The bill proposal regarding the postponement of the repayment of the loan approved by the Chamber of Deputies of the Parliament of the Czech Republic

On 7 April 2020, the Chamber of Deputies of the Parliament of the Czech Republic has approved governmental bill on some measures regarding the repayment of the loans in connection with the pandemic of COVID-19. We have already informed you on the governmental bill in the article that can be found HERE.

The adopted amendments to the bill proposal have extended the application of the bill on the loans with interest rate risk secured by the term operation (hedging). This means that repaying even of those loans can be postponed.

Furthermore, the Section 5 of the proposed bill was also amended. Pursuant to the Section 5(4), there is no compound interest and the interest is due during the protection period in the agreed time. The approved wording of the bill is confusing, because the interest must be paid and therefore, there is no way of occurrence of the compound interest. Moreover, Section 9, which was not amended, regulates the compound interest (as agreed payments in case the debtor is in default with the repayment of the debt) in a way that it excludes the legal entities from the more favourable regime, where there the default interest is not applicable.

The wording of this amendment is rather improper, which is inter alia connected with the reason, why was the amendment proposed in the first place: amendment was apparently supposed to regulate only the status of the natural persons.

However it can be inferred from the current wording that the interests from this period should not be subject to compound interest even in regard to the legal entities, due to the obvious contradiction with the Section 9, more amendments can be anticipated. The unfavourable development for the legal entities is presumable because the amendment was originally structured in favour of the natural persons.

Moreover, in case the agreement on the postponement of the repayments due to the impacts of the pandemic COVID-19 was already executed between the debtor and the creditor, the bill provides the debtor with the right the statutory regime in case it is more favourable for the debtor.

Please find the bill proposal approved by the Chamber of Deputies of the Czech Republic here. The Senate of the Czech Republic should discuss the proposal on 9 April 2020.

We will inform you on any updates.