Romania: Relaxed regulations

Author: | Published: 1 Oct 2009
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The past year has brought a number of interesting changes to the Romanian financial markets. The financial crisis which started in the summer of 2007 echoed in Romania, determining a substantial refocusing of the law and of its application.

As in other jurisdictions, the Romanian authorities passed new legislation and legal practitioners developed new strategies to better respond to the changing economic environment and to restore confidence in the system.

Whether these measures will restore the confidence in the financial and legal system remains to be seen. It is however certain that more care needs to be taken to preserve and exercise legal rights, given the increased likelihood of a subsequent challenge in the current economic climate.

Insolvency

Recent legislative changes are to be noted in the field of insolvency. The amendments appear to be more caring for the defaulting debtor, more encouraging of restructurings rather than simple liquidations, and more inclined to decrease the powers of the judge supervising the procedure in favour of the creditors or the liquidator or the bankruptcy manager.

It is now more difficult to initiate insolvency. The amount of debt which allows one to file for insolvency has tripled, increasing from €2400 to €7200. This means that whenever debts are less than €7200, insolvency is no longer a solution and the parties will have to negotiate or make recourse to standard litigation.

Fewer approvals from the judge supervising the insolvency procedures are now required. Shares held in the insolvent debtor by its directors can now be transferred by the latter without approval by the judge supervising the insolvency procedure. Initially, the absence of the approval triggered the nullity of the transfer.

Insolvency is no longer a termination event and cherry picking powers have been increased. It is now expressly provided that any clause establishing the termination of an agreement on the grounds that an insolvency has been initiated is null and void. As market practice shows, almost all contracts include insolvency-related termination events; this provision will fuel substantial litigation. However, qualified financial contracts (such as transactions under the ISDA master agreements) may not be subject to such provisions.

Creditors may now improve their ranking within the insolvency distribution procedure with a registered security agreement. Assuming that there is a security agreement dating prior to the opening of the insolvency procedure, its registration with the competent registries will most likely allow the respective creditor to outrank other unsecured creditors.

The court has now a maximum five day term to rule on claims regarding the opening of an insolvency procedure.

And a clearer regime for certain presale contracts has been introduced. Presale contracts having a date which is prior to the opening of the insolvency procedure where the insolvent debtor is a promissory seller will be performed upon request by the promissory buyer if: (1) the price has been fully paid or it can be fully paid on the date that the request is made and the asset is in the promissory buyer's possession; (2) the price is not lower than the market value of the asset; and (3) the asset is not determinant for the success of a reorganisation plan.

Capital markets

Measures have also been taken in the field of capital markets with a view to ensuring the maximisation of trades and the offering of incentives to investors.

The National Securities Commission has agreed to decrease fees applicable to public sale offers, as well as to trades on the Bucharest Stock Exchange. Furthermore, certain per value fees applicable to trades with treasury bills, as well as for admittance to trading on a regulated market, have been suspended.

The exchange and the Romanian Central Depository have also invested in opening the capital markets to new products. Starting from July 2009, specific over the counter transactions have been implemented. The financial instruments currently available for settlement are: (i) international financial instruments admitted to trading at least on a regulated market, including the regulated market managed by the Bucharest Stock Exchange; and (ii) Romanian financial instruments with fixed income, including treasury bills admitted to trading on the regulated market managed by the Bucharest Stock Exchange.

Credit institutions

The National Bank of Romania and governmental authorities focused on increasing the liquidity on the market and restoring confidence in lending. Measures such as those below have been taken.

  • The monetary policy interest rate has been gradually reduced to 8.5% from 10% in February 2009.
  • The minimum mandatory reserves rates that have to be kept by the credit institutions in accounts opened with the National Bank of Romania have been reduced. The current values of the minimum mandatory reserves rates have been diminished from 18% to 15% for Romanian lei and from 40% to 30% for foreign currency.
  • The Romanian state agreed to guarantee loans less than €60,000 for the purposes of acquiring homes, under very favourable lending terms, i.e. Euribor 3M plus a margin of maximum 4% per year for loans in euros and Robor 3M plus a margin of maximum 2.5% per year for credits in Romanian lei.

The VAT rate applicable for these transactions was decreased to 5% as opposed to the standard 19% rate.

Public projects

The Ministry of Public Finances and the National Authority for the Regulation and Monitoring of the Public Procurement have provided supplementary guidance with respect to the public-private partnerships, jointly adopting guidelines on the implementation of public-private partnerships via contractual frameworks in compliance with the public procurement legislation.

The issuance of promissory notes by the Romanian public entities through their accounts opened with the State Treasury is now no longer possible. Whereas the rule is public entities must open accounts only with the State Treasury, this measure will substantially limit the possibility of financing via discounting promissory notes.

Changes are expected as well in the field of budgetary expenses. New laws are being prepared to ensure a unique grid of salaries of all budgetary employees and to allow a more efficient restructuring of the Romanian governmental agencies.

Tax wise, it is expected that reinvested profit will no longer be taxed starting from October 1 2009.

About the author

Razvan Stoicescu is a managing associate at Bulboaca & Asociatii.

Before joining Bulboaca & Asociatii, Razvan was an associate with the banking and finance and corporate practice of one of the top Romanian law firms, as well as an associate with the banking practice of the Bucharest office of a magic-circle law firm.

His legal experience covers both financial services and capital markets, as well as banking and finance. Razvan continuously provides advice to both international and local financial and credit institutions with respect to derivatives, to financings (both through classical structures or through the capital markets) and related security taking, to banking and capital markets regulatory issues as well as mergers and acquisitions.

Razvan is fluent in English and French.
Contact information

Razvan Stoicescu
Bulboaca & Asociatii

Bucharest City Centre, 4th floor
17 C.A. Rosetti Street, District 2
020011 Bucharest,
Romania
Tel: +40 21 408 8903
Fax: +40  21 408 8911
Web: www.bulboaca.com

About the author

Silviu Cojocaru is an associate at Bulboaca & Asociatii and a member of the Romanian Bar Association. He has experience in banking and capital markets transactions, as well as corporate matters. Silviu is fluent in English and French.
Contact information

Silviu Cojocaru
Bulboaca & Asociatii

Bucharest City Centre, 4th floor
17 C.A. Rosetti Street, District 2
020011 Bucharest,
Romania
Tel: +40 21 408 8914
Fax: +40  21 408 8911
Web: www.bulboaca.com