On Wednesday 27 November, the Member States' ambassadors to the European Union (Coreper) reached political agreement in principle on the proposal for a directive introducing an accelerated out-of-court procedure for the recovery of collateral, in the form of movable and immovable property, when a loan to a company becomes non-performing.
This new mechanism, which will not apply to consumer loans or loans for which the borrower's principal residence is used as collateral, will require a prior agreement between a bank and a borrower, normally at the time the loan is granted.
In the event of default by the borrower, the real estate or movable property provided as security for the bank loan would be valued for sale or ownership of the property would be transferred to the creditor. Once the property is sold, the proceeds of the sale would be transferred to the creditor up to the amount of the outstanding balance.
According to a press release from the EU Council, the borrower will have the right to take legal action to challenge the recovery or the creditor's right to recover the guarantee. The creditor, on the other hand, will retain only what is necessary to cover the remaining amount of the loan, with the excess to be returned to the borrower or paid to other creditors.
Member States may decide that, where the proceeds of the guarantee are less than the outstanding amount of the loan, the loan shall nevertheless be considered fully paid.
Inter-institutional negotiations on this extra-judicial mechanism will start once Parliament has adopted its position.
"The proposal will contribute to completing the Banking Union by further advancing the major progress already achieved on risk reduction. It should also allow us to advance in parallel on risk sharing", said Financial Services Commissioner Valdis Dombrovskis.
At the beginning of December, the Eurogroup is invited to approve a new roadmap to restart work at political level on the completion of banking union in the euro area, in particular through the creation of a European Deposit Insurance Scheme (EDIS) (see EUROPE 12366/6).
The legislative proposal initially presented by the European Commission also included a section on the development of secondary markets for non-performing loans (see EUROPE 11981/13). Unlike the European Parliament (see EUROPE 12236/22, 12226/7), the EU Council has already adopted its position on this part of the text (see EUROPE 12223/20).
See the text of the agreement in the EU Council: http://bit.ly/2KZbDFX (Original version in French by Mathieu Bion)