Member Article

The outbreak of the Coronavirus (COVID-19) pandemic and the incidental measures adopted by the Mauritian government represent serious potential impact for financial institutions in general.

Below, we examine the recourses available to borrowers facing financial hardship as a result of the pandemic and its aftermath. We consider only credit facilities, that is, agreements by which financial institutions advance money to their clients for repayment either in instalments or at term.

MEASURES IMPLEMENTED FOLLOWING DECISION OF THE GOVERNMENT/THE REGULATOR

The Mauritian Government has announced several measures to alleviate the obligations of borrowers in response to the Pandemic. These include a selective payment moratorium and interest subsidy on home loans; and the provision of USD-denominated loan facilities for businesses. The primary aim of these measures are to alleviate affected households so that their disposable income may be used for more immediate needs, and to mitigate the foreseeable financial difficulties being faced by businesses, which would in turn contribute to keeping in check the credit-negative effects of the pandemic on banks’ asset quality and liquidity.

The Bank of Mauritius (“BoM”) has required that commercial banks grant a six-month moratorium on the capital repayments for:

• existing household loans to households impacted by the pandemic as from 1 April 2020, and
• existing loans of economic operators affected by the pandemic.
  
  

In addition, for households earning a combined basic monthly salary of up to MUR50 000, the BoM will bear the interest payable for the period 1 April 2020 to 30 June 2020 on their outstanding household loans with commercial banks.

The capital repayment moratorium and interest relief are not applicable to overdrafts, credit cards and other credit facilities.

RECOURSES AVAILABLE UNDER THE LAW

Given the limited scope of the measures implemented by the government and the BoM, we need to examine the legal recourses under are for borrowers who are not eligible for such measures because of the nature of their credit facility or because they fall outside the income bracket in respect of which interest relief is applicable.

The Borrower’s Protection Act

The Borrower’s Protection Act, 2007 (the “BPA”) regulates credit agreements granted by lending institutions for a sum not exceeding MUR3-million, provided that its repayment terms exceeds 12 months. It applies irrespective of whether the borrower is a natural or a legal person (company, société).

• Rescheduling of debt
  • The BPA provides for the possibility for a borrower to request the rescheduling of their debt if they are unable to meet their obligations under their credit agreement as a result of illness, injury, loss of employment, death of working spouse or other reasonable cause of hardship, which affects their capacity to repay the debt.
    
    
  • The term “hardship” is not defined under the BPA and we have not come across any definition of the term under Mauritian case law. Whether or not the effects of the COVID-19 amount to a hardship will depend on the individual circumstances of each case including the extent to which the pandemic has actually affected the repayment capacity of the borrower based on cogent evidence, for instance, loss of business/ employment following the lockdown; the lockdown being in itself a “reasonable cause of hardship”.
    
    
  • A request for rescheduling may result in the credit agreement being revised to provide for:
    • an extension of the repayment term accompanied by a reduction in the amount of each instalment due, or
    • a postponement for a specific period of the dates on which instalments are due; or
    • any other change in repayment terms as may be agreed by the lender and the borrower.
      
      
  • Agreement between the borrower and the lender
    • Once a request for the rescheduling of the debt has been received by the lender, the borrower and the lender may agree on the revised terms in a written document. The BPA specifically provides for two safeguards at this stage:
      • the agreement has to be on such terms so as to enable the borrower to reasonably discharge their obligation;
      • the terms must be fair and reasonable to both the borrower and the lender in all the circumstances.
    • Lenders should bear in mind that section 16 of the BPA allows them to provide for a contractual penalty by way of interest not exceeding 5% per annum where the borrower is in default of payment of one or more instalments in respect of a loan. In the event that the original credit facility does not include such penalty, lenders may consider introducing such penalty under the revised terms as an additional safeguard.
      
      
  • Absence of agreement between the borrower and the lender
    • Should there be no agreement between the borrower and the lender, then the borrower may apply to the Commissioner for the Protection of Borrowers for an order to reschedule the debt. When such an application is made, the Commissioner may, if he or she is satisfied that the application is justified, order reduction in the amount of each instalment due, or a postponement for a specific period of the dates on which instalments are due or any other change in repayment terms.
    • An application made to the Commissioner must, as far as possible, be determined within six months. A borrower is not entitled to apply for an order to reschedule their debt on more than two occasions. Any additional request will be considered by the Commissioner only in exceptional circumstances.
    • Where the Commissioner orders a rescheduling of a debt, the lender may, within 21 days of such order, apply to the Judge in Chambers for the order to be varied or revoked.
      
