Basic Decision No. 12116 of 26/10/2015 on Debt Restructuring

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We send you attached a copy of Basic Decision No. 12116 dated 26/10/2015 concerning Debt Restructuring.

Beirut, on 26 October 2015 Governor of the Central Bank of Lebanon Riad T. Salamé

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Basic Decision No. 12116 Debt Restructuring

The Governor of the Central Bank of Lebanon, Based on the Monetary and Banking Law, particularly Articles 174, 182, and 70 thereof, And based on Basic Decision No. 7705 dated 26/10/2000 concerning the Central Bureau for Banking Risks system, And based on Basic Decision No. 7159 dated 10/11/1998 concerning the classification of debt risks, And after consulting both the Lebanese Banks Association and the Association of Financial Institutions in Lebanon, And based on the decision of the Central Council of the Central Bank of Lebanon taken at its session held on 9/9/2015,

Decides as follows:

Article 1: For the purpose of applying the provisions of this Decision, debts eligible for restructuring are those classified under the provisions of Basic Decision No. 7159 dated 10/11/1998 into one of the following categories:

• "Under Surveillance and Settlement".
• "Doubtful".
• "Bad".

Excluded from the loans referred to in this Article are loans subject to Article 152 of the Monetary and Banking Law and loans benefiting from state interest support for the debtor and non-performing loans (Doubtful debts, Bad debts, and Bad debts) covered by the preferential loan granted by the Central Bank of Lebanon to the absorbing bank.

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Article 2: To benefit from the provisions of this Decision, the debts of defaulting natural or legal persons may be restructured by agreement between the debtor and the creditor banks and financial institutions.

In the event of multiple creditor banks and financial institutions, the following assets and mechanism shall be adopted:

• 1. For restructuring, at least 60% of the total banking debt of the debtor client must be held by, and at least two-thirds of the number of creditor banks and financial institutions must agree.
• 2. The creditor holding the largest percentage of the debt manages and supervises the restructuring process and is hereinafter referred to as the "Manager", unless otherwise agreed upon between him and the other creditors.
• 3. The "Manager" determines a detailed preliminary concept for addressing the client's situation, including preparing a new repayment program, based on the latter's cash flows, after:
  • Studying the client's financial data (balance sheet, income statement, cash flows...).
  • Reviewing the total facilities granted to him by the creditor banks and financial institutions and by other creditors.
  • Identifying the weaknesses that led to the deterioration of the client's financial situation and how to address these weaknesses.
• 4. The "Manager" notifies all creditor banks and financial institutions and the Banking Control Commission of his commencement of negotiations with the debtor to restructure the financial situation and of the commitment of the banks and financial institutions, upon approval for this negotiation, to refrain from taking any new legal actions against the debtor during the negotiation period.
• 5. All banks and financial institutions participate in the negotiation to present a final concept for restructuring or rescheduling within a period of three months, extendable for an additional three months with the approval of all banks and financial institutions participating in the negotiation.
• 6. Without prejudice to the rights of the creditor banks and financial institutions approving the restructuring, the latter must refrain from taking any individual actions to strengthen their guarantees during the restructuring phase or to take any judicial or executive actions that harm the restructuring agreed upon with the debtor, provided he complies with it.
• 7. Restructuring does not bind any non-approving creditors.

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Article 3: If settlement requires the payment of non-banking financial burdens, whether debts or taxes, these burdens shall be distributed among the participating banks and financial institutions in the restructuring, each according to its share of the total debt, and these burdens shall be included in the new rescheduling process proposed.

Article 4: The banks and financial institutions participating in the restructuring, or some of them, may grant new loans to reactivate the debtor's economic activity, with the approval of all these banks and financial institutions, provided the viability of the additional financing is demonstrated. These new loans shall be included in the restructuring process. The concerned banks and financial institutions must notify the Central Bank of Lebanon and the Banking Control Commission of these new loans.

Article 5: The restructured debts may be settled or reduced by the value of real estate, shares, and partnership shares owned by the debtor, in accordance with Article 154 of the Monetary and Banking Law, subject to the approval of the Banking Control Commission. Upon the proposal of the Banking Control Commission, the Central Council, based on its approval, shall establish a "Real Estate Liquidation Reserve" or a "Shares and Partnership Shares Liquidation Reserve" annually for a period of twenty years at a rate of (1/20) of the unliquidated shares or partnership shares owned for the debts referred to in this Article.

Article 6: The classification of the restructured debts of the client, classified as Doubtful or Bad, shall be upgraded to the "Under Surveillance and Settlement" category, subject to obtaining the approval of the Banking Control Commission. The restructured debts shall be disclosed outside the balance sheet under the heading "Restructured Debts". Banks and financial institutions are prohibited from distributing profits realized from provisions resulting from restructured debts and must allocate them to increase own funds, after the bank or financial institution has made the required provisions for all debts to the Banking Control Commission.

1 Article amended by Article 1 of Intermediary Decision No. 12738 dated 21/12/2017 (Intermediary Circular No. 479).

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Article 7: If the settlement contract between the creditor banks and financial institutions and the client includes either of the following:

• Exempting the debtor from part of the debt while retaining the right to claim this part if the debtor fails to comply with the repayment program,
• Exempting the debtor from part of the debt after committing to repay according to the agreed program, The following measures shall be taken:

1. The part of the debt from which the client is finally exempted under the settlement contract, if he complies with the full repayment program, shall be included in the "Bad Debts Fully Provided for Transferred to Off-Balance Sheet Accounts according to Assets" heading outside the balance sheet and shall not be reported to the Central Bureau for Banking Risks.
2. The part of the debt referred to in item (1) of this Article shall be written off if the repayment program is complied with, or shall be re-included in the "Doubtful or Bad Client Debts" heading inside the balance sheet in case of non-payment, and thus shall be reported to the Central Bureau for Banking Risks.

Article 8: The concerned bank or financial institution may request administrative modifications, including a change in the management of the institution whose debts are being settled, or request the appointment of a specific member on the Board of Directors or a financial manager until the debt subject to settlement is paid. It may also request the appointment of a second supervisory commissioner or the change of the appointed supervisory commissioner, provided that applicable laws are respected. In the event of multiple creditors, the "Manager" shall request these modifications with the approval of the banks and financial institutions participating in the restructuring.

Article 9: The settlement may include the total or partial liquidation of the institution or the injection of funds to revive its activity.

1 Article 10:

1 Article repealed by Article 2 of Intermediary Decision No. 12738 dated 21/12/2017 (Intermediary Circular No. 479).

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1 Article 11:

Banks and financial institutions benefiting from the provisions of Article 5 above must obtain the approval of the Central Council, based on the proposal of the Banking Control Commission, for any modification in the restructuring of their clients' loans carried out in accordance with the provisions of this Decision.

Article 12: The supervisory commissioners of the concerned banks or financial institutions shall verify the correct implementation of the provisions of this Decision and report to the Governor of the Central Bank of Lebanon and the President of the Banking Control Commission any violation of its provisions.

Article 13: The Banking Control Commission shall monitor the correct implementation of the provisions of this Decision and report any violation of these provisions to the Governor of the Central Bank of Lebanon immediately.

Article 14: This Decision shall take effect upon its issuance.

Article 15: This Decision shall be published in the Official Gazette.

Beirut, on 26 October 2015 Governor of the Central Bank of Lebanon Riad T. Salamé

(Page 1127 repealed)

1 Article amended by Article 3 of Intermediary Decision No. 12738 dated 21/12/2017 (Intermediary Circular No. 479).