Direct Lending in CEE/SEE

Yes. 

Loan origination by funds is permitted under the general scope of permitted investment activities for AIFs under the AIFMD. Austrian law specifically provides for an exemption from banking licence requirements for AIFM/AIF acting within the scope of their AIFMD licence.

For funds that are not licensed under the AIFMD, careful structuring will be required, since otherwise lending is an activity reserved to licensed (or passported) credit institutions.

No. 

Loans can be granted either by (i) banks; or (ii) microcredit organisations. Both banks and microcredit organisations are regulated and supervised entities that are subject to licensing. The FBH Banking Act and the RS Banking Act prescribe that no one but the bank can perform banking activities (incl. activity of credits providing) on the territory of FBH and/or RS without appropriate licence issued by the FBH Banking Agency; or RS Banking Agency. Otherwise, unauthorised credits providing without a licence is considered as misdemeanour and it may be fined up to BAM 200,000 (approx. EUR 100,000). On the other hand, under the FBH MicroCredit Organisations Act and the RS MicroCredit Organisations Act carrying out the activities of microcredit organisation (approving credits up to BAM 50,000 (approx. EUR 25,000)) without a licence is considered a criminal offence and the perpetrator shall be punished by up to five years’ imprisonment. If committing the offence results in a higher amount of the gain acquired, the perpetrator shall be punished by at least five years’ imprisonment. Furthermore, performing of the microcredit organisation activities without a licence is considered as misdemeanour in RS and is subject to fines up to BAM 100,000 (approx. EUR 50,000).
In addition to monetary fines sanctioning the unauthorised provider of credit services, transactions concluded by such persons, due to being contrary to mandatory law, may be deemed as null and void.
While other legal entities and entrepreneurs could provide loans, they may not provide crediting services on the market as their regular-main business activity. Careful structuring is required in relation to lending of such entities.

No. 

In Bulgaria only a licensed (or passported) credit institution can extend loans in a commercial manner using funds collected in a public manner. Only registered (or passported) non-bank financial institutions can extend loans in a commercial manner using funds not collected in a public manner.
In case of a violation, an administrative fine of BGN 5 000 (approx. EUR 2,557) up to BGN 20 000 (approx. EUR 10,224) can be imposed and a repeated offence leads to sanctions from BGN 20 000 (approx. EUR 10,224) up to BGN 50 000 (approx. EUR 25,562).
Extending loans in a commercial manner without the necessary licence/registration can also incur criminal liability on the part of the natural persons involved. If found guilty, they can be sanctioned with imprisonment of three to five years and forfeiture of property.

Generally, it is permitted for both UCITS funds and AIFs only if the loan origination is related to the management of the fund. It is not prohibited as regards so-called qualified investor funds (being the specific type of the AIF), which raise capital from qualified investors. Therefore, loan origination by qualified investor funds is seen as permitted without limitation.
Czech law sets forth specific requirements for real estate AIFs. A secured loan from the real estate fund may be provided only to the real estate company in which the real estate fund holds participation. The aggregate value of all loans provided from the assets of the real estate fund to one specific real estate company must not exceed 50 % of the value of all real estate property owned by such real estate company (including acquired property). The aggregate value of all loans provided from the assets of the real estate fund to the real estate companies must not exceed 55 % of the value of its assets.

No. 

Loan origination by funds is not permitted. Loan origination requires a banking licence. In case of a violation, administrative fines may be imposed by the Hungarian National Bank. Moreover, performing financial activity without the relevant licence is a crime.
Careful structuring will be required, since lending is an activity reserved to licensed (or passported) credit institutions. Privately placed notes may be a practical solution; however, it cannot be confirmed because of the lack of market practice.

No. 

Loans can be granted either by banks or financial companies (i.e. non-banking institutions). Both are regulated and supervised entities that are subject to licensing.
The Banking Act prescribes that conducting banking activities (including lending) without the necessary licence is illegal and may be fined up to EUR 15,000. On the other hand the Financial Companies Act prescribes a monetary sanction of EUR 10,000 for anyone who performs activities reserved for financial companies (including lending) without being licensed. In addition to monetary fines sanctioning the unauthorised provider of credit services, transactions concluded by such persons may be deemed null and void.
While other legal entities and entrepreneurs could provide loans, they may not provide crediting services on the market as their regular-main business activity. Careful structuring is required in relation to lending by such entities.

The legislation of Moldova differentiates between credits and loans. Credits can be granted exclusively by local licensed financial institutions (banks) in line with the LFI. Loans (including interest bearing loans) can be granted by any third parties (including non-resident entities or funds) in line with the CC.
If granted by funds (i.e. non-resident entities), the following aspects, among others, must be taken into account:

a. Granting of loans on a continuous basis to Moldovan residents may result (at a certain moment) in regulatory issues (requirement to register an entity in Moldova, obtain a local banking licence, etc.).

b. Risk of permanent establishment.

c. Loans received by residents from abroad must be first authorised by the National Bank of Moldova in line with the LMR, under the risk of impossibility to repay and administrative fines.

Yes. 

Under the AIFMD and Investment Funds Act, loan origination by funds is permitted. However, only specific funds may grant loans under certain conditions.
It is prohibited for entities other than banks (without a licence) to deposit funds of other individuals or business entities in order to grant loans.

No. 

Loan origination and lending on a professional basis are licensed activities in Romania (absence of licence from the central bank triggers criminal liability and risk of nullity of transactions performed without such a licence). No exemption applies in relation to AIFs. Alternative structures that may be set up include private placements and fronting bank structures with sub-participations.
Private placements (through issuance of bonds) legislation is quite limited in scope and not very coordinated. More precisely: Romanian corporate law provides that the bonds are issued based on a prospectus, but is silent as to minimum content (the minimum content is regulated only in the case of listed bonds). The bond issuer and the fund / debt fund / direct lending fund can freely decide on the terms and conditions of the bonds.
Fronting bank structures with sub-participations are also possible in principle. In practice, local banks are rather reluctant to act as the lender of record for unaffiliated sub-participants.

