Significant amendments have been made to the provisions of the Civil Code related to transactions, loan, and credit agreements
Pursuant to the Law of the Republic of Azerbaijan “On Amending the Civil Code of the Republic of Azerbaijan” No. 822-VIQD dated February 24, 2023, the following amendments have been made to the provisions of the Civil Code concerning transactions, loan, and credit agreements:
1) The scope of written transactions has been expanded. Herewith, the transactions concluded through the electronic or other technical means will also be deemed as written transactions.
2) The regulation regarding the inadmissibility of the compound interest rate has been removed from the Civil Code.
3) The separate provisions concerning the notion and regulation of loan and credit agreements have been defined and the regulation on the consumer credit agreements has been added to the Civil Code:
A. Amendments to the loan agreement
a) The notion of "the date of the loan" has been added to the Civil Code. Herewith, the day on which the borrower or the third party indicated by him having the right to dispose of the subject of the loan agreement shall be deemed the day on which the loan is issued.
b) Lending for the purpose of purchasing a share in the charter capital or depositing as a guarantee for the performance of a loan obligation is prohibited.
c) The procedure for determining and calculating the interest rate on the loan agreement has been defined:
- the lender has the right to receive interest rates from the borrower in the manner and amount stipulated in the contract;
- if the interest rates are provided for the loan and the corresponding amount is not specified in the contract, that amount is calculated by adding 2% rates to the bank interest rates determined by the Central Bank of the Republic of Azerbaijan;
- the interest rates, including the interest rates and other fees for the delay performance, are calculated only on the unpaid part of principal amount until the day the loan is repaid;
- interest rates and (or) fees on the loan agreement must be paid at the end of each year the agreement is in force, and if the loan must be repaid before the end of one year, the interest rates and (or) fees must be paid at the same time as the loan is repaid;
- lending money regularly to unlimited entities for the purpose of obtaining income can only be carried out by a person who has the right to carry out lending activities in accordance with normative legal acts.
d) The procedure for unilateral termination of borrowing and lending obligations is defined:
- the borrower can unilaterally refuse to receive the loan in whole or in part until the subject of the loan agreement is given to him;
- in case it is obvious that the loan will not be repaid on time due to a significant deterioration of the borrower's property situation or due to the provision of any wrong information to the lender by the borrower, or when the borrower does not fulfill the obligation provided for in the loan agreement, including if he does not provide guarantee, the lender shall terminate the loan obligation in full or in part.
e) The provisions on the repayment of the loan
- the borrower must repay the loan (including, interest rates and (or) fees) to the lender within the period and in the manner specified in the loan agreement;
- in case the term for loan repayment is not specified in the contract, the lender can demand loan repayment at any time. The borrower, who has received the lender's demand for the performance, must repay the loan within one month, including the interest rates and (or) fees, provided that a longer period is not provided by the agreement of the parties;
- Unless otherwise stipulated in the Civil Code, the borrower can repay the loan before the due date by also paying the interest rates and (or) fees calculated from the day the loan is issued to the day of repayment
B. Amendments to the credit agreement
a) The definition of the credit agreement is provided for in the new edition. Pursuant to the credit agreement, the lender undertakes to transfer ownership rights to the funds to the borrower in the amount and under the conditions specified in the agreement, and the borrower undertakes to return the received funds to the lender for the period specified in the agreement, subject to the payment of interest rates and (or) other payments specified in the agreement;
b) The lender under the credit agreement can only be a person who has the right to grant credits in accordance with normative legal acts;
c) The credit agreement is concluded between the parties in writing and a copy thereof is given to the borrower;
d) The actual annual interest rates on the credit agreement is calculated in accordance with the rules established by the Central Bank of the Republic of Azerbaijan;
e) Unless otherwise specified in the credit, interest rates for the delay in credit payments shall be charged by adding the bank interest rate determined the Central Bank of the Republic of Azerbaijan to the annual interest rate provided for in the credit agreement. In case the interest rate on the delay payment is applied within the limits specified in this regulation, no additional payment (fine, penalty) or any other form of payment can be requested;
f) The limitations period for the creditor's claims arising from the credit agreement is one year.
C. The regulations on the consumer credit agreement
a) Pursuant to the consumer credit agreement, the lender shall lend money to the borrower (consumer) for purposes not related to entrepreneurial or professional activity, and the consumer shall undertake to pay the credit, the interest rates and (or) other payments in accordance with the agreement;
b) The scope of credit agreements that do not apply to consumer credit agreements is defined;
c) The consumer credit agreement is concluded in written form. The requirements for conclusion of the consumer credit agreements in distance are also defined;
d) If the consumer credit agreement stipulates the interest rates due to delay payments, the amount of such interest rates cannot exceed the amount calculated by adding 5% rates to the annual interest rates stipulated in the consumer credit agreement. In this case, additional penalties, fine, commission or any other form of payment cannot be requested. The calculation of interest rates for delay performance cannot last more than 180 days. If the loss to the creditor is greater than the amount of the interest rates for delay performance, the creditor may require the consumer to compensate the loss in excess of that amount;
e) It is prohibited for the creditor to unilaterally change any term of the consumer credit agreement. This requirement does not apply to cases that improve the consumer's situation, including alleviating the credit burden.
