Romania
Romanian law regulates two main types of guarantees/security: personal guarantees and in rem security.
Personal guarantees
The most common ones are:
- suretyship (fideiusiune); and
- autonomous guarantees (which, in their turn, may take the form of:
- letters of guarantee; and
- letters of comfort).
In rem security
The most commonly available in rem security are (conventional) mortgages, which do not entail the dispossession of the security provider. Depending on the type of assets taken as security, mortgages can be either:
- movable mortgages – covering various tangible or intangible, present and future movable assets (by way of example, a movable mortgage may be created over bank accounts, shares, receivables, intellectual property rights, insurance policies rights, machinery, inventory, universalities of movable assets which are assigned to the activity of an enterprise etc); or
- immovable mortgages – covering immovable assets together with their accessories, superficies rights etc (the Romanian Civil Code expressly recognizes the possibility to create an immovable mortgage over future buildings).
Romanian law also regulates privileges, which are claims preferred by law and which have in principle the highest rank. Privileges can be either general (over all movable and immovable assets of the debtor) or special (eg the privilege of the seller's claim for the unpaid price of a movable asset sold to a natural person, save for the case when the buyer acquires the asset for the service or exploitation of an enterprise). There are special priority rules provided by the law with respect to privileges and mortgages.
Furthermore, quasi-security may also be used in practice, such as assignment of receivables for security purposes (cesiune de creanta in scop de garantie), retention of title (clauzele de rezerva a proprietatii). They are subject to the same priority and enforcement rules as those provided by law for mortgages.
Are there any restrictions on lending and borrowing?
Lending
Professional lending is a regulated activity, which may exclusively be undertaken by regulated entities. Depending on the type of loans being granted, various specific requirements or limitations should be considered.
By way of example, mortgage loans for real estate investments (credite ipotecare pentru investitii imobiliare) can be granted only by certain regulated entities (eg universal banks or mortgage loan banks). Moreover, the credit agreement for such type of loans must include certain information expressly required by law. There are also particular requirements on how to deal with borrowers that fall behind with their payments.
Specific rules are also provided under the law on consumer loans.
Borrowing
While borrowers are generally not regulated, it is advisable for borrowers to consider whether either the mortgage or consumer-lending regimes apply to their activities, in which case they will benefit from the protections mentioned above.
What are common lending structures?
Lending in Romania can be structured in a number of different ways, mainly depending on the complexity and the value of the transaction and, generally, the overall commercial needs of the parties.
A loan can either be provided on a bilateral basis (a single lender providing the entire facility) or syndicated basis (multiple lenders, each providing parts of the overall facility).
Syndicated facilities, by their nature, involve more parties (such as agents and security agents which fulfil certain roles for the finance parties), as well as more complex documentation. Larger financings will typically be done on a syndicated basis with one of the syndicates taking the lead in coordinating and arranging the financing.
Loans will be structured to achieve specific objectives, eg term loans, working capital loans, project loans, acquisition loans, real estate loans or letter of credit facilities.
Loan durations
The duration of a loan can also vary between:
- a term loan, provided for an agreed period of time but with a short availability period;
- a revolving loan, provided for an agreed period of time with an availability period that extends nearer to maturity of the loan and which may be redrawn if repaid;
- an overdraft, provided on a short-term basis to solve short-term cash flow issues; or
- a standby or a bridging loan, intended to be used in exceptional circumstances when other forms of finance are unavailable and often attracting a higher margin.
Loan security
A loan can be either secured or unsecured. For more information, see Giving and taking guarantees and security.
Loan commitment
In practice, a loan can also be:
- committed, meaning that the lender is obliged to provide the loan if certain conditions are fulfilled; or
- uncommitted, meaning that the lender has discretion whether or not to provide the loan (although in this case there may be certain legal issues to be considered).
What are the differences between lending to institutional / professional or other borrowers?
In principle, lending to institutional or professional borrowers is more flexible, while lending in the context of mortgages and to consumers is subject to more regulatory oversight and is more cumbersome from a compliance perspective.
For more information, see Lending and borrowing – restrictions.
Do the laws recognize the principles of agency and trusts?
The Romanian Civil Code expressly recognizes the possibility to create a movable mortgage in favor of a third party (agent) designated by the secured creditor. Such agent shall exercise all rights of the secured creditor which appointed it. This concept is, however, provided by law only in case of movable mortgages (immovable mortgages are therefore excluded). In practice, however, such an agency mechanism is not that frequently used, due to its limited regulation.
Furthermore, Romanian law does not recognize the common law concepts of ‘trusts’ and ‘trustee’. However, since October 2011, the Romanian Civil Code has introduced a concept similar to a trust, namely the ‘fiducia’. However, given the legal requirements related to the creation and registration of a fiducia (including tax related requirements), the fiducia is not commonly used in practice, particularly for taking security. Thus, in syndicated facilities security agents structures are commonly used.
Are there any other notable risks or issues around lending?
Romanian law prohibits a Romanian company from making, directly or indirectly, loans to its directors or officers, or to spouses, certain relatives or in laws of such directors or officers, or to any companies in which such a person is director or manager, or holds 20% or more of the share capital. Transactions may be invalidated for this reason and there may also be criminal sanctions.
Insolvency-related limitations should also be taken into consideration. By way of example, Romanian insolvency law prohibits the acceleration of loans due to reasons related to the opening of insolvency proceedings against the borrower.
As a general note, Romanian law governed loan agreements and other finance documents are subject to general contractual lending principles. Depending on the lending transaction's size and type, loan agreements used on the Romanian market are usually based on the bank's standard form documentation (particularly in the case of bilateral loans and small transactions) or Loan Market Association (LMA)-style facility agreements (eg for syndicated loans).
Are there any other notable risks or issues around borrowing?
Borrowing by Romanian residents from non-residents for a period exceeding one year is subject to notification to the National Bank of Romania for statistical purposes.
Ioan Chiper
Counsel
DLA Piper Dinu SCA
[email protected]
T +40372155875