Romania's ruling Social Democratic Party (Partidul Social Democrat) ("PSD") survived a Parliamentary no confidence vote on 18 June 2019. The challenge was brought by centrist opposition groups after the graft conviction of prominent PSD politician Liviu Dragnea in the Romanian courts on 27 May 2019. Dragnea had earlier been barred from taking the position of prime minister due to a previous conviction of vote rigging. Reuters also reports that he is facing a separate investigation on suspicion of forming a criminal group to siphon funds from state projects.

This follows an ultimatum delivered by the European Union (the "EU") in May 2019 demanding a reversal of law changes introduced by the PSD that risk creating "de factor impunity" for official corruption. These include introducing measures to undermine the independence of the courts as well as moves to reduce the statute of limitations. The EU warned Bucharest to take this final chance to undo these changes before facing a disciplinary probe (akin to those commenced against Poland and Hungary) which carry the threat of sanctions. This followed repeated warnings by European Council President Donald Tusk that the PSD was reversing decades of democratic reforms. Following a meeting with Romanian Prime Minister Viorica Dăncilă, Tusk remarked “[m]aybe I’m old fashioned but I still believe that it’s for judges, not politicians to decide who’s guilty and who’s innocent” in what was widely seen as a direct shot at the proposed changes in the law.

The PSD's support has fallen recently, which Reuter's suggests "show[s] popular discontent over its erosion of the judiciary". April 2019 polls show support of around 22 per cent (down from 30 per cent at the start of 2019) compared to 45 per cent when it won the 2016 election. This was highlighted in the European Parliamentary elections on 26 May 2019, where it was defeated by the opposition centrist groupings. The PSD received 23 per cent of the vote (down from 37 per cent in the 2014 elections) compared to the 27 per cent obtained by the National Liberal Party and the 21.4 per cent that Alliance 2020 achieved. Furthermore,  a    non-binding referendum was also called by Romania's centrist President, Klaus Iohannis, on 26 May 2019 to prevent the government (led by PSD) from using emergency decrees to further amend legislation and grant pardons and amnesty from graft convictions, which 80 per cent of voters supported.

The European Commission (the "EC"), in its spring report, suggests that strong growth in Romania's economy is set to decelerate in 2019. Romania saw GDP growth of 4.1 per cent last year with predictions of an increase to around 4.75 per cent in 2020. The debt-to-GDP ratio is also projected to rise from 35 per cent in 2018 to 38.4 per cent in 2020.

Deloitte announced the completion in December 2018 of Romania's largest direct lending deal, with EUR 164m raised by international lenders (including VTB Bank Europe SE, Frankfurt and The Special Investment Unit of Credit Suisse AG, Zurich). These funds were utilised to fully debt fund the acquisition of certain assets of Oltchim SA ("Oltchim") by Chimcomplex S.A. Borzesti ("Chimcomplex"). This deal was announced at the start of 2018 following Chimcomplex's victory in an auction for certain assets of Oltchim, Romania's state chemical company, which entered insolvency proceedings in 2013.

This month's Trade Alert considers key legal risks for traders in the Romanian loan market.


We appreciate the assistance of Silviu Stratulat and Costin Teodorovici of Stratulat Albulescu with the following discussion of Romanian law, regulation and practice.


The Romanian legal system is a civil law legal system. Legislative power is vested in the Romanian Parliament (Parlamentul României) made up of two houses: the Chamber of Deputies (Camera Deputaților), and the Senate (Senat). Executive power vests mainly in the hands of the Government (Guvernul României) made up of various ministers, alongside the President of Romania, currently Klaus Iohannis. As a civil law system, the Romanian Judiciary has no power to create law by precedent, but Romanian courts will often follow established practice.

Romanian law is structured hierarchically. The Constitution, brought into force in 1991 and revised in 2003, is Romania's supreme law regulating the relations between the governing institutions and its citizens.  All other forms of Romanian law must

comply with the Constitution. Next in rank are statutes and codes made by Parliament, which in turn rank above administrative decisions of the Government. Under certain circumstances however, the Government is delegated the power to enact legislation ranking similar to statutes and codes made by Parliament via ordinances and emergency ordinances. These ordinances come into effect without prior scrutiny by the Parliament (though they may ultimately be overturned). A substantial body of the Romanian legislation is made up of these Government ordinances. The other major source of law in Romania is EU law following Romania's accession to full membership of the European Union on 1 January 2007.


