Project Finance 2019 Second Edition

Last Updated November 04, 2019


Law and Practice


Suciu, Popa și Asociații Sparl is a top full-service Romanian law firm founded by a team of legal experts sharing a common professional ethos: commitment to provide value for clients through deep understanding of their legal needs, robust partner involvement and sound and innovative legal advice. Based in Bucharest, the 27-strong multilingual team draws on the strong reputation of its partners, built during 20 years of acting for major strategic investors and investment funds, local entrepreneurs and foreign corporations, public authorities and international financial corporations. Suciu Popa's key transactional practices are: banking and finance, capital markets, corporate and M&A, financial services regulatory, and investment funds.

During the last 12 months, significant financing projects have taken place in fields such as manufacturing, real estate, retail, agriculture, pharmaceuticals and technology. These days, banks in Romania are looking to expand their financing facilities for both small and medium-sized companies, while a number of significant lenders have already promoted their presence in the local start-up system. Also, international banks and multilateral development banks have been active alongside local banks.

However,  there are still gaps in the access to finance for micro, small and medium-sized companies, as well as for start-ups, with significant regional dissimilarities.

In this respect, a significant number of companies consider access to finance a pressing problem, the major obstacles being fiscal unpredictability, taxation and competition. Consequently, such companies choose to rely, to a large extent, on non-banking financing (ie, retained earnings, shareholder loans and trade credit).

In addition, there are significant dissimilarities in obtaining the access to finance within the country. To that end, major banks prefer to mainly focus on urban areas and on companies with a solid track record, able to provide a strong security package. Conversely, young companies rely more on informal financing and less on banking finance, as they lack a track record and strong balance sheets – a fact that raises certain problems in connection with the collateral and security package that they could provide.

In what concerns the regulatory framework, one of the most significant enactments in the banking field was Government Emergency Ordinance No 19/2019 (GEO 19/2019), enacted with the main purpose to mitigate the negative impact of former Government Emergency Ordinance No 114/2018 in respect to the fee on banking assets.

GEO 19/2019 provides for the effective reduction of the value of the fee, setting the value of the fee differently, depending on the market quota of each credit institution, enforces restraints on the base for calculation by deducting therefrom the non-performing assets and by excluding certain types of financial assets, as well as exemption from payment of the fee in certain cases. Also, the value of the fee effectively paid is limited to the value of the accounting profit registered by the credit institutions.

Recently, several proposals of laws regarding consumer protection in credit agreements have been submitted for debate within the Romanian Parliament.

In general, the project sponsors are the shareholders of the borrower, the shareholders being the main equity investors in the share capital of the borrower. They can also be guarantors of specific aspects of the project company’s performance. Sponsors may be also public entities acting, for example, in public-private partnerships.

In terms of financing activities, lenders may only be the entities licensed by the National Bank of Romania (NBR) for this purpose (ie, credit institutions and, within certain limits, non-banking financial institutions). In Romania, performing financing activities on a professional basis without holding the licence required by law constitutes a criminal offence.

International and multilateral development banks may also perform financing activities in Romania, as well as alternative lenders acting on the project finance market, such as private debt funds, business development companies, mezzanine funds, insurers, asset managers and finance companies.

Under Romanian law, the public-private partnership (PPP) is regulated by Government Emergency Ordinance No 39/2018 (GEO No 39/2018) on the public-private partnership, enacted as of May 2018. GEO No 39/2018 came into force following the failure to implement PPP projects under Law No 233/2016, the former legislative framework.

Some key aspects to be considered when envisaging initiating a PPP project are as follows.

  • The law does not designate a PPP authority. Thus, any contracting authority or a contracting entity under the public procurement legislation may perform PPP projects. In case of strategic projects, the PPP transactions shall be concluded by the National Commission for Strategy and Prognosis.
  • The allocation of risks between the private and the public party under the PPP mechanism is made based on the capacity of each contracting party to assess, manage and control a certain risk. By reference to such capacity, when drafting the substantiation study, the public party must identify the risk categories deriving from the implementation of the project, together with their quantification, and describe the risk allocation alternatives between the contracting parties. One risk considered of relevance, both for the private and public party, relates to the potential delay in obtaining the necessary permits for the performance of the PPP contract.
  • The PPP contract may be unilaterally amended by the public party with prior notification, provided that (i) this right is prescribed by the awarding documentation and the PPP contract, and (ii) the amendment does not alter the nature of the PPP contract. In cases where such amendment damages the private party, the law gives right to compensation.
  • GEO No 39/2018 does not regulate any restrictions for participation of foreign entities in PPP projects; thus, any legal entity or association of legal entities, including foreign entities, may participate in the procedure for the awarding of a PPP contract.

In respect of the effective implementation of PPP in Romania, several investments are currently undergoing the awarding procedures, among which it is worth mentioning in particular the award of a PPP contract for the achievement of the Târgu Neamţ – Iaşi Highway objective and also the award of a PPP contract for the achievement of the Multifunctional Clinic Dr Calistrat Grozovici Building A and Building B.