No. 

Under Serbian law, loan origination requires a banking licence under the Serbian Banking Act. Granting loans in Serbia without an operating banking licence issued by the National Bank of Serbia is sanctioned as a criminal offence. Also, the scope of the Serbian Investment Funds Act (latest version applicable as of November 2014) only follows the 2009/65/EС EU Directive specifically providing that the assets of an investment fund shall not be used for granting loans (Article 33). Breach of such restriction constitutes a corporate offence.
At present, the National Bank of Serbia is working on a draft act regulating non-depository financial institutions. Also, it is being said that the Ministry of Finance is preparing a draft act on alternative investment funds. It is still unknown when and to what extent these drafts aim to reform and liberalise the Serbian market. However, until the liberalisation of the current regime for loan origination, solutions to overcome these restrictions are limited. There were several known attempts in practice where certain Serbian companies tried to engage in granting loans by fronting a Serbian bank. The National Bank of Serbia intervened and publically condemned this practice.
As for the crossborder transactions involving lenders (including funds) domiciled outside of Serbia, Serbian residents are allowed to borrow funds from such non-residents. These transactions are subject to the Serbian F/X regulatory regime and are notifiable to the National Bank of Serbia as the competent regulator.

Yes. 

Loan origination by funds is permitted under the general scope of permitted investment activities, but not as a main activity.

Yes. 

Lending in and of itself is not a regulated activity in Slovenia. Loan origination by funds is therefore permitted. That being said, lending by institutions which take deposits from the public (i.e. banks) is regulated / requires a (banking) licence. Moreover, consumer lending requires a special licence, which is sometimes obtained by funds (e.g. in the context of acquisitions of NPL portfolios, including consumer loans). Fines apply.
As an aside, certain restrictions apply to lending by Slovenian companies registered as venture capital companies (družbe tveganega kapitala).

No. 

There is no specific legal framework regulating direct lending transactions.

No. 

There is no specific legal framework for direct lending in Bulgaria other than the provisions set out in the Bulgarian Credit Institutions Act and its secondary legislative acts, where lending in a commercial manner is reserved to licensed credit institutions / registered non-bank financial institutions.

No. 

There is no specific legal framework for direct lending in Croatia other than in the financial services regulatory area.

No. 

There is no specific legal framework for direct lending in the Czech Republic other than in the financial services regulatory area, where lending is reserved to credit institutions and qualified investor funds.

No. 

There is no specific legal framework for direct lending in Hungary other than in the financial services regulatory area, where lending is reserved to credit institutions.

No. 

There is no specific legal framework regulating direct lending transactions.

Apart from direct lending by financial institutions (banks) by means of credit agreements, the Moldovan legislation regulates the possibility of loans. Loans (including interest bearing loans) can be granted by any third party. Loans are regulated by the CC.

No. 

There is no specific legal framework for direct lending in Poland.

No. 

There is no specific legal framework for direct lending in Serbia.

No. 

There is no specific legal framework for direct lending in Slovakia.

No. 

Other than with respect to lending by credit institutions and consumer lending there is no specific direct lending legal framework in Slovenia.

According the FBH and RS contract law, borrower is entitled to prepay the loan – however, he is obliged to notify the bank beforehand. The borrower must compensate the bank for the caused damage (lost profit) by prepayment, but banks cannot charge the full amount of interest accruing up to scheduled maturity. Furthermore, the FBH and RS banking legislation explicitly prohibit agreeing on prohibition of the prepayment clauses in the loan agreement concluded between the banks and banking services users (i.e. private individuals).
Furthermore, provided that international element exists, the contractual parties may agree application of the foreign law. However, Bosnian courts may refuse to uphold such provisions in course of recognition and enforcement of foreign court/arbitration awards on grounds of incompatibility with Bosnian public policy and mandatory law.

Limitations on non-call features of the debt exist only with regard to borrowers who are consumers (a private person acting outside the scope of his professional or commercial activity). A limitation on repayment prior to the maturity date can be agreed, but only for a period not exceeding one year from the date of the credit agreement. There are no other limitations apart from this restriction.
Any provision (such as choosing foreign law) that precludes or restricts the rights of consumers is void. With regard to legal entities or natural persons who do not qualify as consumers within the meaning of the Bulgarian Act on Consumer Protection, such limitations can be freely contracted out, including by choosing foreign law to govern the finance documents.

Yes. 

Contractual provisions limiting the borrower to repay its monetary debt before scheduled maturity are null and void under Croatian law; however, the borrower may reduce its debt for interest accruing up to scheduled maturity only if explicitly agreed with the lender.
Those limitations are considered mandatory provisions of Croatian law, so the possibility of successful objection by the debtor cannot be excluded when foreclosing a document governed under foreign law in Croatia.

Generally under the Civil Code, the lender must accept the prepayment if it does not harm its interests and the borrower reimburses the costs incurred by the prepayment. However, the parties may deviate from this rule in their contract.

Clauses prohibiting prepayment are null and void. On the other hand, Macedonian law provides that the borrower must compensate the lender for the damage caused (lost profit) by prepayment, but banks cannot charge the full amount of interest accruing up to scheduled maturity. In regard to overcoming this Macedonian law limitation by envisaging other governing law, it should be noted that agreements where both parties survey under Macedonian jurisdiction, i.e. where there is no foreign element, Macedonian law is mandatory. Where one of the transacting parties is a foreign entity, the parties can choose a foreign law that does not prohibit non-call features; however, Macedonian courts could refuse to uphold such provisions in the course of recognition and enforcement of foreign court/arbitration awards on the grounds of incompatibility with Macedonian public policy and mandatory law.

