The stock market's flexibility is its greatest selling point for publicly traded companies, as it allows a fast flow of capital while still enabling majority shareholders to implement fundamental corporate changes should they wish to exit the market. However, even with all of this flexibility, shares may not always be free of other encumbrances, and the sale of such shares may be opposed by interested parties or even refused to be recognised as a genuine sale by the Trade Registry.
In Romania, joint stock and limited liability companies continue to be the most common type of corporation. Limited liability companies are an important backbone of the local economy, with many becoming large enough to qualify as targets in M&A transactions. However, debate exists as to whether classical exit-related provisions (eg, put or call options or drag-along or tag-along clauses) may be implemented in M&A transactions involving shares in limited liability companies.
Although the Companies Law created flexible mechanisms and procedures allowing specific shareholder powers to be delegated to a company's management, it also provides that only some decisions made in this regard can be subject to an annulment action. Specifically, the law excludes decisions which concern an increase in a company's share capital from being challenged. However, the Constitutional Court recently recognised shareholders' right to request the annulment of such decisions in court.
Until recently, Romanian companies could distribute dividends to shareholders only on an annual basis and on approval of their annual financial statements at the end of each financial year. This paradigm has changed and companies can now opt to distribute their dividends annually or quarterly. Although these newly acquired corporate rights have been widely welcomed within the Romanian business markets, they may initially be treated with suspicion by entrepreneurs.
The government recently approved a draft legislation transposing the Fourth Anti-money Laundering Directive and introducing, among other things, important changes for private companies with regard to their reporting duties and transparency of ownership. Some of the new requirements for non-listed companies are of particular importance, as they will be key for combating money laundering and terrorism financing. The bill will also introduce stricter reporting duties and penalties for non-compliance.
The squeeze-out of minority shareholders in closely held companies is a controversial issue made more complex by the large number of Romanian companies with minority shareholders. Historically, state-owned companies were privatised through the management-employee buy-out method, which allowed employees to receive shares in former state-owned companies. As such stakes were often granular, many minority shareholders are dormant or even unaware of their participation in these companies.
The corporate functioning rules for joint stock companies have been repeatedly altered by Romanian legislation, especially in relation to the governing structures of companies, such as shareholders' assemblies and management bodies. However, some situations create problems in practice or generate inconsistencies within jurisprudence. One such example is the use of secret voting in general shareholders' meetings.
Creditors and investors assess the level of a company's net assets when deciding whether to grant a loan to or invest in that company. Further, the Companies Law requires companies to maintain a certain level of net assets. However, an increasing number of companies on the Romanian market are struggling with low net assets to total asset ratios. Luckily, such companies can redress their situation through a share capital increase, which is a straightforward procedure.
Regulatory approval plays an important role in the transfer of assets or lines of business. In general, where permits are issued in consideration of assets being sold, the transfer will entail a new authorisation procedure to be undertaken by investors. This is also the case for environmental authorisation; however, as local authorities do not consistently deal with the applicability of the various regulations in this regard, mitigating potential hurdles will generally require coordination with the respective authorities involved.
Parliament is debating a proposed amendment to the law on the sale of food products that would oblige all authorised retailers of food products to ensure that 51% of meat, fruit and vegetables are acquired from the short food supply chain. The proposal raises a number of legal and practical issues, and risks infringing one of the four basic freedoms of the EU common market: the free movement of goods.
The restructuring of non-performing loans has been slower in Romania than in other EU member states. However, further to the implementation of new regulations, the National Bank of Romania has now begun to apply pressure on local banks to dispose of their problematic assets and clean up their balance sheets. Consequently, domestic and international non-performing loan deals are becoming more common on the Romanian market.
As momentum builds in the Romanian business environment, reorganisations by way of spin-off or merger have become increasingly attractive options for companies. This growing interest highlights several ambiguities in the relevant legislation. However, certain solutions are typically implemented in practice in order to alleviate risks associated with this lack of legislative clarity.
Recently issued Government Emergency Ordinance 31/2015 introduces a number of significant changes to the Competition Law, including with regard to merger notification obligations, the organisation and structure of the Competition Council and settlement procedures. The council had proposed further amendments, but these proved highly controversial and were ultimately shelved.
In assessing title over shares in Romanian companies, one of the most common issues is the effect that the annulment of a shareholders' resolution may have on subsequent acts concluded on its basis. While court practice has been inconsistent over the years, a recent High Court of Cassation and Justice decision provides additional guidance for interpreting and applying the penalty of nullity in matters relating to companies.
The novelties brought by the new Civil Code include the fiducia, a concept similar to the common law trust. Although the fiducia is purported to facilitate implementation of trust-based legal structures, its use in practice remains limited due to, among other things, a lack of flexibility in its establishment and operation.
According to the Romanian Constitution, the High Court of Cassation and Justice must ensure the unitary interpretation and application of the law by the other courts. However, as a recent case regarding an antitrust agreement shows, the high court is often one of the worst offenders regarding this principle.
Parliament recently adopted Law 151/2014, which clarifies the legal regime governing shares listed on the RASDAQ market or the unlisted securities market. In addition to the changes brought to the Romanian capital markets landscape, Law 151/2014 sets out a series of provisions with potential effects on the shareholding and corporate order of more than 900 Romanian companies.
The recently published Government Ordinance 12/2014 makes significant amendments to the Unfair Competition Law and the Competition Law. The amendments provide welcome clarity and streamline certain procedures. However, they also raise substantial questions, including with regard to the Competition Council's discretion to pursue cases and companies' right to defence.
New rules were recently adopted which govern the arbitration procedure of the Romanian Court of International Commercial Arbitration. The regulations are intended to increase parties' confidence in arbitration and encourage them to choose this method of dispute resolution instead of litigation in the state courts. The most important change brought by the new rules is that the parties may now designate their own arbitrators.
The recent entry into force of the new Criminal Code and Criminal Procedure Code has brought a number of changes to the Competition Law, one of the most significant of which pertains to Competition Council dawn raids. Although the amendments should be seen as a step in the right direction, especially in terms of compliance with EU human rights law, further steps still need to be taken.