act does not stipulate the possibility of the rent payment exemption for a certain period, regardless the reason or the situation. Therefore, the Act establishes a temporary measure not to charge rents (in full or part of it) to tenants of commercial buildings owned by the Republic of Slovenia or by local communities.

Who is eligible for the rent payment exemption (either in whole or in part)?

The tenant must meet the following conditions:

  • on 31 December 2019 it was not considered to be an undertaking in difficulty as defined in point 18 of Article 2 of Regulation 651/2014/EU;
  • the total gross amount of exempt rents before deducting taxes and other charges may not exceed 800,000 EUR (or 120,000 EUR if the tenant is active in the fisheries and aquaculture sector, or EUR, if the tenant is active in the area of primary production of agricultural products);
  • the total amount of co-financing of the same eligible costs, which are also financed out of other public sources, may not exceed the limits laid down in the previous indent;
  • the measure does not preclude the granting of de minimis aid and/or aid granted under the General Block Exemption Regulation provided that the provisions of the relevant act of the European Commission are being respected.

For what period is the entitled person exempted from paying the rent (either in whole or in part)?

From 13 April 2020 until the cancellation of the communicable disease COVID-19 epidemic.

Who decided on eligibility for the rent payment exemption (either in whole or in part)?

The head of the controller or authority responsible for implementing the budget of the local community.

 

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Our law firm is actively following the latest COVID-19 developments. As always, you can contact us via e-mail or telephone +386 (0)1 2445500, or you can directly contact the lawyer you are generally in contact with.

Law Firm Kavčič, Bračun & Partners, o.p., d.o.o

Ljubljana, 29 April 2020

 

All information contained herein is based on applicable law or obtained from publicly available data or other sources believed to be reliable. This document is for general information purposes only, may be subject to change and may not be used instead of a legal opinion/advice. KBP does not guarantee the accuracy of the information and shall not be liable for any damages or costs in connection with the use of, or reliance on, the information contained herein.