As a general principle, the Serbian Obligations Act envisages that the clauses in agreements under which a debtor of a monetary obligation waives its right to prepay the debt are null and void. If the debtor chooses to prepay the debt, the default rule is that it would also have to discharge the interest accruing from the moment of prepayment until the scheduled maturity (unless agreed otherwise).
Serbian conflict of laws rules allow parties in agreements with an international element to choose the law governing such an agreement. In that regard, the parties could try to overcome the limitations concerning the non-call feature of debt under Serbian law by entering into a document governed under foreign law, where such limitations are not present. However, such choice of law might not be upheld by the Serbian court should it find that that its (foreign law) application was aimed at the evasion of law (fraus legis doctrine). Also, there is a risk that the Serbian courts could find that the non-call provisions are contrary to the overriding mandatory provisions of Serbian law or Serbian public policy (ordre public), rendering it null and void.

A contractual provision whereby the borrower would waive the right to repay the debt prior to scheduled maturity would be considered null and void under Slovenian law (this provision is considered mandatory). By the same token, prepayment fees (beyond market standard break costs compensation arrangements) may not be enforceable before Slovenian courts.
Certain mandatory Slovenian rules may be contracted out of by choosing foreign governing law – other than with respect to Slovenian rules qualifying as “overriding mandatory provisions” (in a similar vein, foreign provisions that would be “manifestly incompatible with the public policy (ordre public)” of Slovenian law would not be enforceable in Slovenia).
Whether the rule regarding the right to prepay would fall under any of these categories is not a resolved matter before Slovenian courts.

The applicable FBH and RS legislation is silent with respect to PIK interest.
Bosnian courts may refuse to uphold PIK interest provisions in the course of recognition and enforcement of foreign court / arbitration awards on the grounds of incompatibility with Bosnian public policy and mandatory law.

PIK interest on loans extended to consumers is prohibited in Bulgaria according to established case law. PIK interest is permitted for legal entities which qualify as traders under general commercial law.
Any provision (such as choosing foreign law) that precludes or restricts the rights of consumers is void. For legal entities or natural persons who do not qualify as consumers within the meaning of the Bulgarian Act on Consumer Protection, such limitations can be freely contracted out, including by choosing foreign law to govern the finance documents.

Yes. 

Compound interest is forbidden under Croatian law, although this limitation does not apply to deposits held at financial institutions. On the other hand, increased interest rates on principal may be agreed in case the debtor is in default of payment of due interests.
This limitation is considered a mandatory provision of Croatian law, so the possibility of successful objection by the debtor cannot be excluded when foreclosing a document governed under foreign law in Croatia.

PIK interest may be agreed only in case a bank is the lender. As in accordance with the principal of uniformity of the legal system, only banks licensed by the National Bank of the Republic of Macedonia are deemed to be banks, no other lender (including foreign banks or financial companies licensed by the Ministry of Finance) could validly agree PIK interest.
Similarly to issues arising from envisaging foreign law as governing law in order to circumvent non-call restrictions, in case of PIK it is highly questionable whether Macedonian courts would refuse to uphold such provisions in the course of recognition and enforcement of foreign court/arbitration awards on the grounds of incompatibility with Macedonian public policy and mandatory law.

Yes. 

In general, interest capitalisation is restricted by Polish law. However, there are the following exceptions: (i) the creditor may demand default interest on interest due from the moment of filing the suit for it, (ii) the parties agreed to add the interest to the sum of the debt after such interest was due, or (iii) in the case of a long-term loan granted by a credit institution.

Compounding of principal with current interest is possible (but not of principal and penalty/default interest).

Yes. 

The Serbian Obligations Act provides for a mandatory rule that the interest cannot be computed on already accrued interest, except in banking credit transactions. Therefore, under the black letter law, only the banks could agree on the PIK interest in their credit transactions. In decision no. IUz-82/2009 published on 27 July 2012, the Constitutional Court of the Republic of Serbia annulled a provision in the act governing statutory default interest where such interest was calculated on a compound basis. The Constitutional Court reasoned that the compound calculation method basically means computation of interest on accrued interest that violates Article 400 of the Obligations Act, which could be regarded as public policy in the Republic of Serbia. There is a risk that the Serbian courts could rule that any provision on compound calculation of interest in non-bank loans is null and void, as it violates the Constitutional Court’s decision and Serbian public policy.

No such limitations apply and, as a matter of practice, PIK interest arrangements have been entered into in Slovenian law finance documents. As an aside, note that a contractual provision whereby late interest would accrue on unpaid interest – including in the form of a PIK interest component – would not be permitted under Slovenian law.

Yes. 

Under Austrian law loans granted by a shareholder (or persons acting in concert with a shareholder as well as persons acting on behalf of a shareholder) in times of crisis (as defined by law by reference to insolvency as well as certain financial ratios) of the borrower, can be recharacterised into equity. “Shareholder” refers to controlling shareholders, persons holding 25 % of share capital or persons otherwise having the power to exercise dominant influence over the borrower. Once tainted, the loan must not be repaid as long as the crisis subsists and any repayment claim would be subordinated in an insolvency of the borrower. Also, security therefore would be adversely affected.
Structures where the lending fund has a right to acquire equity in the borrower warrant careful scrutiny and structuring, in particular to determine whether those rights together with other typical leverage-loan lender (consent) rights could be considered as going beyond customary lender rights (thereby causing the lender to become a “shareholder”). Similar considerations come into play when the debt fund is affiliated with the equity sponsor (e.g. managed by the same or affiliated fund managers), which is where the lending fund could be at risk of being considered acting in concert.

In both the FBH and RS, shareholders’ loans extended to subsidiaries may be subject to statutory subordination rules if the subsidiary / affiliate-debtor is insolvent. In such a case, lending may be given the last payment priority rank.

Yes. 