      

The Code Civil

• Debt restructuring through negotiations
  • For credit agreements falling outside the scope of the BPA, it is still possible for the borrower to approach the lender to negotiate a restructuring of their debt. Such a request is, however, not governed by any specific enactment; but is rather based on the contractual nature of the credit agreement, leaving it open to the contracting parties to agree to amend its terms. We would, nonetheless, advise lenders to take into account the safeguards provided for the BPA, ie, that the terms of such agreement be conducive to enable the borrower to repay their debt while being fair and reasonable to both parties.
    
    
• Application to the Judge in Chambers under Article 1244 of the Code Civil
  
  • In the event that the lender is not willing to negotiate a restructuring or if there is no agreement between the parties, the borrower may still apply to the Judge in Chambers under article 1244 of the Code Civil which provides that:
    
    «.Les juges peuvent néanmoins, en considération de la position du débiteur, et en usant de ce pouvoir avec une grand réserve, accorder des délais modérés pour le paiement, et surseoir l'exécution des poursuites, toutes choses demeurant en état »
    
    

• The power of the Judge in Chambers under Article 1244 of the Code Civil can be exercised only:
  • in relation to credit facilities governed by Mauritian law;
  • in a very restrained manner (“avec grande réserve");
  • to grant reasonable delays to the borrower for payment of their debt and to stay any pending proceedings for the enforcement of the underlying debt. It is not possible for the Judge in Chambers, under Article 1244 of the Code Civil, to reduce the amount of the debt, or to otherwise modify the terms of the credit facility.
    
    
• Article 1244 of the Code Civil is deemed to be d’ordre public, which means that parties to a credit facility, which is governed by Mauritian law or for which the natural law, in the absence of a choice of law, would be Mauritian law, cannot exclude the power of the Judge in Chambers under Article 1244 of the Code Civil.

• Avoiding liability for penalty fees by invoking force majeure
  • In addition, where a borrower is in default of their payment obligations under a credit agreement, they can seek to avoid liability for any penalty provided for late repayment under the credit agreement, if they can prove that the default is the result of a force majeure or a cas fortuit, under Article 1148 of the Code Civil, which provides that:
    
    « Il n'y a lieu à aucun dommages et intérêts lorsque, par suite d'une force majeure ou d'un cas fortuit, le débiteur a été empêché de donner ou de faire ce à quoi il était obligé, ou a fait ce qui lui était interdit. »
    
    

• If the pandemic or the incidental measures amount to a force majeure, by operation of Article 1148 of the Code Civil, Article 1148 of the Code Civil will operate to exclude the liability of the borrower to pay dommages et interets, including contractual penalties.
  
  

The Effects of the Pandemic on Credit Agreements

It is probable that the pandemic and/or the national lockdown imposed by the government, will have adverse effects on the borrower’s ability to repay their debt. We are of the view that it might well be open to borrowers to claim either hardship or force majeure as a justification for their inability to discharge their obligations under a credit agreement in these circumstances. Consequently, our advice to lenders would be to remain open to negotiation with respect to any request for varying the payment obligations of the borrower.

For an event to amount to a force majeure under Mauritian law, it must be irresistible, as well as unforeseeable, although irresistibility is often regarded as the main element and foreseeability is factored in when determining whether the event was irresistible. As far as contractual agreements are concerned, contracts, whether a particular event is unforeseeable, is appreciated at the time of the conclusion of the contract, and whether a particular event is irresistible is appreciated at the time of its execution (for a more in-depth analysis of what would constitute a force majeure, kindly contact us).

As such, whether or not the pandemic and the incidental measures adopted by the Mauritian Government amount to either hardship as provided for under the BPA or a force majeure have to be considered on a case-by-case basis, by assessing the impact thereof on each borrower and determining whether or not the borrower is in a position to deal with the consequences thereof.

COVID-19, also known as the Coronavirus, is an infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) that was declared a pandemic by the World Health Organization on 11 March 2020. The disease has since been reported in over 190 countries.