The Central Bank of Ireland’s revised Code of Conduct (the “Code”) for Business Lending to Small and Medium Enterprises (“SMEs”) took effect on 1 January 2012. The Code replaces the 2009 Code of Conduct for Business Lending to SMEs and applies to all business lending by regulated entities. One of the principal aims of the Code is to ensure that Lenders assist Borrowers in meeting their obligations or in dealing with their obligations in an effective manner. To this end it sets out new requirements for Lenders when dealing with SMEs in or facing financial difficulties.
Financial Difficulties
- A Borrower is deemed to be in financial difficulties where
Its credit facility is in arrears for three consecutive months; or - For overdraft facilities, it exceeds the approved limit on the facility for 90 consecutive days and there has been no engagement by the Borrower
Lender’s Obligations
Under the Code the Lender is obliged to put policies and procedures in place for dealing with Borrowers in financial difficulties which:
- Set out the process which the Lender will apply when dealing with Borrowers in financial difficulties
- Allow for alternative repayment arrangements to be agreed with the Borrower; and
- Allow for a flexible approach for Borrowers in financial difficulties to be handled on a case by case basis
The Lender is further required to make an information booklet available containing:
- An explanation of the importance of the Borrower engaging with the Lender to address the financial difficulties
- Details of any fees or charges that may apply to the Borrower; and
- An outline of steps which the Borrower can take to assist in dealing with the financial difficulties.
Under the Code the Lender should also ensure that all communication with a Borrower in financial difficulties is proportionate and not excessive.
A full review of the operation of the Code is expected to be carried out during 2012.