  • Banking licence required for professional lending activity. Purchase of performing loans is a professional lending activity but non-performing loans can be purchased without a licence where activity is limited to recovering the amount due.
  • Assignment of receivables is the most common method where the loan being transferred has no outstanding commitments. Novation or assignment of contract is used where the loan has outstanding commitments.
  • Notification to the borrower of assignment of receivables is required whereas both novation and assignment of contract require borrower consent (which consent, in the case of assignment of contract, is effective if provided either in advance or contemporaneously, provided the assignee or class of assignees is defined).
  • 16 per cent withholding tax on interest payments to parties not permanently established in Romania subject to the relevant double tax treaty benefits.


Professional lending is a regulated activity in Romania. A variety of criteria are used to determine whether a business activity amounts to professional lending, including the percentage of total revenues made up by lending activities and their frequency. This decision is made by the National Bank of Romania (“NBR”), the competent regulatory body.

The NBR makes a distinction between two main types of lender: credit institutions (“Banks”) and non-banking financial institutions (instituție financiară nebancară) (“IFNs). Banks need a full banking licence to conduct business and may carry out a full  range  of  banking  operations,  including  taking  customer

deposits. IFNs can only carry out lending activities and must register on the IFN Register. In practice this is a licensing process in all but name and subjects IFNs to prudential rules and reporting obligations. Financial institutions authorised in other EEA states may conduct lending activity in Romania on the basis of European passporting rights subject to the relevant home regulators of such foreign institution’s must notify the NBR of the institution’s intention to commence activity, either on a purely cross-border basis or by setting up a local branch. Entities from non-EEA states must set up a local presence and go through the applicable licensing process in Romania in order to carry out lending activities.

How the NBR regulates the transfer of loans differs depending on the form of the loan:

  • Performing loans: only Banks and IFNs can purchase these as they amount to a professional lending activity which requires a licence.
  • Non-performing consumer loans: in addition to banks and IFNs, regulated debt recovery firms (registered with the Consumer Protection Authority) are able to purchase these loans.
  • Non-performing B2B loans: Can be purchased by non-licenced/non-regulated entities but the purchasing entity is limited to the recovery of amounts due. These purchasers cannot participate in any restructuring activity as the NBR considers that this could lead to the loan becoming a performing loan, bringing the purchaser into professional lending activity regime.


There is no regulatory distinction between term loans and revolving loans.


Assignment of receivables is the recommended method to transfer debt in respect of both performing loans (where no further funding is required) and non-performing loans. Borrower’s consent does not need to be obtained for a transfer to a third party unless required under the credit agreement. To be enforceable against the borrower however, they must be provided with notice of the assignment.

Though not a requirement, unless the borrower is being cooperative in respect of the notice, it is considered good practice to deliver the notice through an official court bailiff.

The traditional means of transfer in Romania where there are outstanding commitments on the loan is novation. Borrower consent is required and unless specifically agreed otherwise,

novation will extinguish any security or guarantee in relation to the transferred loan. Consent obtained in advance (e.g. at the time of entering into the original loan) is generally deemed invalid. Parties can mitigate the risk of security being inadvertently released by expressly stating that any security interests are maintained on transfer.

Assignment of contract is a relatively new method of transfer in Romania, though it is increasingly used in respect of the transfer of loans with outstanding commitments. In practice, assignment of contract is similar to novation as both methods require borrower consent, however, in contrast to novation, borrower consent can be obtained in advance providing the assignee (or class of assignees) is defined.


Romanian law does not recognise the trust concept, nor does it have any of the equivalents often found in other civil law jurisdictions. Despite this, market participants do still occasionally utilise trustees to hold Romanian law security subject to qualifications contained in legal opinions on the danger of potential rejection of the trust by Romanian courts. There is no clear authority from the Romanian courts in respect of this.

Use of a security agent is common in respect of movable security. In practice, the security agent is merely a proxy of the secured creditors entitled to execute, hold, register and enforce security in its own name on behalf of the creditors.

Where a loan is secured with immovable security, it is market practice for all creditors to execute the mortgage, however, they may execute by way of a security agent acting under a notarised and certified power of attorney.


Entities that do not have a permanent establishment in Romania are subject to a 16 per cent withholding tax on any interest paid to them under a loan. This withholding tax also applies to any proceeds in respect of enforcement of security or claims under a guarantee (if such proceeds qualify as business profits). Both may be reduced if there is a relevant double tax treaty.

No stamp duty is applicable to the transfer of loans in Romania.