When structuring project financing, there are some key aspects that should be clearly addressed by the parties involved, such as the ownership structure of the borrower, the project structure, the risk structure and the financial structure.

For clarity purposes, the ownership structure refers to the corporate structure of the borrower, which, in most cases, is a special purpose vehicle (SPV). This may be organised, among other options, as a limited partnership, a trust, or a limited liability company. The SPV is a subsidiary established by a "parent company" in order to isolate the financial risk when undertaking risky projects, or to secure debts so that investors can be assured of repayment.

The project structure refers to the agreements defining the responsibilities and transfer of rights and/or ownership of the SPV. In practice, the different types of agreements are identified through various acronyms: (i) BOT (build, operate, and transfer); (ii) BOOT (build, own, operate and transfer); and (iii) BOO (build, operate and own).

The risks structure refers to identifying all project risks and their allocation between the parties. It should be noted that all financing involves risks, but the process of contractual risk allocation and granting the financing based on this are particular characteristics of project financing. However, any risk structure should be established only after conducting financial, technical and legal due diligence investigations on the risks involved and the manners in dealing with them.

Financial structure here refers to the financings used to fund a project, which may include a mix of equity, or money from the shareholders of the SPV, or debts in the form of bank loans. The loans are contracted directly by the SPV, with or without collateral security offered by the SPV’s shareholders.

As regard to the funding technicalities, Romanian companies have access to a broad range of facilities such as syndicated facilities, factoring agreements, cash pooling mechanisms, etc.

The syndicated facility is granted by more lenders, the syndicate, to one or more borrowers and is more common in developed or emerging markets. For this type of facility, the usual agency structure is used to appoint the facility agent/lead bank. For the appointment of the security agent, several structures are used, including:

  • the joint creditorship between lenders, enabling the lender, designated as security agent, to enforce all syndicate claims against the borrower and other obligors;
  • the agency structure, particularly recognised by the Romanian law for movable mortgage agreements, under which the security agent is appointed by the syndicate to act as proxy in relation to the guarantees and security interests; and
  • for foreign law-governed facility agreements, the parallel debt structure, under which the borrower and the other obligors undertake towards the security agent to make all payments due to all lenders. In this structure, even though the amounts are paid to the security agent, the lenders’ rights remain unaffected. The parallel debt structure creates only an additional obligation for the borrower, accessory to the primary debt obligation of repaying the loan to the lenders, to pay such amounts to the security agent which is the representative of the lenders. Further, after receiving the payments, the security agent must distribute the amounts to the syndication (ie, the lenders in respect of the primary debt obligation).

Factoring agreements are also becoming very popular in the project finance market. As the factoring agreement is not regulated by Romanian law, its legal regime shall be assessed by reference to similar mechanisms regulated by Romanian law, respectively, the assignment of a debt (“cesiune de creanta”), and subrogation in the rights of the creditor (“subrogarea in drepturile creditorului”).

Even if not commonly used as a financing method in Romania, one may note a certain interest for the cash-pooling mechanisms in case of group financings. Given that such mechanisms are not regulated under Romanian law, they must be carefully structured in order to comply with the legislation in force.

Under a cash-pooling mechanism, entities within a corporate group regularly transfer their surplus cash to a single bank account – usually held by the parent company or by a company incorporated for this purpose – and, in return, may extract funds to satisfy their own cash flow requirements when needed.

As such, the operation described above may be considered an intra-group loan, and, pursuant to the Romanian law, the granting of loans on a professional basis may only be performed by credit institutions or non-banking financial institutions. Even if the general approach is that intra-group loans are not considered to be a professional lending activity, any such activities are subject to the assessment of the NBR, the only authority entitled to determine whether or not cash-pooling may be considered a lending activity made on a professional basis.

Also, consideration must be given to the principle of corporate benefit and, as such, the directors of a company should ensure that entering into a cash-pooling agreement is in the company’s commercial interest. Therefore, the agreement should include provisions that allow companies to withdraw from the mechanism if the participation is no longer in the company’s interest.

Last but not least, a company can only perform those activities included in its scope of business. However, in practice it is debatable whether companies carrying out cash-pooling activities, and thus intra-group loans, are required to register lending activities in their business scope, as NBR generally considers that intra-group loans are not carried out on a professional basis.

Securities may be created over immovable assets, and also over movable assets such as machineries and equipment, receivables, shares, cash, intellectual property rights.

The mortgage over immovable property is created via a mortgage agreement that must be concluded in authentic form, whilst the mortgage over movable property does not require a specific form, a mortgage agreement executed in private format being sufficient.

For opposability purposes, the mortgage over the real estate has to be registered with (i) the land book (ie, local land public registry) where the mortgage real estate is located and (ii) in the case where movable assets are attached to the mortgaged real estate, the mortgage should be also registered with the National Register for Publicity in Movable Property (NRPMP).

For the time being, registration of the mortgage with the land book is made only for opposability purposes, but once all cadaster works for the Romanian territory are finalised, the registration of the mortgage with the land book will have a constitutive effect.

As already mentioned, in the case of movable assets, no specific form is required for the mortgage agreement. The mortgage over movable assets is registered with the NRPMP.

