Secured loans

The New Civil Code requires that “uncustomary” clauses are expressly accepted in writing in order to be enforceable. Dealing with this concept requires, among others, thorough scrutiny from the perspective of the definition of standard clauses, application to consumers vs. professional parties, dynamics of negotiations and formalism imposed by the Code. We’ve outlined a few items which we thought relevant on the matter and are looking forward to have your view on the practical implementation of Article 1203. Log in to read more and vote in our poll!

Up to now, default interest clauses in facility agreements may have been seen as triggering certain interpretation risks and potentially falling under the restrictions on penalty clauses in loan agreements. Now, the legal regime of default interest clauses has been clarified. Law no. 71/2011 expressly repeals the prohibition of liquidated damages clauses in loan agreements. It also introduces the concept of penalty interest which may be charged in case the payment obligation is not performed at the due date.

The concept of „control over the bank account” introduced by the New Civil Code may have a significant impact on various banking practices. We have considered below aspects related to syndicated loans, tying, cash routing and general access to information on borrowers’ level of indebtedness.

The New Civil Code may raise a number of issues in terms of the protection provided to a senior lender in case of enforcement of its security over an asset which is also subject to other lower ranking security interests. We refer to the restrictions on negative pledges (stronger than in the previous legislation) corroborated with the new rights introduced by the New Civil Code to other creditors having lower ranking security interests in case of enforcement by the senior lender.