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New interest rate law: restrictions on default interest rates and unilateral increases

The Liberalisation of the Interest Rate and Related Matters (Amendment) Law of 2014 (141(I)/2014) was published in the official gazette and came into effect on 9/9/2014. This legislation is an amendment to the Liberalisation of the Interest Rate and Related Matters Law of 1999 (160(I)/99), which had lifted many of the then applicable restrictions on interest rates charged by banks and other credit institutions in connection with credit facilities.

As explicitly provided in the 2014 legislation, its purpose is to protect the rights of debtors by prohibiting the unilateral increase of margin interest rates and by promoting transparency in interest rate calculations.

The new legislation imposes two important interest rate related restrictions on banks and other credit institutions, namely:

  1. The additional interest credit institutions can impose on arrears (default interest) can no longer exceed a maximum of two percentage points. In the event that the default interest exceeds the agreed interest rate by more than two percentage points, the credit institution must demonstrate that the default interest rate represents its actual loss. If it fails to do so, the relevant clause will be deemed invalid.
  2. A clause in a credit facility agreement which confers the right to unilaterally increase the margin interest rate on the credit institution is no longer effective.

The law also provides for greater transparency in connection with interest rate calculations.

It should be noted that the new law is applicable to:

  • both credit facility agreements currently in effect and agreements which are concluded subsequent to its enactment; and
  • business and consumer agreements.

These changes constitute a significant change in this area of the law as banks and other credit institutions had, since the enactment of the 1999 law, enjoyed considerable freedom in this respect.

New Cyprus merger control legislation

A new Cyprus merger control legislation came into effect on 20/6/2014. This is the Control of Concentrations Between Undertakings Law of 2014 (83(I)/2014) (hereinafter “the Law”), which replaces the 1999 merger control legislation that was previously in effect.

Some of the main changes effected by the Law are the following:

  1. Jurisdictional thresholds: Not only has there been a minor quantitative increase in the relevant thresholds (from €3.417.200 to €3,500,000) it is now a jurisdictional requirement for at least two of the participating undertakings to generate turnover in the Republic of Cyprus. Under the previous regime, it was enough if only one such undertaking generated turnover in Cyprus. The scope of the Law was therefore restricted, presumably to exclude transactions with no real overlap as far as the Cyprus market is concerned.
  2. Timing: The requirement of the previous legislation to notify within one week from the date of conclusion of the relevant agreement has been replaced with a requirement to notify at any point after conclusion but prior to completion. Furthermore, a notification may now be made even before the conclusion of the relevant agreement where the undertakings concerned demonstrate a good faith intention to conclude an agreement. In light of this new provision, the notifying parties now enjoy greater flexibility in connection with the timing of the notification.
  3. Assessment: A wider test has been introduced for the purposes of assessing a concentration. The previous test of whether the concentration in question creates or strengths a dominant position in the relevant market(s) has been replaced with the wider question of whether the concentration may significantly affect competition in the said market(s).
  4. Fees: While the previous legislation did not provide for a submission fee, a €1000 fee has been introduced. A further fee of €6000 is also applicable in the event of a full investigation of the transaction.

The changes effected by the Law are expected to help in modernising the Cyprus merger control regime, which was up to now largely based on the 1989 merger control regulation (Council Regulation (EEC) No 4064/89), and in bringing it more in line with the current European framework (Council Regulation (EC) No 139/2004 and relevant jurisprudence). Indeed they address a number of problems that the parties and their lawyers faced under the previous regime.