Securities over receivables are also created by way of movable mortgage agreements and may be subject to additional perfection formalities. As a general rule, they are registered with the NRPMP, but when, for example, the receivable relates to a real estate, the mortgage must be registered also with the land book of the respective real estate.

Securities over shares may be created in relation to a Romanian company shares by means of a movable mortgage agreement. Aside for the registration with the NRPMP, mortgages over shares must be registered also with (i) the company shareholders’ register, in case of companies of a closed type, or (ii) with the Romanian Central Securities Depository, in case of listed companies.

For securities over cash, the commonly used form is the movable mortgage over bank accounts. As a particularity in case of this type of mortgage, for the perfection thereof, the Civil Code provides for the possibility for the secured lender to gain control over the account in order to ensure its priority in case of a potential enforcement.

To that end, it is considered that the secured lender has control over the account when (i) the secured lender is the account bank, (ii) the secured lender becomes the bank account holder or co-holder and (iii) the borrower, the account bank and the secured lender agree that the account bank will comply with the instructions of the secured lender regarding any amounts in the mortgaged bank accounts without the consent of the borrower.

Intellectual property rights (eg, patents, trade marks, designs) may also be subject to movable mortgages. Such mortgages have to be registered with the Romanian State Office for Inventions and Trademarks.

Please note that performing the formalities for the registration of all types of mortgages with the public registries is essential, as such registration determines the mortgage ranking. The rank of a mortgage ensures priority to the creditors upon enforcement. Thus, if enforcement formalities are performed by several secured lenders, the one with the higher ranking shall be preferred (ie, the secured lender who performed the first registration).

The registration maintains its priority only for five years and should be renewed before its expiry date.

The Romanian Civil Code provides for the possibility of creating a mortgage over the universality of the borrowers’ assets (which may cover both the movable and immovable property). The mortgage on the universality of assets, present or future is allowed only in respect of the assets related to the activity of the company acting as borrower.

As particularities, the mortgage created on the universality encumbers the immovable property only from the moment of the mortgage registration with the land book in respect of each of the immovables. Also, in case of mortgages created on the universality of movable property, the assets description should include the content and nature of the mortgaged assets – a generic description (eg, "all movable property”, “all present and future movable property of the mortgagor") is not sufficient.

With regard to the registration formalities, the mortgages created on the universality of assets shall be registered with the NRPMP, the land book and the Romanian Trade Registry

Registering collateral security implies mainly the payment of fees to the NRPMP and to the relevant cadaster and public office for registration with the land book. Other fees may become applicable depending on whether the mortgage, by reference to its object, must be also registered in additional special registries.

According to Romanian legislation in force, the general rule is for each secured item to be individually identified in the security documents so as to grant a valid security interest.

As already mentioned, in case of universalities, the description should include the content and nature of the mortgaged assets, the generic description of the assets (eg, "all movable property” or “all present and future movable property of the mortgagor") is not sufficient. For the real estate included therein, the immovable mortgage becomes effective as of the moment of its registration with the land book in respect of each of the real estate.

When creating securities over the assets of a company, certain limitations deriving from the Romanian relevant legal provisions should be considered.

For example, financial assistance is prohibited in Romania. While the provisions of Law No 31/1990 on companies prohibits certain operations that could fall under the concept of financial assistance in case of joint stock companies, the doctrine and practitioners have stated that such prohibition should also apply to limited liability companies.

Also, considering that the main purpose of a company is to gain profit, a guarantor should have a certain corporate benefit in relation to any guarantee granted to support the liabilities of another party. One should note that there are no legal provisions regulating what constitutes a corporate benefit for a company. It has been stated that the assessment should be undertaken by the management of the guarantor on a standalone basis, but also by taking into account the entire transaction and the group relationship.

Another condition provided by the Civil Code would be for a guarantor to hold and maintain sufficient assets in Romania to cover the secured liabilities (not applicable in case where lender requests a specific person to act as guarantor).

For both movable mortgages and immovable mortgages, there are centrally recorded and searchable public registers, namely the NRPMP and the land book where the real estate is registered. Existence of mortgage may also be attested by the registrations with the Trade Registry where the company is headquartered.

The registration of the movable mortgages, any related amendments, as well as the operations assimilated to them, is performed with the NRPMP. Thus, by simply verifying the NRPMP, the secured lender may determine if there are any mortgages in relation with certain assets or granted by a certain company. Also, certain mortgages are also registered with the competent Trade Registry and, thus, existence thereof may be verified by obtaining a Trade Registry excerpt.

The status of mortgages in connection with a certain real estate may be verified via a land book excerpt. Any interested person may request, subject to payment of a fee, a land book excerpt for information purposes, for any real estate.

The release of the security interests is not a complicated process. The process implies the issuance by the secured lender of a statement on the discharge of liabilities, followed by the deregistration of the mortgages from the relevant publicity registries. In case of immovable mortgages, the statement requires notarised form.