In case of insolvency shareholder loans are treated differently. Loans distributed by shareholders have last ranking and are only satisfied when satisfaction of all other creditors has taken place.
Moreover, special avoidance claims with relation to shareholders are in place. Establishment of a mortgage, pledge or any other security for third party obligations in favour of shareholders, as well as any other transactions made to the detriment of the other creditors made within a two-year period from the filing for insolvency may be declared void with regard to the other creditors. Also, there is a presumption that the shareholders are always aware of the over-indebtedness / inability to pay of the insolvent debtor and longer suspect periods apply with respect to them.
According to case law, the lending relation is tainted when it is evident (e.g. from a trade register excerpt) that the lender is a shareholder in the relevant institution. Cumulatively, the payment of the principal must have also taken place.
Due to lack of case law on the matter it is unclear if an equity warrant or an overlapping in management will suffice to taint the relationship.

A shareholder who grants a loan to a Croatian company in a time of crisis (where a prudent investor would have invested additional equity capital) can, if the company goes bankrupt, request repayment of the loan only as a junior-ranked creditor.
Under the law, the above applies to a single shareholder holding more than a 10 % interest in a Croatian company or to a single shareholder managing a Croatian company business (i.e. being in position to potentially influence the managing of its business). According to the literature, however, the same shall also apply to a direct or indirect parent company or other affiliate of the shareholder. Croatian law and the available literature are not clear on whether the concept of acting in concert also applies.
Third parties granting a loan to a Croatian company at a time of crisis (where a prudent investor would have invested additional equity capital) and to whom a shareholder has provided a security or guarantee can, if the company goes bankrupt, request only those amounts that it was unable to recover (enforce) from the security or guarantee provided by the shareholder, i.e. the creditor would first have to take recourse against the shareholder.
Structures where the lending fund has the right to acquire equity in the borrower warrant careful scrutiny and structuring, in particular to determine whether those rights together with other typical leverage-loan lender (consent) rights could be considered as going beyond customary lender rights, thereby causing the lender to become a “shareholder”. Similar considerations come into play when the debt fund is affiliated with the equity sponsor (e.g. managed by the same or affiliated fund managers), which is where the lending fund could potentially be at risk of being considered acting in concert (as noted above, Croatian law and the available literature does not provide a clear answer on whether the concept of acting in concert would be applicable).

No. 

Such concept is not recognised under Czech law. Within insolvency proceedings, the receivables of shareholders arising from their participation in the insolvent company (which does not mean/cover the shareholder loans) will be satisfied as subordinated claims, but otherwise the concept of subordination of law is not recognised.

Yes. 

Under Hungarian law loans granted by a direct shareholder (or direct shareholders acting in concert) having majority influence (i.e. having at least 50 % of the voting right, having the right to appoint 50 % of the directors and/or supervisory board members) over the debtor are subordinated if the borrower is subject to insolvency procedure. Also, security thereof would be adversely affected.

The Macedonian Insolvency Act envisages equitable subordination in regard to lending provided by shareholders by classifying such lending in the last payment priority rank.
In addition, insolvency avoidance rules introduce the presumption that affiliated parties (including shareholders) know or ought to have known about the financial troubles of the debtor, which is one of the conditions for voidance of pre-insolvency transactions of the insolvent debtor.
In the event of an insolvency scenario, corporate law rules provide additional grounds for challenging affiliated party transactions. Such rules include a capital impairment doctrine. As a law specific to Macedonia (i.e. not present in other Western Balkan countries), the Macedonian Company Act provides that the shareholder of the borrower is not allowed to use its influence to direct the controlled company to enter into harmful legal transactions (for the benefit of the shareholder or any other related party), undertakings or refusals to undertake activities, unless the shareholder assumes the obligation to compensate the entire damage resulting from such transactions.
Considering the broad definition of affiliated parties, transactions whereby the risk of equitable subordination or challenge due to breach of corporate law rules is minimised require careful examination and structuring.

Yes. 

Under the Moldovan legislation (LI): loans/credits granted by shareholders, including the interest and penalties incurred, granted for the purpose of capitalisation are subordinated to loans granted by other unsecured creditors. Further, loans/credit granted to a borrower (who later becomes insolvent) in concert with the shareholders, including instituted guarantees, may be annulled within insolvency proceedings.
Structures whereby the lender, after granting a loan, would receive a security in the form of a pledge over the borrower’s shares and assets can be taken into consideration, as well as a supervising right in relation to the most important corporate decisions. Any reference to the lender becoming a shareholder should be avoided, as it would involve the risk of cancellation during the insolvency proceedings.

Loans granted by shareholders to the company in a period of five years before the declaration of bankruptcy are in the last category for satisfaction from the liquidated estate. However, such loans will be in the second category for satisfaction if (i) granted in the course of restructuring proceedings or performing an arrangement, (ii) granted by a shareholder holding less than 10 % of shares in the company’s capital, or (iii) granted by a shareholder who becomes one as a result of conversion of claims into shares, if the loan was granted before the conversion. This also applies to loans granted by an entity which directly holds a majority of votes at a shareholders’ meeting of the company, which is the shareholder of the bankrupt company that received the loan.
Loans provided for in the arrangement adopted in the course of restructuring proceedings are in the first category for satisfaction from the liquidated estate.

Yes. 

Under Romanian law a loan granted by a shareholder holding at least 10 % of the share capital would be deeply subordinated in case of bankruptcy (i.e. would rank last in the order of claims to be satisfied out of the bankruptcy proceeds). Although the law is not entirely clear on whether the same restrictions apply if (i) the shareholder’s claim arises from bonds or (ii) if the claim is secured or (iii) if the creditor of the claim is an indirect shareholder, we believe that these instances should also be included in the scope of the restriction. Furthermore, creditors which are affiliates of the insolvent debtor are restricted from voting on a reorganisation plan unless the application of such a plan yields a level of satisfaction of their claim which is less than what they would have recovered in case of liquidation in bankruptcy. Granting an equity warrant should not be sufficient in order to “taint” a claim. However, affiliation (lender being managed by the same fund manager as the sponsor who owns (or buys into) the equity of the borrower) may trigger the application of such provisions.

Yes. 

