No relief for foreign private loans

Pursuant to Republic Law No. 11469 or Bayanihan To Heal As One Law, the Department of Finance (DOF) has ordered all lenders to grant a 30-day grace period for payment of principal and / or interest due within the period of enhanced community quarantine without imposing interest or fees and charges on their borrowers.

The ordinance applies to all banks, quasi-banks, non-stock savings and credit associations, credit card issuers and pawn shops, including other credit institutions supervised by government agencies, such than the Bangko Sentral

ng Philippines (BSP) and the Securities and Exchange Commission (SEC).

The confinement period runs from March 17 to April 12, 2020 and will automatically extend to the period ordered by the president.

Affected establishments are also prohibited from requiring their customers to waive the application provided for by the Bayanihan Law. And in the event that such waiver has already been made, the waiver will be invalid.

The moratorium aims to give borrowers a respite from the negative financial effects of the government-ordered foreclosure to stem the spread of the novel coronavirus disease, or COVID-19.

The common denominator of the entities covered by the ordinance is that they are registered or licensed to do business in the Philippines. This should be the case because, as a general rule, Philippine laws are territorial in nature, which means that they can only be enforced in Philippine territory.

They cannot be applied to foreign citizens and entities based abroad, or benefit from any other extraterritorial application.

So a Filipino company that has entered into a loan agreement with, say, a bank in the United States cannot use this order to excuse payment of any amortization that may be owed during the foreclosure period.

If the company is in default of payment of this amortization, the bank can declare it in default and demand immediate full payment of the loan.

The rule of thumb in loan or credit agreements between parties from different countries is that the laws of the lender’s country govern the interpretation of the terms and conditions of the agreement. This “applicable law” provision is often required by foreign banks for two reasons: a) they are unfamiliar with the laws of the borrower’s country; and b) they have a home advantage in loan execution in the event of borrower default.

The story would be different, however, if the loan was made by the American bank, or for that matter, by any foreign bank, through its branch or representative office in the Philippines.

In the present case, since that branch or office submitted to the supervisory authority of the BSP and the SEC when it applied for a license to do business in the Philippines, it cannot escape coverage. by the order of the DOF.

Just because their parent company is registered or based elsewhere in the world does not exempt them from complying with Philippines regulatory requirements.

Consider this scenario: A Filipino company has a multilateral dollar loan agreement with a US bank, the representative office of a London-based bank, and the trust account of a Filipino bank.

Following the DOF order, the representative office and the Philippine bank would be prohibited from requiring payment of any amortization that may be due during the lockdown period, while that of the US bank must be paid as scheduled. . If the US bank does not receive this payment, he can claim his share of the loan, or the entire loan himself, despite his hawkers being prevented from doing so by the DOF order.

In these circumstances, the corporate borrower may have to ask the American bank not to insist on payment and to put itself on an equal footing with its colenders.

To date, there can be no assurance that the lockdown will be lifted on the date previously announced by the government.

Until then, business leaders must make the most of the situation they find themselves in if only for the sake of those who depend on them for a living. INQ

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