Under Romanian law, the risk of non-payment and the fulfilment of the payment obligations under financing arrangements is secured by the debtor or by a third party either (i) by establishing guarantees, such as surety, guarantee letter and comfort, or (ii) by establishing real securities, such as real estate mortgage, movable mortgage, pledge.

The main effect of guarantees is the possibility of the creditor to pursue another person whose assets may eventually satisfy his claim in case of failure of the main debtor to perform its obligations, while the main effect of the real securities is the possibility of the creditor to pursue a certain individual asset in order to satisfy its receivable against the debtor.

Generally, the creditor may proceed to the enforcement of the collateral at the moment when the debtor is in default with its payment obligations. It is preferable for the parties to define in the agreement the meaning of "non-fulfilment of the obligation" and especially the situations when the main obligation becomes due (in addition to the non-performance of the main obligation at maturity, there may also be certain events – strictly defined in the contract – that will be assimilated to the breach of the obligation).

The validly concluded mortgage contract is an enforceable title by virtue of law. However, it can only be enforced with the prior approval of the court. The court may reject the request for approval of the enforcement only if the debt does not fulfil the conditions for enforcement – ie, is not certain, liquid and due.

Regarding the methods for enforcement of the guarantees/real securities, depending on the type of mortgaged assets, these may consist in selling the guaranteed asset, acquiring the guaranteed asset to extinguish the secured debt, or taking over the asset for administration purposes under the conditions provided by the Civil Code.

In connection with the mortgage over accounts, the main condition for its enforcement is for the mortgage to be perfected. Perfection of the mortgage may be achieved either by registration with the NRPMP (in the case that the enforcement procedure is done through garnishment, provided there is a certain, liquid and due receivable) or by the lender gaining the control over the account.

In light of the provisions of Article 3 paragraph 1 of Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I), establishing the principle of autonomy of will in the field of contractual obligations, the contract shall be governed by the law chosen by the parties. The wording is the enunciation of the fundamental rule of private international law – lex voluntatis. This means that, since a contract represents the will of the parties and is subject to it, the parties are free to choose also the law that is applicable to them.

By virtue of the same principle, the choice of law can be made for the whole contract or only for a part, following that the other part be governed by the system of law determined on the basis of the criteria of private international law. Also, within certain limitations, the parties may agree to change the law of the contract after its execution.

The choice of law shall be expressed or result, with a reasonable degree of certainty, from the contractual clauses or the circumstances of the case.

Regarding the submission to a foreign jurisdiction, Romanian law provides for mandatory rules regarding the legal regime applicable to assets. In this regard, claims having as object Romanian assets shall be settled by the Romanian courts.

Regarding the procedure for recognising foreign judgments, a distinction is made between foreign judgments rendered in non-EU member states and those rendered in EU member states. Also, different rules exist in the case of foreign arbitral decisions.

There is also a distinction between recognition by operation of law, which is the rule (for example, the court decision rendered in EU member states are recognised in other EU member state without the need for any special procedure) and the conditional recognition, where, in order to benefit from res judicata, the foreign judgments must fulfil certain cumulative conditions.

Firstly, regarding the effects of the foreign judgments, there must be reciprocity between the state of the court that rendered the decision and the Romanian State. Secondly, the court that rendered said decision had the competence to judge the claim, according to the law of the state in which the judgment was rendered. Thirdly, the judgment must be final in accordance with the law of the state where it was rendered.

Enforcement by foreign lenders of a loan or security agreement has to observe the conditions mentioned in 3.1 Enforcement of Collateral by Secured Lender.

As per Romanian law, foreign lenders are not restricted to granting loans to Romanian companies.

Romanian law provisions do not provide for special restrictions in connection with the granting of security or guarantees to foreign lenders.

The main legal enactments regulating the foreign investment regime in Romania is Government Emergency Ordinance No 92/1997 on foreign direct investments (GEO 92/1997).

Pursuant to GEO 92/1997, for the performance of investments in Romania, foreign investors benefit from several guarantees and facilities, such as:

  • the possibility to invest in any field and in any manner/form they desire;
  • equal treatment to local investors;
  • guarantees against expropriation, customs and fiscal facilities;
  • assistance in completing administrative formalities;
  • the right to convert the amounts in Romanian lei (RON) from their investment into the investment currency, as well as to transfer the currency to the country of origin;
  • the right to choose the competent judicial or arbitral courts for the settlement of any disputes;
  • the possibility to report the losses recorded during a financial year on the account of the taxable profit of the following financial years;
  • the possibility of using accelerated depreciation, deduction of the advertising expenses from the taxable profit;
  • the possibility of employing foreigners in accordance with the legal provisions in force.

GEO 92/1997 defines also the portfolio investments, as being the acquisition of securities on organised and regulated capital markets that do not allow direct participation in the management of the company. The legal framework applicable to portfolio investments is represented by Law No 297/2004 on capital markets and Law No 24/2017 on financial instruments issuers and market operations.

As notified on 25 March 1998, Romania accepted the obligations laid down in the Articles of Agreement of the International Monetary Fund (i) to remove all restrictions on current transactions, and (ii) to not regulate other restrictions in the future.