Where the underlying debt is secured with immovable

mortgages, any transfer agreement must be notarised. This is to allow for  the  relevant  security  registrations  at the  Land  Book

Office to be updated. Notarisation attracts a fee of 0.3 per cent of the value transferred. This is usually calculated based on the nominal value of the receivables transferred but in the case of non-performing loans it is calculated based on market value of the receivables or the actual transfer price.

To be enforceable against third parties (other than, as mentioned above, the borrower for which notice, preferably by official court bailiff is recommended), an assignment of receivables secured by movable security should be registered at the National Security Register at a cost of approximately EUR 30 per registration.



On 10 June 2019, the LMA provided a response to HM Treasury relating to the transposition of the Fifth Money Laundering Directive (the "MLD 5") consultation into UK law.

The LMA's main concern centres on what it sees as the potential detrimental impact on the syndicated loan market of the beneficial ownership of trust provisions contained in Article 31 of MLD 5. This article requires the disclosure of information on the beneficial ownership of all express trusts, regardless of whether they have taxable consequences (as the legislation is currently drafted). The LMA highlights the vast number of trusts under English law compared to other European jurisdictions and also the fact that trust concepts are widely used in both secured loans (with security trustees prevalently used) as well as in non-secured loans (in provisions such as guarantees). The LMA suggests that as well as being onerous, huge investment would be required in systems, processes and manpower to enable security trustees to provide daily updates of changes to beneficiary registers. Furthermore, as loan agreements are private contracts, disclosure of the existence of a trust within the structure could result in commercially confidential information being made public.

The LMA, from a practical standpoint, also informed HM Treasury that as MLD 5 does not include any "grandfathering" provisions, then all trusts (both existing and new) will need to be registered within a fairly short space of time.

Please click here to view the full response submitted by the LMA.


Please contact Iden Asl, Hannah Geddes or Tobias Plowman with any queries regarding this month's Trade Alert.

Iden Asl

Partner, London

Tel: +44.207.851.6029



Hannah Geddes

Associate, London

Tel: +44.207.851.6178



Tobias Plowman

Trainee, London

Tel: +44.207.851.6168




A Saudi Gazette article has referenced a deadline of 25 August 2019 for submitting claims against Ahmad Hamad Al Gosaibi and Brothers (“AHAB”) to Bader Hatem Yusuf Al-Taminimi, the Trustee of AHAB's Financial Restructuring Procedures according to the ruling of the commercial court in Dammam in case No. (3174) of 1440H. The announcement of the Trustee on the Bankruptcy Commission's website can be found here.

Please contact Louisa Watt or Iden Asl if you have any queries regarding the AHAB claims process.



The Directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures

(2016/0359(COD)) (the "Restructuring Directive") was adopted by the EC on 6 June 2019. Member States will have 2 years (from the publication date in the Official Journal) to implement the Restructuring Directive. Given the uncertainty surrounding Brexit, it is unclear at this stage in what form the Directive may or may not be implemented in the UK.

The purpose of the Restructuring Directive is to harmonise the restructuring and insolvency regimes across the EU Member States to "reduce the most significant barriers to the free flow of capital" stemming from existing differences whilst providing a minimum standard to be implemented. Furthermore, the Restructuring Directive also aims to make insolvency procedures more efficient by reducing costs as well as the timeframe for implementation.

Some key provisions in the Restructuring Directive are as follows:

  • early warning and access to information to enable debtors to assess if insolvency is likely and provide opportunity for action to be taken;
  • preventive restructuring frameworks available to debtors that are in financial difficulty and likely to fall into insolvency to facilitate restructurings to prevent insolvencies. In certain circumstances, the appointment of an insolvency practitioner may be possible, or even mandatory, to assist parties in negotiating and drafting the restructuring plan;
  • new rules that dictate requirements of restructuring plans, including a description

    of the economic situation, the affected parties, their class and the terms of the plan;

    • stay of individual enforcement actions for either all types of claims (including secured and preferential claims) or limited to certain creditors or claims for an initial period of 4 months (that can be extended in certain circumstances to up to 12 months) to facilitate negotiations; and
    • access to at least one procedure for over-indebted entrepreneurs to allow for a full discharge of debt over a maximum period of 3 years (subject to the requirements of the Restructuring Directive).

    The full Restructuring Directive is available here.

    Please contact Ben Klinger or Didier Bruère-Dawson if you have any questions regarding the Restructuring Directive.




