Romania
Giving or taking personal guarantees
Suretyship is fairly common in lending transactions in Romania. It is an agreement whereby the guarantor undertakes to the creditor to fulfil the obligations of the debtor (either on a free-of-charge basis or against a consideration) in case the latter fails to comply with such obligations. The suretyship cannot be presumed, it must be specifically undertaken by way of a written agreement concluded either as an authentic deed (in front of a notary public) or as a private deed or, in certain cases, even included in the facility agreements. There are specific legal conditions that need to be observed by the guarantor (eg to have and maintain sufficient assets in Romania to cover the secured liabilities, to be domiciled in Romania), however, these rules do not apply in case a certain provider of the suretyship was specifically requested by the creditor.
There are no registration formalities provided by the law for suretyships.
Giving or taking in rem security
Immovable mortgages are subject to certain formal requirements which render them valid and enforceable against third parties. Specifically, immovable mortgages can only be created through an agreement authenticated by a notary public, subject to payment of notarial fees. Immovable mortgages must be registered with the land book where the mortgaged real estate is registered, subject to payment of registration fees.
As concerns movable mortgages, they are validly created through movable mortgage agreements concluded either as private deeds or as authenticated deeds. The ranking of a movable mortgage is generally given by the registration with the so-called Electronic Archive for Movable Security (Arhiva Electronica de Garantii Reale Mobiliare). Such registration is valid for a five-year period and may be renewed before its expiry. Depending on the specific type of mortgaged assets, other registration formalities may apply (eg registration with the shareholders' registry in case of mortgages over shares, the creation of ‘control’ over the mortgaged bank accounts etc).
As a general requirement, a mortgage agreement (either movable or immovable) is not valid unless the amount for which the mortgage is created can reasonably be determined on the basis of the mortgage agreement. Also, under the sanction of nullity, the mortgage agreement must include a sufficiently precise description of the mortgaged asset, reasonably allowing its identification. The mortgaged assets may be described by drafting a list of the mortgaged movable assets, by determining the category to which they belong, by indicating their quantity, by providing a formula for their determination or by any other method which reasonably allows their identification. In the particular case of mortgages over bank accounts, for validity purposes the respective bank accounts must be expressly set out under the movable mortgage agreement.
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