NBR Regulation No 4/2005, regarding the foreign exchange regime, provides for the rights of residents and non-residents with regard to the current and capital exchange transactions, thereby stating that both residents and non-residents may perform such transactions freely and without restrictions.

Nevertheless, Law No 129/2019 on the prevention and combating of anti-money laundering and terrorism as well as for amending and supplementing certain normative deeds provides reporting obligations for both suspicious and non-suspicious transactions.

The reporting entities have the obligation to report to the National Office for the Prevention and Control of Money Laundering (NOPCML) the transactions with cash amounts, in Romanian lei (RON) or in foreign currencies, whose minimum limit represents the RON equivalent of EUR10,000. If such transactions are carried out through credit or non-banking financial institutions, the reporting obligation shall be incumbent on said institution.

Also, credit or non-banking financial institutions shall submit online reports on the external transfers to and from accounts (defined as “cross-border transfers, as well as the payment and collection operations performed on the territory of Romania by a non-resident client”), in RON or in foreign currencies, whose minimum limit is the RON equivalent of EUR15,000.

Romanian banking regulations allow Romanian residents, such as Romanian project companies, to open and operate offshore accounts.

As a rule, no registrations or filings with government authorities are required to ensure the validity and enforceability of the financing or project agreements.

On another note, compliance with special local formalities may be required in certain situations. For example, Romanian law provides that any agreements creating, altering or transferring rights on immovables – including sale-purchase agreements or mortgage on immovables agreements – must be authenticated by notaries public for validity purposes and registered with the land book, for publicity purposes as well as for granting the priority rank in case of plurality of creditors and competing securities; see also 2.1 Assets Available as Collateral to Lenders.

Furthermore, certain registration or filing formalities may be required, on a case-by-case basis, but only for statistical, publicity or transparency purposes, depending on the specific type of financing or project agreement, including the situations detailed below.

In order to be able to determine the medium and long-term external foreign private debt of Romania, the NBR obliges Romanian residents to report to the NBR, for statistical purposes, any loans or credit facilities with a term exceeding one year and that is received from non-residents.

According to EU regulations applicable in the natural gas sector for transparency, market integrity and security of supply purposes and related regulations of the Romanian Energy Regulator, operators in the natural gas sector must file copies of the natural gas purchase agreements concluded with non-resident sellers.

Securities agreements (other than securities on immovables) must be registered with the NRPMP, both for publicity purposes and in order to grant the priority rank which will apply in case of plurality of creditors and competing securities.

As a rule, no special licences are required for the purpose of owning land or undertaking the business of ownership of land in Romania.

However, to perform business operations in Romania on a regular basis, including land-related business, investors would need to organise in a form recognised by Romanian law (such as authorised individuals, establishment of a local secondary office/branch, special purpose vehicle incorporated in Romania).

Furthermore, foreign citizens, stateless persons or non-resident legal entities outside the EU/EEA may acquire ownership title over lands located in Romania only in the conditions regulated by international treaties on the basis of reciprocity. Additionally, the purchase of extra muros agricultural lands located in Romania is subject to supplementary conditions, including special pre-emption rights granted to the Romanian government.

Moreover, according to the general principles enacted by the Romanian Constitution and by the Civil Code, natural resources, such as oil, natural gas, mineral deposits, mineral waters are subject to the Romanian state’s public ownership.

However, the Romanian state may award the right to Romanian and foreign entities to explore, extract and commercialise natural resources for their own benefit, via the issuance of licences for exploration and operation or sector-specific agreements (eg, concession agreements for exploration, operation and development of oil perimeters, gas supply licences, etc, applicable in the oil and gas sector) and subject to payment of royalties and other special taxes and contributions by the licensed entities, on a case-by-case basis, depending on the specific sector of activity.

As a rule, foreign entities may be titleholders of licences issued in the natural resources sector. However, certain requirements for a local presence may be incident in certain cases. For example, foreign entities holding electricity or natural gas supply licences are requested to open and maintain a local secondary office/branch in Romania.

The concept of "agent" is recognised in Romania; the agency contract is regulated by the Romania Civil Code, implementing the general EU framework legislation (ie, Commercial Agents Directive) aiming at co-ordinating the regulation of self-employed commercial agents in EU.

Legally, the agent is defined as an independent intermediary who acts on a professional basis and who cannot be a subordinate of the principal.

Furthermore, the agency contract is defined as the contract via which the principal grants a continuing authority to the agent to negotiate or, respectively, to negotiate and conclude transactions, on behalf and in the name of the principal, in exchange for a remuneration, in one or more determined regions.

The concept of "trust" (“fiducie”) has existed in Romania since 2011, via enactment of a new Civil Code, and finds its source of inspiration in the corresponding French Civil Code provisions.

As per the Civil Code, the fiducie is the legal operation whereby one or more grantors (“constituitori”) transfer rights in rem, receivables, guarantees or other patrimonial rights or a combination of such rights, either present or future, to one or more trustees (“fiduciari”) who exercise such rights for a specific purpose, for the benefit of one or more beneficiaries (“beneficiari”). These rights shall form an autonomous patrimonial mass, distinct from other rights and obligations of the trustees’ patrimonies.