Loans extended to a Serbian company by its shareholders will in principle be subordinated in the insolvency proceedings. Under the Serbian equitable subordination rules, the final payment priority rank in insolvency proceedings consists of claims (for the portion of claim that is not secured) which (cumulatively): (i) are established within two years prior to the opening of insolvency proceedings; (ii) which arise from loan agreements or other arrangements that have a similar economic effect as loans; and (iii) which were provided by affiliated persons, whose principal business activity is not provision of loans or credits. In addition, repayments of such subordinated loans are considered by law as voidable preference and as such are subject to clawback, if made within one year prior to the opening of insolvency proceedings.
An affiliated person of the insolvency debtor is considered to be, inter alia, (i) a shareholder with significant shareholding in the insolvency debtor; (ii) a legal entity controlled by the insolvency debtor; (iii) persons who, due to their status in the insolvency debtor, have access to confidential information and the ability to acquaint themselves with the financial situation of the insolvency debtor; (iv) persons who are in fact able to significantly impact the business of the insolvency debtor.
To our knowledge, concepts comparable to a controlling creditor or shadow directors, i.e. a concept of loans similar to shareholder loans, etc. are not yet recognised by the Serbian courts.

Yes. 

In certain situations loans granted by shareholders are treated differently to loans from unrelated lenders. For example, in insolvency, any claims of related parties (including loans granted by shareholders) are treated as subordinated claims. If a company in crisis is granted a loan by a related party (or repayment of a loan granted earlier is deferred), the loan qualifies as equity replacing loan and cannot be repaid while the company is in crisis or would be in crisis if the loan were repaid.
Slovak case law is not developed (or even non-existent) when it comes to assessing situations relating sponsors, fund managers and lenders from this perspective. The definition of a related party also differs from case to case (e.g. there is a different definition of related party for insolvency law purposes and for provision of equity replacing loans). Generally, holding a certain share or voting rights in a company (directly or indirectly) or being able to exercise a comparable influence over the company (upstream connection) or having the same person holding these rights in the borrower and another company (cross-stream connection) and being a director (or otherwise management) qualifies an entity as a related party.
Structures where the lending fund has a right to acquire equity in the borrower, warrant careful scrutiny and structuring, in particular to determine whether those rights together with other typical leverage-loan lender (consent) rights could be considered as going beyond customary lender rights, thereby causing the lender to become an obliged person under this regulation. Similar considerations come into play when the debt fund is affiliated with the equity sponsor (e.g. managed by the same or affiliated fund managers), which is where the lending fund could be at risk of being considered acting on behalf.

Yes. 

A shareholder who granted a loan to the company “at the time when a diligent businessman would have invested additional equity”, cannot demand repayment in case of insolvency (equitable subordination). Moreover, if repaid to the shareholder within a year preceding the opening of insolvency proceedings against that company, such a loan may be clawed back (irrespective of whether or not the general insolvency avoidance rules are met).
The triggering event (notion of financial distress) is not specified further by blackletter law, but is generally considered to be broader than technical insolvency – encompassing financial distress in the broader sense of the word.
This regime applies, in the case of private limited companies (d.o.o.), with respect to loans granted by any shareholder thereof and, in the case of joint stock companies (d.d.), loans granted by shareholders holding more than 25 % of a company’s shares with voting rights (single shareholder or several shareholders acting in concert). Available court practice interprets the notion of “shareholder” narrowly, leading to the conclusion that holders of equity warrants would likely not be covered by equitable subordination rules and neither would affiliates / cross-stream entities. Note, however, that there is no unified practice in this respect. Situations where a lender (contractually or via corporate control instruments) exercises a strong degree of shareholder-like control over the borrowing company should be examined on a case-by-case basis.

Yes. 

In addition to the general financial assistance prohibitions (that apply to joint stock corporations (AG)), Austrian capital maintenance rules (that apply to all corporations (AG and GmbH) as well as limited partnerships (KG)) limit the ability to achieve a debt pushdown.
Violating these rules would invalidate the guarantee or security.
In most instances, these limitations effectively also prohibit a downstream merger of the acquirer into the target as well as an upstream merger of the target into the acquirer.
Upstream and cross-stream guarantees and security interests are commonly foreseen, but usually contain contractual limitations (limitation language) that seek to address these legal limitations and attempt to at least partly preserve the enforceability of upstream guarantees / security interests.

Pursuant to the RS Companies Act, shareholders may not reclaim their contributions (except for a limited number of cases prescribed by law, such as in the course of liquidation and bankruptcy proceedings). Contributions by shareholders are qualified as company property; therefore, shareholders are not entitled to claim repayment of such contributions or to use the contributed assets.
Furthermore, in the FBH and RS, the following capital maintenance rules need to be considered: (i) the prohibition on granting shareholders’ loans in a time of crisis [zajam umjesto kapitala], (ii) avoidance risk under insolvency regulations [pobijanje pravnih radnji stečajnog duznika] and (iii) avoidance risk under the civil law regime [Actio Pauliana].

Yes. 

Bulgarian legislation generally does not prohibit debt pushdowns. However, there is existing court practice which perceives arrangements leading to debt pushdowns as a tax evasion.

Yes. 

In addition to the general financial assistance prohibitions, Croatian capital maintenance rules limit the ability to achieve a debt pushdown. Violating these rules could easily invalidate the guarantee or security.
Also, under Croatian foreign exchange regulations, Croatian residents (including legal persons) when issuing guarantees in favour of non-residents, must obtain adequate security to ensure guarantees are reimbursed; however, there is no established case law / guidance as to the “adequacy” criterion or the consequences of a breach of this requirement.
These limitations could also effectively prohibit a downstream merger of the acquirer onto the target as well as an upstream merger of the target into the acquirer. Upstream and cross-stream guarantees and security interests are commonly foreseen, but usually contain contractual limitations (limitation language) that seek to address these legal limitations and attempt to at least partly preserve the enforceability of upstream guarantees / security interests.

