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Prohibition to increase interest rates during the quarantine period

On 30 March 2020, the Verkhovna Rada passed draft law No. 3275 (the "Anticrisis Law") providing, inter alia, that for the period of taking measures in Ukraine aiming at prevention of emergence, transmission and spread of epidemic and pandemic, including the coronavirus disease (COVID-19) it is prohibited to increase the interest rates under the loan agreements (the "Prohibition").

The Prohibition does not distinguish between the commercial and consumer loan agreements. Therefore, it applies to both categories of loans.

As to the effect of the Prohibition itself:

  • Based on the fair interpretation of the Anticrisis Law, it can be argued that the Prohibition should not apply if interest is established in the loan agreement from the very beginning (e.g., regular interest and default interest). Instead, the Prohibition should apply if the loan agreement allows unilateral increase of interest rate by the lender;
  • According to the general principle under the civil law (Article 5 of the Civil Code of Ukraine), the acts of civil legislation can regulate relations arising upon the effective date of the relevant acts of civil legislation. Acts of civil legislation have no retroactivity unless such acts reduce or cancel the liability of a person. Therefore, under the fair interpretation of the law, the Prohibition should not apply to the existing loan agreements.

However, during the recent web-conference of the NBU Management Board with the members of the European Business Association, the NBU has expressed its position that the Prohibition is intended to apply to all of the loan agreements, stressing in particular on the existing ones. The aforementioned position of the regulator may be interpreted restrictively across the market, restraining the banks from applying any increased interest rates to overdue payments throughout the period of quarantine caused by COVID-19.     

It should be noted that the Anticrisis Law is new and has not yet been tested in practice. It is also to be seen how the courts will interpret the Prohibition.

 

To get more information or discuss business and legal implications for your company caused by novel coronavirus outbreak please get in touch with Asters COVID-19 task force at covid19-response@asterslaw.com 

 

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