It is noteworthy that certain essential differences exist, however, between the Romanian fiducie and the concept of trust regulated in common law jurisdictions.

As such, the Romanian law provides an express prohibition, forbidding, under the sanction of absolute nullity, to constitute, via the fiducie contract, indirect donations (“liberalități indirecte”) in the beneficiary’s favour.

Furthermore, only credit institutions, investment companies, investment management companies, financial investment services companies, insurance-reinsurance companies, notaries public and attorneys-at-law may become trustees in fiducie contracts.

Certain additional particularities may also be of interest, such as the obligation to register the fiducie contract with tax authorities, subject to absolute nullity sanctions or the obligation to register the fiducie contract with the NRPMP or with the land book, as the case may be, for publicity purposes.

The priority rank of competing securities created under Romanian laws is granted by the date of their registration with the NRPMP (for securities on movables) or with the land Book (for immovables). Additionally, the registration of securities with these registries ensure also their publicity towards third parties.

Additionally, in case of securities on bank accounts, the opposability of the mortgage on accounts may be achieved (aside from registration with the NRPMP) via the creditor gaining control over the secured accounts.

In view of the above and given that the mortgage of a creditor controlling the bank accounts is legally preferred over the mortgage of a creditor not having such control, as a matter of practice, creditors prefer to implement both opposability methods mentioned above in connection with securities on bank accounts.

Priority cannot be contractually varied under Romanian law and consequently, contractual parties do not include contractual subordination clauses in contract governed by Romanian law.

Contractual subordination provisions cannot override the subordination created via registration with public registries and, moreover, do not survive the insolvency of a borrower incorporated in Romania.

Project companies are not required to be organised under Romanian law. However, for practical reasons, foreign investors should ensure that, at least, a local secondary office/branch is set up in case of developing a project in Romania.

However, as a matter of market practice, investors incorporate usually Romanian special purpose vehicles (SPVs) and use them as project companies for projects developed in Romania. This practice allows investors to mitigate liability risks related to possible claims being raised in connection with the project. Moreover, the use of Romanian SPVs (as opposed to non-EU/EEA companies) facilitates the purchase of land in Romania.

The most commonly legal form for project companies is the limited liability company (LLC), given that the incorporation of an LLC is a straightforward and cost-effective procedure; LLC’s minimum share capital amounts to approximately EUR45 and the incorporation is usually finalised in three to five days from submitting the complete file with the trade registry.

The judicial reorganisation represents a specific procedure applied to insolvent legal entities in view to enable them to recover their business while also facilitating the payment of their debts, in compliance with a schedule for payment of receivables.

The Romanian Insolvency Law allows insolvent entities to implement company reorganisation procedures subject to certain conditions.

As such, legal entities which benefited from a reorganisation procedure in the five years prior to the commencement of a new insolvency procedure, cannot benefit from a new reorganisation procedure.

The reorganisation procedure involves the set-up, approval, implementation and observance of a reorganisation plan, which may provide, without limitation:

  • the operational and/or financial restructuring of the debtor;
  • the corporate restructuring via changing the share capital’s structure; and
  • reducing the activities via partial or total liquidation of the debtor’s assets.

Chronologically, after the insolvency proceedings are initiated against a debtor, an observation period starts, during which a reorganisation plan may be proposed by any of the debtor, the judicial administrator or creditors holding at least 20% of the receivables’ value.

Following the confirmation of the reorganisation plan by the meeting of creditors, the debtor may continue to carry out activities in compliance with the confirmed plan and under the supervision of a judicial administrator, until the syndic judge will rule on either (i) the closure of the insolvency proceedings and the taking of measures for reinserting the debtor in the usual business environment, or (ii) the termination of the reorganisation phase and initiation of bankruptcy proceedings.

During the reorganisation, the debtor is managed by a special administrator supervised by the judicial administrator and the shareholders are not entitled to take part in the management of the company, express if expressly allowed by law or the reorganisation plan.

A reorganisation plan may last a maximum of four years (including subsequent extensions).

From the date of commencement of the insolvency proceedings, creditors (including credit institutions) may enforce their rights exclusively within the insolvency proceedings, subject to submitting requests for admission of their receivables in the procedure.

The commencement of the insolvency proceedings suspends, as a rule, all judiciary and extra-judiciary actions or enforcement/foreclosure actions aimed at realising the receivables towards the debtor’s patrimony.

Additionally, after commencement of insolvency proceedings, no interests, penalties or other accessories will accrue with regard to receivables arising prior to the insolvency, except for secured receivables, which are recorded in the final table of receivables up to the value of the security interest, as such value is appraised by a certified appraiser.

In case of publicly traded companies, following the commencement of the insolvency proceedings, the company’s stock is suspended from trading until the confirmation of the reorganisation plan. Following commencement of bankruptcy proceedings against the relevant entity, the company’s stock is withdrawn from trading.

Consequently, starting with the commencement of insolvency proceedings, lenders can no longer enforce their loans or any security or guarantee, otherwise than in the context of the insolvency proceedings.