Debt pushdowns are used locally, primarily as a tool to achieve tax deductibility of acquisition loan interest and to avoid financial assistance/capital maintenance rules. Apart from general capital maintenance rules and corporate benefit requirements, Czech law does not set forth further specific restrictions. The recent tax case law, however, is restrictive with respect to a debt pushdown tool – the Supreme Administrative Court has labelled intragroup debt pushdown as avoidance of tax laws aiming to achieve the otherwise unavailable tax deductibility of acquisition debt costs. Therefore, it is crucial to properly structure and justify with economically reasonable purpose the risky elements being: (i) no external seller and (ii) no external loan provider.
Also the Anti-Tax Avoidance Directive may bring certain difficulties with respect to interest deductibility, which should have been initially applicable to the groups only, but surprisingly aims at external interest costs as well. The Directive will be implemented in the Czech Republic as of 1 January 2019.

Generally, it is possible. The general financial assistance prohibitions, which apply only to public joint stock corporations (Nyrt.), Hungarian capital maintenance rules, which apply to all corporations (Nyrt, Zrt, and Kft) as well as limited partnerships (Bt), somewhat limit the ability to achieve a debt pushdown.
Violating these rules would invalidate the guarantee or security.
Upstream and cross-stream guarantees and security interests are commonly foreseen, and usually do not contain contractual limitations (limitation language).

Yes. 

Debt pushdowns are subject to certain limitations under Macedonian law based on the rules governing capital impairment and influence of majority shareholder.
In accordance with the general principle of preservation of corporate assets, a company may not make any payments or otherwise transfer assets to its direct or indirect shareholders except for (i) payments of dividends and liquidation proceeds in accordance with the Companies’ Act and the company’s constitutive documents) and/or (ii) payments based on an intragroup transaction concluded at arm’s length. Additionally, according to the Companies’ Act it is required for shareholders of both limited liability companies and joint stock companies to return all payments made by the company in violation of the law.
According to the Companies’ Act, there is a limitation on the majority shareholder to exercise its influence for directing the controlled company to undertake disadvantageous transactions or to undertake, or to refrain from undertaking to the detriment of the company, any actions, unless any disadvantage is compensated.
Therefore, the debt pushdown requires careful structuring with the aim of fulfilling the arm’s length standard and in order not to be in violation of rules prohibiting influence by a majority shareholder.
In mergers, both entities are obliged to publish the merger plan and to inform creditors (with receivables above EUR 10,000) and post additional collaterals to creditors should the creditors so require.

Yes. 

Besides the general norms on mergers and state registration (applicable to both limited liability and joint stock companies), rules on the net asset value of the participating entities would need to be taken into account. Additionally:
a. structure should be motivated, i.e. avoid risk of being regarded (including by local tax authorities) as fictiveness or simulation;
b. any guarantees/obligations before non-residents, as assigned, should be properly authorised by the National Bank of Moldova in advance; and
c. tax issues: possibility of deduction of tax interest post-merger, decrease of CIT payable.

In accordance with recently adopted law, as of January 2018, debt pushdown will cause adverse tax implications.
Upstream mergers are common and permissible under Polish law.
With respect to joint stock companies, downstream mergers are allowed; however, the company cannot exercise any share rights under its own shares (e.g. voting rights or the right to a dividend), except for the right to dispose of the shares or conduct measures intended to preserve the share rights.
In the case of a limited liability company, Polish law does not expressly provide for the possibility of downstream merger. In practice, a liberal approach predominates and the courts register such mergers. Nonetheless, they shall be evaluated on a case-by-case basis.
Violating these rules would invalidate the transaction and the management board may be held criminally liable for such actions.

Yes. 

General financial assistance prohibitions (that apply to joint stock corporations (SA)), corporate benefit principles, as well as rules prohibiting misuse of corporate assets or creditworthiness, distribution of fictive dividends, etc. (which apply to all types of companies) limit the ability to achieve a debt pushdown.
Violating these rules would invalidate the guarantee or security and may result in criminal liability of the management.
These limitations may also effectively prohibit a downstream merger of the acquirer onto the target as well as an upstream merger of the target into the acquirer. In practice, such structures have been and are still being used, but were never (to our knowledge) tested in court.
Upstream and cross-stream guarantees and security interests are commonly foreseen, but usually contain contractual limitations (limitation language) that seek to address these legal limitations and attempt to at least partly preserve the enforceability of upstream guarantees / security interests.

Yes. 

Corporate law limitations stem from the general prohibition of financial assistance and capital maintenance rules. Under the financial assistance rule, a target company is not allowed to offer any financial assistance (including by way of security instrument) to help finance the acquisition of its shares/equity instruments. Such transactions are regarded as null and void. Under the Serbian capital maintenance rules, a company may not perform payments (i.e. dividends) to its shareholders if the last financial statement shows that, following such payments, the level of net assets of the company is lower or would have become lower in comparison to the level of the paid-in share capital plus mandatory reserves.
Although intragroup arm’s length business is generally permitted, according to the Companies Act, any controlling entity (meaning any natural person or legal entity that either alone or together with other entities controls a company) has an obligation to act in the best interest of the company that it controls (duty of care) and corporate benefit for a subsidiary should exist. If a controlling entity has concluded an agreement with the controlled company which is against the interests of the controlled company, the agreement may be annulled (unless it is approved by competent corporate bodies of the controlled company by persons having no personal interest in the transaction). The Companies Act requires shareholders to return all payments made by the company in violation of the law. Repayments can be requested by the company’s creditors, other shareholders and by the insolvency administrator/liquidator.
Furthermore, Serbian F/X laws impose strict mandatory limitations on the granting of cross-border security and to the upstreaming of cash from Serbia. In short, Serbian subsidiaries may not provide security for a loan extended to a non-Serbian holding entity. A legal entity resident in Serbia may provide cross-border security interests over its assets and/or corporate guarantees only (i) for the benefit of its own direct creditors, i.e. to secure its own cross-border debts or (ii) for the benefit of creditors of a non-Serbian entity majority owned by that Serbian resident security provider / guarantor, which obviously excludes a holding/parent entity. A security interest or a guarantee provided in contravention of these rules of the F/X Act practically would not be enforceable, since it would not be possible to repatriate from Serbia any proceeds from such collateral. Serbian banks will refuse to process any payments to non-residents in order to avoid sanctions which the Serbian Central Bank (the National Bank of Serbia), as the F/X regulator and banking regulator, may impose.
Additional limitations may apply in the context of voidable preferences rules under insolvency law (pobijanje pravnih radnji stečajnog dužnika) and fraudulent conveyance rules under civil law (actio pauliana).

