Slovak Republic
Generally
Loan agreements and other finance documents are subject to general contractual principles. For example, the Slovak courts will not enforce a penalty that does not correspond to the amount of the loan. Lenders therefore, have to be careful about the rate of default interest charged on a loan.
Specific types of lending
Specific to the area of mortgage lending is the issue of whether a lender falls within the recently formed Slovak housing loans regime. The Mortgage Credit Directive, implemented in Slovakia mainly through the Act on Housing Loans and a series of primary and secondary legislation, aims to prevent the irresponsible lending and borrowing practices that were exposed during the global financial crisis.
The Mortgage Credit Directive applies to first and second charge mortgages. It imposes a number of requirements on lenders including the need to:
- conduct affordability tests before lending;
- provide standard information about the mortgage to enable borrowers to compare products; and
- ensure that staff are suitably trained.
Company in crisis
Pursuant to the Commercial Code a company is considered ‘in crisis’ if it is:
- bankrupt (i.e. insolvent or in default); or
- under the threat of bankruptcy (i.e. the ratio of its equity to liabilities is less than the statutory limit ratio of 8:100).
A creditor who grants a loan to a company ‘in crisis’ or until the declaration of bankruptcy or the restructuring permit, may not be able to recover (some or) the full amount of the loan if it was aware of the company's financial position at the time the loan was granted.
Standard form documentation
Bilateral finance transactions are typically documented on bank standard form documentation prepared in-house.
Are there any restrictions on giving and taking guarantees and security?
Some of the key areas affecting the giving of guarantees and security are as follows.
Capacity
It is important to check the constitutional documents of a company giving a guarantee or security to confirm whether it is duly established, and whether a separate resolution of the shareholders is not required in order to duly provide such guarantee or security. The safe approach is often to have the shareholders of the company approve the giving of the guarantee or security by resolution. Furthermore, it is necessary to ensure that the directors of the company act on behalf of the company in compliance with the way of acting prescribed by the constitutional documents and way of acting registered in the Commercial Register.
Insolvency
Guarantees and security may be at risk of being contested in bankruptcy proceedings, if the guarantee or security was granted by a company without adequate consideration, caused the debtor's bankruptcy or made during the debtor's bankruptcy and granted during one year prior to the initiation of bankruptcy proceedings. If it is a legal act without adequate consideration made in favor of a party related to the debtor, it is also possible to contest the guarantee or security made during the three years prior to the initiation of bankruptcy proceedings.
What are common types of guarantees and security?
Guarantees
In general, by providing a guarantee, the guarantor undertakes that it will fulfil the obligation of the debtor (as a whole or part), in case the debtor fails to duly perform its obligation. The law does not differentiate between the performance of payment obligations or any other kind of obligation. Therefore, the guarantee may also be granted in order to secure the obligation of the debtor to provide services etc.
Common forms of security
Basic types of security that can be created under Slovak law include:
- pledges;
- secured transfer of a right; and
- bills.
Under Slovak law it is possible to grant security over all of the assets of a company or individual assets. Granting security will tend to be achieved by way of:
- pledge over a business share;
- pledge over the real estate;
- pledge over the receivables or over accounts receivables;
- a pledge over assets which are identifiable and can be controlled by the creditors (such as equipment); or
- secured transfer of right to the real estate.
Are there any other notable risks or issues around giving and taking guarantees and security?
Giving or taking guarantees
To be valid, a guarantee has to be granted in writing. A guarantee may be provided with or without consideration.
If several guarantors secure the same obligation, each of them is liable for the entire obligation. In case one of the guarantors fulfils the obligation, it has the right to recourse towards the other guarantors.
The guarantee does not expire if:
- the obligation expired due to the debtor’s inability to fulfil it and the obligation may be fulfilled by the guarantor; or
- due to the dissolution of the legal entity that is the debtor.
Giving or taking security
Depending on the type of security, security may have to be granted in writing and notarization may be required.
Once granted, security in the form of a pledge needs to be properly perfected before it is valid against third parties. Perfection formalities can range from having the secured asset delivered to the security holder, registration of the pledge in the notarial register of pledges or in the Commercial register and notice being given to third parties.
Like guarantees, a pledge may be at risk of being contested in bankruptcy proceedings, if the security was granted by a company without adequate consideration, caused the debtor's bankruptcy or was made during the debtor's bankruptcy and was granted during the one year period prior to the initiation of bankruptcy proceedings.
Péter Györfi-Tóth
Partner
Horváth & Partners Law Firm
[email protected]
T +36 1 510 1120
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