The funds obtained from selling the debtor’s assets and interests in the bankruptcy procedure, and which are subject to guarantees in favour of secured creditors, will be distributed in the following order:

  • first – payment of taxes, stamps and other expenses related to the sale of the assets, as well as expenses made by the secured creditor within enforcement proceedings, of receivables of utilities suppliers arising following the commencement of the procedure, of the remuneration owed to persons employed in the interest of all creditors on distribution date;
  • second – payment of receivables of secured creditors having guarantees created during the insolvency proceedings;
  • third – payment of receivables of other secured creditors.

In case of competing creditors having securities over the same assets, the rank of priority is granted by the date of registration of their securities with the competent publicity registries.

If the amounts obtained from the sale of the assets do not cover the entire secured receivables, for the unpaid balance, creditors will hold an unsecured (chirographer) receivable which will compete in its corresponding category of the receivables mentioned below.

Without prejudicing the secured creditors’ rights, above, in case of bankruptcy, receivables will be paid in the following order of priority:

  • first – taxes, stamps and any other expenses related to the liquidation procedure;
  • second – receivables related to financings granted to the debtor during the observation period;
  • third – receivables related to employment relationships;
  • fourth – receivables resulting from the debtor’s activity pursued after commencement of insolvency proceedings, receivables towards contracting parties in connection with unilateral termination of agreements and receivables owed to third-party acquirers or sub-acquirers in good faith who return to the debtor’s patrimony the goods or their countervalue;
  • fifth – receivables towards the state budget;
  • sixth – receivables toward third parties, based on alimony obligations, child alimonies or regular payment of sums for ensuring the living means;
  • seventh – receivables representing sums established by the syndic judge for ensuring the living means of the debtor and his/her family, when the debtor is an individual;
  • eighth – receivables representing bank loans, with relate expenses and interests, receivables related to deliveries of goods, supplies of services and goods, rent-related receivables, leasing related receivables;
  • ninth – other unsecured (chirographer) receivables;
  • tenth – subordinated receivables, such as shareholder loans related receivables.

Titleholders of a receivable in a category will receive amounts only after the titleholders of receivables from superior categories are fully reimbursed, in the order mentioned above.

Furthermore, amounts distributed between creditors having the same priority rank, will be distributed pro rata with the value allocated for each receivable in the table of receivables.

Lenders may incur various risks following commencement of insolvency, as per the below.

All judiciary and extra-judiciary actions or forced execution measures aimed at realising the receivables against the debtor’s patrimony are suspended automatically from the date of commencement of the insolvency proceedings.

Further to such proceedings, all receivables may be realised only within the insolvency process, which represent a collective procedure, where decisions are taken collectively, by a committee of creditors and subject also to court approval. As such, a lender’s interest may not be best served at all times by the decisions taken by the creditors’ committee or by the syndic judge.

Additionally, all ongoing contracts, including the financing or project agreements entered by the debtor are deemed maintained upon commencement of the insolvency procedure.

Under the law, any contractual clauses providing the automatic termination of ongoing agreements, forfeiture of the benefit of the payment term or the anticipated maturity of obligations due to commencement of insolvency are deemed null and void.

Irrespective of the above, in order to maximise the value of the debtor’s estate, within three months from the commencement of insolvency proceedings, the judicial administrator/liquidator may terminate any agreement, ongoing leases or other long-term agreements, in case such agreements have not been performed in full or substantially by all contractual parties.

Furthermore, the Romanian insolvency laws provide for a two-year hardening period prior to the opening of the insolvency proceedings in relation with which it entitles judicial administrators to file actions and request the annulment of fraudulent actions or acts executed against the debtor’s interests, the insolvency law providing also a list of deeds or actions which are automatically presumed as being fraudulent.

Additionally, revocatory actions may also be filed with regard to deeds concluded, within the two-year hardening period, with significant shareholders, directors or other persons controlling the debtor or with the debtor’s spouse or relatives, as the case may be.

The above revocatory actions may also be filed by: (i) the creditors’ committee, if the judicial administrator/liquidator fails to submit them; or (ii) a creditor holding more than 50% of the receivables registered with the debtor’s statement of affairs.

The general insolvency law applies in Romania to professionals, namely to individuals or legal entities carrying out systematically operations consisting in the production, management and marketing of goods or the provision of services.

By means of exemption to the above, the general insolvency law does not apply to liberal professions, such as notaries, lawyers, doctors, dentists or accountants.

Additionally, in order to mitigate systemic risks which may affect the financial system in case of bankruptcy of financial institutions, as well as for safeguarding its stability, certain financial entities – such as credit institutions, investment firms, insurance-reinsurance companies – are governed by special recovery, resolution and insolvency laws, which implement in Romania the EU directives and other legal enactments aiming at introducing a harmonised framework for recovery, resolution and insolvency regarding such entities.

No particular restriction, controls, fees and/or taxes apply with regard to insurance policies over project assets provided or guaranteed by insurance companies.

Insurance policies over project assets are payable to foreign investors under Romanian law.

The reimbursement of principal to lender is not subject to withholding tax in Romania, since no gain is generated in this case by the lender.

