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Dealing with Financial Difficulties

Code of Conduct for Business Lending to SMEs

Dealing with Financial Difficulties

The Central Bank of Ireland’s revised Code of Conduct for Business Lending to Small and Medium Enterprises (SME Code) became effective from 1 January 2012. The revisions deal mainly with how banks deal with SMEs in financial difficulties only.

The revised Code introduced a number of new provisions that aim to assist borrowers and lenders to address financial difficulties. The Central Bank emphasizes that each SME needs to be considered on a case by case basis and that it is important for SMEs at risk of going into arrears to contact their lender to inform them of the difficulties and engage with the lender to try and address the situation.

The Code sets put the procedures that lenders should follow when dealing with SMEs in financial difficulties, including:

A lender must provide SMEs with an information booklet setting out the procedure for dealing with financial difficulties cases and the implications for the SME and make the booklet available on its website.
A lender must provide the SME with a list of the information required in order to assess the SME for a possible repayment arrangement.
A lender must respond to the SME in relation to its decision on a repayment arrangement within 15 business days of having received all the necessary information.
A lender must inform an SME of its right to appeal the lender’s decision on the repayment arrangement. A lender must respond to an appeal within 15 business days of receiving the appeal from the SME.
Where an SME is concerned about meeting repayments and approaches the lender, a lender must offer the SME an immediate review meeting to discuss their circumstances and assess the potential for the SME to be offered an alternative repayment arrangement.

The code is available on the Central Bank’s website here.

Further Information

Department of Jobs, Enterprise and Innovation
Managing Out of the Crisis

Glossary

Financial difficulties:

According to the Central Bank of Ireland, a borrower must be classified as in financial difficulties where:
(a) the credit facility of a borrower is in arrears for three consecutive months;
(b) in the case of an overdraft credit facility, where the approved limit on the facility is exceeded by the borrower and remains exceeded for 90 consecutive days and there has been no engagement with the borrower

Arrears:

Arrears arise where a borrower has not made a full repayment, or only makes a partial repayment on a credit facility, as per the terms of the credit facility, by the scheduled date.