Following the declaration of the state of alarm in Spain due to the COVID-19 outbreak on March 14 2020, the Spanish Government announced the implementation of a series of extraordinary measures in the financial sector in order to address the economic impact promoted by the rapid spread of COVID-19. Such measures are set out in Royal Decree Law 8/2020, of 17 March 2020, on urgent extraordinary measures to deal with the economic and social impact of COVID-19 ("RD 8/2020") and Royal Decree-Law 11/2020, of 31 March, adopting additional urgent measures in the social and economic field to deal with COVID-19 (the "RD 11/2020"), and consist in the following:
1) Mortgage moratorium:
Creditors shall grant a moratorium on the payment of mortgage debts incurred for the acquisition of (i) main residence; (ii) properties affected by the economic activity developed by self-employed and professionals; or (iii) properties other than the primary residence that were rented and for which the mortgage debtor (individual owner and lessor of said properties) has stopped receiving a rental income. Such moratorium is only granted to mortgage debtors considered to be in "economic vulnerability".
Creditors (which must be real estate lenders registered with the Bank of Spain) shall notify the Bank of Spain of the existence and duration of the moratorium for accounting purposes, and of the non-inclusion of such exposure in the creditor's risk forecast calculation.
During the moratorium, the early maturity clause, if any, shall not be applied, neither the payment of the mortgage installment or the items comprising it shall be demanded, and no interest shall be accrued. The moratorium also applies to guarantors and non-debtor mortgagors in a position of "economic vulnerability", who are also entitled to ask the creditor entity to execute the assets of the principal debtor before claiming the guaranteed debt from them, even if the benefit of exemption ("beneficio de la excusión") was expressly waived.
Debtors must be in a position of economic vulnerability. Debtors in a position of "economic vulnerability" are considered to be those natural persons who meet the following conditions:
a) become unemployed or, if self-employed or professionals, suffer a substantial loss of income or a fall in sales exceeding 40%;
b) whose family unit, in the month prior to the application for the moratorium, does not reach an income level higher than three times the monthly Public Indicator of Multiple Effects Income ("IPREM"). Such limits could vary depending on the circumstances of the members of each family unit (e.g. when the family unit includes people with a disability of more than 33% or persons over 65 years);
c) whose mortgage payment, plus basic expenses and supplies, is equal to or greater than 35% of their net income; and
d) when the health emergency caused by the pandemic has altered their economic circumstances in terms of home-access.
The moratorium shall be requested by the debtor to the creditor, and shall be accompanied by the relevant documentation which justifies the debtor's economic vulnerability position. Such a moratorium may be requested up to 15 days after the RD 8/2020 is no longer in force, and, in this case, the creditor shall implement the referred moratorium within a maximum period of 15 days.
The moratorium shall be granted for a period of 3 months from the date of the request.
2) Consumer credit moratorium
Creditors shall grant a moratorium on the repayment of credits without a mortgage guarantee (this includes any consumer credit –e.g. credit cards or credit lines) under the request of debtors in a position of "economic vulnerability".
The moratorium shall be automatically granted by creditors for a period of 3 months from the date it was requested by the pertinent debtor, without needing to be formalised in any sort of agreement.
The moratorium will prevent the creditor from claiming the credit installments corresponding during the 3 months and no form of interest shall be accrued whilst it is in force.
Financial institutions under supervision that have granted moratoria to their customers shall periodically submit certain information to the Bank of Spain.
Debtors must be in a position of economic vulnerability. The conditions applied in order to be considered in the economic vulnerability category, are the same conditions for the mortgage moratorium, with some considerations.
Similar to the mortgage moratorium, the consumer credit moratorium also applies for guarantors in a position of economic vulnerability, who may also require the creditor to exhaust the debtor's assets before resorting to their own, even if they have waived the benefit of the exemption.
The moratorium shall be requested by the debtor to the creditor, and shall be accompanied by the relevant documentation that justifies the debtor's situation of economic vulnerability. The consumer credit moratorium may be requested up to 1 month after the state of alarm is no longer in force. In any case, the creditor shall implement the referred moratorium automatically if it receives the debtor's request.
The moratorium will be effective for the period of 3 months since from the date requested.
3) Waiver to request the declaration of bankruptcy (art. 43 RD 8/2020):
While the state of alert remains in force, if a debtor is in a state of insolvency will not be obligated to request the declaration of bankruptcy. Spanish judges shall not admit applications for necessary bankruptcy ("concurso necesario") that have been presented during the state of alarm or in the two months following the end of the state of alarm. If an application for voluntary bankruptcy ("concurso voluntario") has been submitted, it shall be preferably admitted for processing over those applications of necessary bankruptcy, even if it has been submitted at a later date.
Any debtor that has notified the court with jurisdiction over the declaration of bankruptcy of the commencement of negotiations with creditors to; reach a refinancing agreement or, an out-of-court settlement agreement, or to obtain adherence to an advance proposal for an agreement, shall not have the duty to apply for a declaration of bankruptcy whilst the state of alert is in force, even if the 3month period referred to in the fifth paragraph of Article 5 bis of Law 22/2003, of 9 July, on Insolvency ("Spanish Insolvency Act") has expired.
4) Guarantees provided by the Spanish government in order to facilitate access to liquidity for companies and the self-employed:
(i) ICO guarantee facility scheme:
The Spanish government is providing lenders with a State guarantee operated via the Spanish Official Credit Institute (ICO) covering:
- 80% of new loans or credit facilities, as well as renewals of pre-existing agreements of financing transactions to self-employed workers or small and medium-sized enterprises (SMEs - companies with up to 250 employees and less than € 50 million in sales or less than €43 million in assets).
- 70% of the new loan or credit facility and 60% of amounts being extended by renewals of pre-existing financing agreements to larger companies.
- The financial institutions participating in the scheme agree to maintain the costs of the loans in line with the costs applied before the start of the COVID-19 crisis.
- To be a company based in Spain or to be self-employed and based in Spain and are affected by the economic effects of COVID-19.
- Not be in default of its payment obligations as of 31 December 2019.
- Not to be under insolvency proceedings as of 17 March 2020.
The application must be addressed by the company to one of the Spanish financing entities (Santander, BBVA, and LaCaixa) that the ICO has signed the relevant cooperation agreement before 30 September 2020.
(ii) CESCE Credit Insurance Coverage Scheme:
The government has created a credit insurance coverage scheme provided by Spanish ECA (CESCE) to boost export contracts of up to €2 billion for a period of six months. The percentage of risk insured credit shall not exceed 80%.
Spanish companies facing liquidity needs as a result of Covid-19, provided that they are internationalized companies on whose international business represents at least a third of their turnover or, which are regular exporters (those companies that have exported regularly during the last 4 years according to the criteria established by the Spanish Secretary of State for Commerce).
The application must be addressed by the company to the CESCE following a standard form.