As a rule, under the Romanian Fiscal Code, income realised by non-residents in connection with interests paid from Romania is subject to a 16% rate withholding tax. The withholding tax is computed and withheld upon payment of the taxable income and is declared and paid to the state budget on or before the 25th day of the month following the month when the income is realised.

However, if the lender is resident in a state having concluded a double tax treaty with Romania, the applicable tax rate cannot exceed the tax rate provided in the double tax treaty.

Moreover, if the lender is resident in an EU member state having concluded a double tax treaty with Romania, the applicable tax rate cannot exceed the most favourable rate between the tax rate provided in the Romanian legislation, the EU legislation and, respectively, the applicable double tax treaty.

When lenders granting loans to Romanian entities implement foreclosure and enforcement proceedings against the secured assets in view to realise their receivables (eg, via forced sale of assets in public tenders), the income realised following the sale of asset is subject to the standard taxation regime applicable in Romania, depending on the nature of the relevant assets (eg, shares, immovables, movables, etc), unless the more favourable provisions of existing double tax treaties will apply.

Usury activities (“camataria”) are prohibited by the Romanian Criminal Code, according to which the activity of granting loans systematically by unauthorised persons constitutes a criminal offence and may be punished with up to five years' imprisonment sanctions.

Additionally, Romania laws provide also maximum caps for interests that can be charged on loans in case of contractual relationships between professionals and, respectively, between non-professionals, as the case may be.

It is noteworthy, however, that these usury laws do not apply to loans granted by credit institutions or non-banking financial institutions.

In case of relationships between professionals, the interests that can be charged on a loan cannot exceed by more than eight percentage points the reference interest rate of the NBR.

Furthermore, in case of contractual relationships between professionals which do not provide the level of interest charged on a loan, the statutory legal interest will become applicable, which amounts to: (i) the reference interest rate of the NBR or (ii) 6%, in case of cross-border contracts governed by Romanian law and stipulating payment obligations in Romanian currency.

No standard rules apply in principle with regard to the law governing project agreements in connection with projects located in Romania – subject, however, to certain exemptions.

Project agreements dealing with the creation or transfer of rights over immovables located in Romania will be governed by Romanian law, given that such agreements must be authenticated by Romanian notaries public for validity purposes.

Moreover, certain project agreements shall be governed by Romanian law due to mandatory regulatory requirements. As such, in case of projects in the oil and gas sector, oil concession agreements for the exploration, operation and development of oil perimeters are based on the standard template used by the Romanian Agency for Mineral Resources and must be governed by Romanian law.

Similar, bilateral power purchase contracts concluded on the Romanian centralised power exchange (which could form part of the project agreements) must comply with the standard templates endorsed by the Romanian Energy Regulator and the operator of the power exchange, and must be governed by Romanian law.

Where such regulatory requirements are absent, project agreements are usually governed by English law, this being usually the jurisdiction preferred by the lenders granting the project financing.

Financing agreements are usually governed by English law, this being usually the jurisdiction preferred by the lenders providing the project financing.

Furthermore, security agreements regarding immovables will be governed by Romanian law, given that these agreements must be authenticated by Romanian notaries public for validity purposes.

As a rule, project agreements dealing with the creation of transfer of rights over immovables located in Romania and, respectively, security agreements regarding immovables will be governed by Romanian law, given that these agreements must be authenticated by Romanian notaries public for validity purposes

Furthermore, agreements for security on shares issued by Romanian companies or on movable assets located in Romania are also usually governed by Romanian law, as this facilitates the enforcement proceedings of the relevant securities in case of debtor’s default. Also, the enforcement proceedings regarding securities on assets located in Romania must be governed by Romanian law, irrespective of whether the relevant agreements provide otherwise.

Additionally, certain matters are typically governed by Romanian law, based on overriding Romanian mandatory provisions. For example, the Romanian debtor’s insolvency is governed by the Romanian insolvency law, irrespective of the clauses of the project agreements.

Moreover, where the performance of a project agreement will take place in Romania, depending upon the particular type of contract, Romanian mandatory overriding laws will be applicable to the full array of matters and deliverables related to specific performance (eg, permits to be obtained, taxes, EHS laws and standards, obtaining access rights over the land, handling of confidential or classified data as per law, employment/expatriate work, constructions quality, mandatory guarantee periods, data protection rules, etc).

Suciu Popa

15 B/C Mareșal Alexandru Averescu Blvd.
6th Floor 1st District

+40 374 494 944

+40 374 094 490
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Law and Practice


Suciu, Popa și Asociații Sparl is a top full-service Romanian law firm founded by a team of legal experts sharing a common professional ethos: commitment to provide value for clients through deep understanding of their legal needs, robust partner involvement and sound and innovative legal advice. Based in Bucharest, the 27-strong multilingual team draws on the strong reputation of its partners, built during 20 years of acting for major strategic investors and investment funds, local entrepreneurs and foreign corporations, public authorities and international financial corporations. Suciu Popa's key transactional practices are: banking and finance, capital markets, corporate and M&A, financial services regulatory, and investment funds.

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