Casino announced plans on 27 June 2019 to simplify its complex Latin American structure which will result in  Casino  controlling its entire   Latin  American activities

through its 41.4 per cent holding in Companhia Brasileira de Distribuicao (“GPA”). Casino’s shares traded 4 per cent higher on the news. Regis Schultze, a key executive and rumoured to be in line as the next CEO of Casino, resigned as Chairman of Monoprix SA on 25 June 2019 amid the group's ongoing financial trouble. This follows the 12 June 2019 sale of Casino’s 36 per cent stake in Via Vajero SA, the Brazilian electrical goods retailer held via GPA for over EUR 500m.

Casino's parent, Rallye, surprised market analysts by entering into French procédure de sauvegarde (a French form of bankruptcy protection) on 23 May 2019, allowing it to freeze debt of EUR 3.2bn. Shares in both Casino and Rallye were suspended from trading earlier that day following a 41 per cent fall in value since March 2019 which put pressure on Rallye’s ability to service its debt.

CEO of the group, Jean-Charles Naouri, warned that those betting against the group do so "at their risk and peril" and Casino stated that it has EUR 5bn in available liquidity in the French market, including confirmed credit lines of EUR 2.9bn.

Short sellers of Casino’s shares received a nasty surprise when shares in the company surged on the announcement that Rallye would go into procédure de sauvegarde. Close to 40 per cent of the freely available shares in Casino were held by short sellers earlier in June. To compound the bad news, many of those shorting Casino shares also sold credit default swaps (“CDS”) as a hedge against their short position. The CDS auction settlement date

for the auction held on 27 June 2019 is 2 July 2019 and the physical settlement date is 27 August 2019.


On 12 June 2019, creditors voted in favour of Arcadia's company voluntary arrangement ("CVA") and prevented it from entering administration. This is part of the high street retailer group's restructuring plan that will see the closure of 23 stores and rent reductions of up to 70 per cent for 194 of the remaining stores.

Sir Philip Green, Arcadia's chairman, made certain concessions to creditors which won the support of several that previously forced the postponement of a vote on the CVA scheduled for 5 June 2019. Sir Philip Green, alongside his wife Lady Tina Green (the ultimate owner of Arcadia) have personally pledged to provide GBP 30m over three years to landlords affected by the rent reductions as part of the CVA. The practical impact is that landlords who agree to the full 70 per cent reduction will effectively see a 50 per cent cut, whilst those taking a 30 per cent cut will have this reduced to 25 per cent.

Separately, an agreement was reached between Arcadia and the UK Pension's Regulator, another major creditor, after Lady Green pledged to inject GBP 100m into the Arcadia pension scheme as part of a GBP 285m package to reduce the pension scheme's deficit.


Monsoon, the UK  fashion  retailer, is seeking creditor approval for its CVA proposal at a meeting on 3 July 2019.

The struggling retailer blamed the removal of trade credit insurance for causing a GBP 20m cash shortfall, causing "significant pressure" on working capital. Under the proposed CVA, Monsoon is seeking rent cuts of up to 65 per cent at 135 of its 258 stores with a further 36 to move to zero rent after six months. The leases on these 36 stores could then be terminated on 60 days' notice by either party.

Peter Simon, the retailer's founder and owner, will lend Monsoon GBP 18m in addition to the GBP 12m interest-free loan he has already provided. He has further committed to reducing the rent on the company's Notting Hill headquarters which he owns through another company.


The deadline for bids for British Steel's assets was delayed until  30 June 2019. British Steel's Official Receiver (appointed by the High Court on 22 May 2019 as liquidator of British Steel) pushed this deadline back from 12 June 2019. This comes amid news that Greybull Capital ("Greybull"), the former owner of British Steel, plans to bid for the company's non-UK assets (particularly those in France and the Netherlands which are not in liquidation). This is a blow for trade unions who hoped that the company’s assets would be sold together.

Pressure remains on the British Government to help find a swift resolution to the situation as the government risks  a  yearly  wage liability of GBP 250m until a buyer is found.

Greybull is also set to face government scrutiny after  Greg Clarke, the UK Business Secretary, ordered the Insolvency Service to investigate Greybull's record as owner of British Steel for the past three years. Attention remains on the British Government's response after the steel maker fell into insolvency only 21 days after receiving a GBP 120m emergency loan from the government (funded by the taxpayer) on 1 May 2019 to prevent British Steel failing to comply with the EU Emissions Trading System and avoid a fine.


Iden Asl

P: +44.20.7851.6029

F: +44.20.7851.6100