Corporate loan agreements are defined in the Georgian Civil Code through the bank credit contract, under which the grantor gives, or undertakes to give, the borrower a fee-bearing credit in the form of a loan. The law regulates its conditions in detail — the type of interest rate, termination notice periods, security and the currency of issuance — and structuring a corporate credit correctly depends on a precise command of these rules. Below we set out the rules that matter most in practice.
Fixed and Indexed Interest Rates
By agreement of the parties, either a fixed or an indexed interest rate may be set for the creditor. A fixed rate is fixed in the contract and remains unchanged throughout the contract's operation, or may change only upon specific circumstances provided for in it. An indexed rate is linked by a defined rule to a public index, and its changes are caused by changes in that index. At the conclusion of the credit agreement, the limits of increase and decrease of the fixed rate and the minimum interval between changes must be determined. The credit grantor must inform the borrower, in an acceptable form, of the interest rate for the credit. If the annual rate is not indicated, only the statutory annual interest applies, and costs not included in its calculation are not reimbursed.
Issuance Requirements and Currency Restriction
When a bank credit is issued, the requirements laid down in another article of the Code regarding the interest rate, penalties, financial costs and the imposition of any form of financial sanction must be observed — meaning bank credit also follows the general logic of the caps set for consumer loans. The currency rule stands separately: unless Georgian legislation provides otherwise, a bank credit of up to 200 000 GEL must be issued only in Georgian lari, except where, as a result of the issuance, the borrower's aggregate obligations to the same grantor exceed 200 000 GEL. A bank credit linked to or indexed by a foreign currency in any form is not considered a credit issued in lari.
Termination Notice Periods
The borrower's right of termination and its notice periods differ according to the type of rate and credit. If a fixed interest rate has been agreed for a definite period, the borrower may terminate the credit agreement where the interest obligation ends before the due date set for repayment and no new agreement on the rate has been concluded — in that case the termination notice period is one month. If the borrower is a consumer and the credit is not mortgage-secured, the right arises six months after the credit was taken, with a notice period of three months. After ten years have elapsed, the right of termination exists in any case, with a notice period of six months. For a loan taken at a variable rate, the debtor may terminate at any time by observing a three-month notice period. Each of these periods is counted from its own statutory moment, so the first step of any dispute analysis is to establish which of the four regimes applies to the credit at hand.
Security and Missed Instalments
If in-kind or personal security was agreed when the credit was issued, the grantor may, upon incomplete repayment of the loan, demand the application of additional security; at the borrower's request, the grantor must return security that exceeds the agreed coverage of repayment. Where repayment is by instalments, the grantor may terminate the credit relationship if the borrower has missed, consecutively, at least two due dates. The termination enters into force if payment is not made even after the expiry of an additional two-week period. In corporate credit disputes, strict observance of these conditions decides the lawfulness of the creditor's actions.
Frequently Asked Questions
The questions raised most often concern rates, termination periods and currency.
In which currency may a bank credit be issued?
A bank credit of up to 200 000 GEL must be issued only in lari, unless the borrower's aggregate obligations to the same grantor exceed that amount. A credit linked to a foreign currency is not considered as issued in lari.
What notice period applies to terminating a fixed-rate credit?
Where the fixed-rate period ends before the repayment date and no new agreement is concluded, the notice period is one month. For a consumer without a mortgage, the right arises six months after taking the credit and the notice period is three months.
When does the right of termination exist in any case?
After ten years have elapsed the right of termination exists in any case, and the notice period is then six months.
What happens when payments are missed?
Missing, consecutively, at least two due dates gives the grantor the right to terminate the credit relationship. Termination enters into force after the additional two-week period expires without payment.
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