Yes. 

In addition to the general financial assistance prohibitions (that apply to joint stock companies and simplified joint stock companies), Slovak capital maintenance rules that apply to all corporations (joint stock companies, simplified joint stock companies and limited liability companies), as well as limited partnerships, limit the debt pushdown schemes.
These limitations affect debt pushdown schemes, but generally do not prohibit specific corporate reorganisations, such as debt pushdown mergers. Careful structuring, however, is required.

Such transactions are generally subject to capital maintenance rules (stricter in the case of joint stock companies (d.d.) than in the case of private limited companies (d.o.o.)) and, in the case of joint stock companies (d.d.), financial assistance restrictions.
Generally, debt pushdown by way of up- or downstream merger is considered a permitted / statutorily regulated form of financial assistance.

Yes. 

Financial assistance rules apply to joint stock corporations (AG). Alternative rules from the perspective of capital maintenance apply to all corporations (AG and GmbH) as well as limited partnerships (KG). These limit the ability to achieve a debt pushdown.

The prescribed limitations are based on the general principle of capital maintenance and apply both to joint stock and limited liability companies.
In addition, financial assistance is explicitly forbidden for joint stock and limited liability companies.

Yes. 

Some limitations are based on a doctrine of financial assistance. In Bulgaria it is prohibited for joint stock companies to finance the acquisition of the company’s own shares by third parties. Pursuant to that provision, joint stock companies (public or not) may not provide loans or secure the acquisition of their shares by third parties. The limitation does not apply to transactions entered into by banks or financial institutions for their regular activities. Limited liability companies as well as other types of companies do not fall within the scope of the prohibition.
Furthermore, the establishment of a mortgage by a joint stock company for the purposes of securing a loan granted by a bank to a third party in order for such third party to purchase shares in the same joint stock company, is also considered as financial assistance and therefore invalid.

Yes. 

Financial assistance rules apply to joint stock corporations (d.d.) and should not apply to limited liability companies (d.o.o.); however, the legal literature in Croatia on the subject is quite limited and we cannot exclude the risk that, in case of a dispute, the competent forum would take a different view. Capital maintenance (including arm’s length / corporate benefit requirements) rules are applicable to all corporations (e.g. d.d. and d.o.o.).

As indicated above, the limitations are based on the financial assistance doctrine as well. Financial assistance rules and capital maintenance rules apply to joint stock companies (a.s.) and limited liability companies (s.r.o.). The general corporate benefit shall be considered, as well as the group benefit, if applicable.

The general financial assistance prohibitions, which apply only to public joint stock corporations (Nyrt.), Hungarian capital maintenance rules, which apply to all corporations (Nyrt, Zrt, and Kft) as well as limited partnerships (Bt), somewhat limit the ability to achieve a debt pushdown.

The limitations are based on capital impairment rules and rules prohibiting the influence of a majority shareholder and apply to both joint stock corporations and limited liability companies.
In addition, financial assistance is explicitly forbidden only in the case of joint stock corporations (with nullity as a consequence of a breach).

Yes. 

Financial assistance restrictions under Polish law are only limited to joint stock companies and do not concern limited liability companies. A joint stock company can directly or indirectly finance the acquisition or take up of its own shares, particularly by extending loans, making advance payments or establishing security. The financing is permitted subject to a number of conditions.
In the case of a limited liability company, the shareholders may not receive, under any title, any payments from the company’s assets needed to fully finance the share capital.

Yes. 

Financial assistance rules apply to joint stock corporations (SA). As mentioned, corporate benefit principles, as well as rules prohibiting misuse of corporate assets or creditworthiness and distribution of fictive dividends apply to all legal forms of companies and may therefore limit the ability to achieve a debt pushdown.

Yes. 

Financial assistance rules apply to both limited liability companies (društvo sa ograničenom odgovornošću) and joint stock companies (akcionarsko društvo).

Yes. 

Financial assistance rules apply to joint stock companies and simplified joint stock companies. Additional limitations result from capital maintenance rules and apply to all corporations (joint stock companies, simplified joint stock companies and limited liability companies) as well as limited partnerships.

Yes. 

Financial assistance rules only apply to joint stock companies. Capital maintenance rules and corporate benefit considerations are generally applicable.

No. 

Provided that the fund is itself regulated under the AIFMD and lends within the scope of its licensed AIF activities. If such a licence is absent, the (illegally lending) person/fund would not have an enforceable claim for interest and fees (although the principal claim would not be affected) and the guarantee or surety it has obtained would not be enforceable.

No. 

Unregulated secured lender will be subject to administrative fines due to violation of the Bulgarian Act on Credit Institutions, but this will not affect the legality of its claims.

No. 

Generally this should not be the case.
However, according to recently introduced law, any loan agreement and ancillary deals such as mortgages, pledges and other collateral are invalid if concluded in Croatia between a Croatian debtor (that is not a governmental entity, a legal entity controlled by it, another budgetary user and a large or medium size enterprise) and an unauthorised foreign lender. “Concluded in Croatia” may be understood as (i) concluded on Croatian territory, but potentially also as (ii) concluded as the result of a foreign lender actively soliciting locals to provide them lending services (via its representatives, intermediaries or some other means).

No. 

Provided that the fund has the relevant licences or that the lending transaction was structured in the proper manner (e.g. privately placed notes). If a licence is absent or the structure is inappropriate, the (illegally) lending person/fund would not have an enforceable claim for interest and fees (although the principal claim would not be affected) and the guarantee or surety it has obtained would not be enforceable.

