Issue of insolvency framework in Cyprus remains unresolved

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During a meeting with international lenders and political parties and Troika last week failed to reach a consensus regarding the issue of guarantors to bad loans, which makes up part of the fifth and final bill of the proposed laws known as the insolvency framework
During a meeting with international lenders and political parties and Troika last week failed to reach a consensus regarding the issue of guarantors to bad loans, which makes up part of the fifth and final bill of the proposed laws known as the insolvency framework. According to the Cyprus News Agency (CNA), troika proposed loan restructuring where the secured loan amount will be a liability on the principal debtor, the rest being the responsibility of the guarantors.

Court orders authorising a loan restructure would normally apply for the secured amount of the debt only, with the guarantors obliged to settle the remaining amount. For example, if the total loan comes to €100,000 but the value of the security amounts to €80,000, the bank would reissue the loan for €80,000, with the remaining €20,000 considered unsecured and to be paid by the guarantors. Banks would also have the right to chase guarantors for unsecured debt of principal debtors, such as credit cards and overdrafts. The arrangement would remain the same for bankruptcies; in that the bank would receive the secured amount, and then approach guarantors for the residual amount.

Troika argued that a bank cannot be entitled to less than it would be if properties used as collateral were to be excluded and sold. Party officials disagreed, arguing that the loan amount comprises not only the principal interest rate, but also often includes overcharges. They maintained that banks ought to share this cost. However politicians claimed that the vast majority of borrowers were in a bad financial situation, a concept which was rejected by Troika.