Generally there is no difference, but given that all obligations assumed and guarantees granted by residents in favour of non-residents must be authorised in advance by the National Bank of Moldova, failure to properly authorise the transactions may lead to non-residents’ inability to enforce anything in Moldova.

No. 

Provided that the fund is itself regulated under the AIFMD or Investment Funds Act and lends within the scope of its permitted activity.

No difference of treatment applies in or outside insolvency between regulated or unregulated secured creditors.

No. 

Not in general, although judgments or other decisions of state courts outside the territorial scope of application of the Brussels Regulation Recast (e.g. judgments by NY courts) might not be enforceable in the Republic of Austria.

No. 

Generally no, local and foreign law finance documents are treated under the same regime. Note, however, that judgments or other decisions of state courts outside the territorial scope of application of the Brussels Regulation Recast (e.g. judgments by NY courts) might not be enforceable in Bulgaria.

No. 

Not in general, although judgments or other decisions of state courts outside the territorial scope of application of the Brussels Regulation Recast (e.g. judgments by NY courts) might not be enforceable in the Republic of Croatia.

No. 

Not in general, although judgments or other decisions of state courts outside the territorial scope of application of the Brussels Regulation Recast (e.g. judgments by NY courts) might not be entirely enforceable in Hungary.

No. 

Generally this is not the case. However, foreign law finance documents would be subject to scrutiny against Macedonian public order and mandatory law in the course of recognition and enforcement of foreign court/arbitration awards.
Security interest cannot, in practice, be established on agreements governed under foreign law.

No. 

Provided that the loan/guarantees in favour of a non-resident are authorised by the National Bank of Moldova.

No. 

Not in general, although judgments or other decisions of state courts outside the territorial scope of application of the Brussels Regulation Recast (e.g. judgments by NY courts) might not be enforceable in Poland.

No. 

Not the case for Romanian law finance documents entered into by unregulated lenders. However, Romanian law governed loan agreements entered into by credit institutions are writs of enforcement in themselves (i.e. the credit institution does not need to first obtain a ruling on the merits prior to starting enforcement).
Note, however, that judgments or other decisions of state courts outside the territorial scope of application of the Brussels Regulation Recast (e.g. judgments by NY courts) might not be enforceable in Romania (being subject to bilateral conventions).

No. 

Not in general, although judgments or other decisions of state courts outside the territorial scope of application of the Brussels Regulation Recast (e.g. judgments by NY courts) might not be enforceable in Slovakia.

No. 

However, the enforcement of judgments / arbitral awards from foreign jurisdictions is subject to recognition in Slovenia. Conditions for recognitions depend on the jurisdiction of origin (e.g. the Brussels Regulation Recast implements an automatic recognition of EU judgments).

AIF: Alternative Investment Fund under the AIFMD
AIFMD: Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010
Brussels Regulation Recast: Regulation (EU) No 1215/2012 of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters
PIK interest: Pay in kind interest

AIF: Alternative Investment Fund under the AIFMD
AIFMD: Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010
Brussels Regulation Recast: Regulation (EU) No 1215/2012 of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters
BH: Bosnia and Herzegovina
FBH: Federation of Bosnia and Herzegovina
PIK interest: Pay in kind – interest
RS: Republic of Srpska

PIK interest: Pay in kind – interest
ROME-I: Regulation: Regulation (EC) No 593/2008 of the European Parliament and of the Council
Brussels Regulation Recast: Regulation (EU) No 1215/2012 of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters
NY: New York City

AIF: Alternative Investment Fund under the AIFMD
AIFMD: Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010
Brussels Regulation Recast: Regulation (EU) No 1215/2012 of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters
PIK interest: Pay in kind – interest
UCITS: Undertakings for Collective Investment in Transferable Securities under the UCITS Directive
UCITS Directive: Directive 2009/65/EC of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS)

AIF: Alternative Investment Fund under the AIFMD
AIFMD: Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010
Brussels Regulation Recast: Regulation (EU) No 1215/2012 of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters
PIK interest: Pay in kind – interest

AIF: Alternative Investment Fund under the AIFMD
AIFMD: Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010
Brussels Regulation Recast: Regulation (EU) No 1215/2012 of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters
PIK interest: Pay in kind – interest

AIF: Alternative Investment Fund under the AIFMD
AIFMD: Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010
Brussels Regulation Recast: Regulation (EU) No 1215/2012 of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters
PIK interest: Pay in kind – interest

LFI: Law of the Republic of Moldova No. 550/1995 on financial institutions.
LI: Law of the Republic of Moldova No. 149/2012 on insolvency.
LMR: Law of the Republic of Moldova No. 62/2008 on currency regulation.
CC: Civil Code of the Republic of Moldova (Law of the Republic of Moldova No. 1107/2002).

AIF: Alternative Investment Fund under the AIFMD
AIFMD: Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010
Brussels Regulation Recast: Regulation (EU) No 1215/2012 of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters
Investment Funds Act: Act of 27 May 2004 on investment funds and alternative investment fund managers (consolidated text: Journal of Laws of 2016, item 1896, as amended)
PIK interest: Pay in kind – interest

AIF: Alternative Investment Fund under the AIFMD
AIFMD: Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010
Brussels Regulation Recast: Regulation (EU) No 1215/2012 of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters
PIK interest: Pay in kind – interest

AIF: Alternative Investment Fund under the AIFMD
AIFMD: Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010
Brussels Regulation Recast: Regulation (EU) No 1215/2012 of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters
PIK interest: Pay in kind – interest

AIF: Alternative Investment Fund under the AIFMD
AIFMD: Directive 2011/61/EU of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010
Brussels Regulation Recast: Regulation (EU) No 1215/2012 of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters
PIK interest: Pay in kind – interest

PIK interest: Pay in kind – interest
Brussels Regulation Recast: Regulation (EU) No 1215/2012 of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters