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Introduction |
It is common knowledge that Romania has been deeply affected by the
global economic crisis. In such circumstances, the survival of many
businesses depends upon their ability to obtain financing. The blockage
of the possibility to obtain requisite financing has proven disastrous
for many Romanian companies, making it impossible for them to find other
solutions to avoid insolvency. Moreover, even those companies that had
previously obtained loans in support of their businesses with ease have
faced financial difficulties, including the impossibility to repay such
loans, leading to the enforcement of the guarantees established within
the credit agreements and the commencement of insolvency procedures
against some of these companies. However, since the price of real estate
in Romania has fallen, the enforcement of the guarantees set forth in
the credit agreements did not cover the debts to the banks, since such
guarantees could not be enforced at a price that would ensure the
recovery of the credited amounts. In this context, the restructuring of
the credit agreements was perceived by Romania as a potential solution
which could support companies in their efforts at financial redress.
Besides the restructuring of the credit agreements, other financing
solutions were sought in order to ensure and maintain the financial
stability of the economical environment. Among these, we mention
financing obtained from non-banking financial institutions, as well as
other alternative financing possibilities, as intra-group loans and
cash-pooling. |
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Restructuring of Credit Agreements |
General Aspects
The restructuring of credit agreements actually allows borrowers facing
financial difficulties in reimbursing their loans to amend, together
with the banks, certain aspects of those agreements. This has been
perceived as a viable solution for both banks, able to recover the
entire loan amounts from their clients, as well as companies, thereby
able to avoid enforcement procedures and insolvency and continue their
businesses.
The restructuring of the credit agreements may be commenced both at the
request of the client, which must admit its impossibility to reimburse
the loan under the conditions of the existing credit agreement, or at
the request of the bank, which, in turn, has assessed its client’s
financial difficulties in repaying the due amounts at the due dates. In
either situation, in order to be able to restructure the credit
agreements, clients must prove that they are facing financial
difficulties. Moreover, they must commit to comply with the new
conditions set forth in the newly restructured credit agreements. The
restructuring of the credit agreements cannot become a means for
companies to continuously avoid insolvency. On the contrary, after the
execution of the new restructured credit agreements, following the
implementation of a specific restructuring scheme, the borrower must be
able to reimburse the amounts due under normal reimbursement parameters,
according to the new reimbursement parameters.
At the end of 2009, in order to facilitate the implementation of certain
restructuring schemes to credit agreements, and aware that it was also
in the best interest of the banks for their clients to fully repay their
loans, instead of enforcing the guarantees set forth in the credit
agreements, the Romanian Banking Association (“RBA”) published a
list of the most commonly used restructuring schemes applicable to
credit agreements concluded with small and medium sized enterprises.
The Rescheduling of the Credit Agreement
The rescheduling of credit agreements represents either the amendment of
the due date and/or of the amount of one or more credit installments due
to be paid, but without exceeding the initial duration of the credit.
Basically, the rescheduling of the credit agreement is performed by
concluding a deed of addendum to the credit agreement, based on which
new parameters, including new due dates or the new amounts of
installments, will be issued. A grace period may be granted to the
borrower.
The Re-planning of the Credit Agreement
Through this restructuring scheme, the company may amend the due
dates/amounts of one or more installments due to be paid, exceeding the
final due date of the credit amount. Also, this restructuring scheme may
also mean the reclassification of the loan into another category, but
without exceeding the maximum initial duration of the credit. Similar to
the rescheduling scheme, a grace period may be granted to the borrower.
The Refinancing of the Credit Agreement
Another potential scheme is represented by the refinancing of the credit
agreement, a method according to which a new credit shall be granted by
the bank, in order to reimburse the amounts which were due to be paid
based on the existing credit agreement.
The new refinancing scheme may have as its purpose the refinancing of
one or more already existing credits, based on the specific situation of
the company in question. In case of a refinancing scheme, a new credit
agreement must be concluded between the parties.
Short-term credit facilities
Another potential short-term solution for companies facing financial
difficulties in repaying their loans is represented by short-term credit
facilities which may be granted to banks, according to the specific
financial situation of the company.
Other solutions allowed by the Romanian
Civil Code
The Romanian Civil Code contains certain possibilities which, although
they do not release the borrower from repaying the loan, allow for the
transfer of the claim to a third party, under conditions which may be
more beneficial for the borrower. Such a potential solution is
represented by the claim assignment, which is an agreement based on
which the bank transmits its claim to another natural person or legal
entity, together with all of its guarantees.
Another potential solution is represented by subrogation, where the
creditor bank is replaced by a third person that, by paying the debt of
the client, actually acquires the rights of the creditor.
Furthermore, the Civil Code also envisages a novation, based on which
the existing obligation is extinguished, and is replaced with a new
obligation, by replacing either the subject matter, i.e. the credit
itself, the creditor or the debtor. |
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Loans Granted by Non-banking Financial
Institutions |
 In
order to ensure and maintain the financial stability of the economical
environment, the Romanian Parliament adopted in April 2009, Law 93
regarding non-banking financial institutions, which regulates the
minimum access conditions to credit activities in Romania through
non-banking financial institutions.
According to Law 93/2009, non-banking financial institutions are those
entities, other than credit institutions, which perform crediting
activities under a professional title, according to the provisions set
forth in this law.
Also, Law 93/2009 provides that the National Bank of Romania (“NBR”) is
the only authority competent to decide whether the activity performed by
an entity represents a crediting activity under a professional title,
thus being subject to the law.
In assessing whether an activity represents a crediting activity
performed under a professional title, the NBR will take into
consideration certain matters such as: the performance of these
activities as independent economic activities oriented towards the
achievement of income on a continuous basis; and the existence of
certain internal specialized structures in the crediting field which
have the role of analyzing and managing these activities in particular.
In case the crediting activities performed by legal entities comply with
the criteria set in the law, such entities are then considered as
non-banking institutions, and they must perform these activities only in
accordance with Law 93/2009, including the obligation to register
themselves as non-banking financial institutions with the NBR.
These institutions are generally set up as joint-stock companies, and
they usually include, in their name, the expression “non-banking
financial institution” or the abbreviation “IFN”. According to law, they
are entitled to perform certain crediting activities such as: the
awarding of credits, including, without limitation, consumption credits,
real estate credits, financing for commercial transactions, factoring
operations and so on; financial leasing; issuance of guarantees,
undertaking of guarantee commitments, undertaking of financing
commitments; awarding of credits together with the receipt of pledged
assets; other financing forms similar to credits.
Consequently, companies facing financial difficulties may look for such
companies registered with the NBR as IFNs, which may grant them the
necessary funds to recover during difficult times. |
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Alternative Financing Methods |
Even through banks are implementing restructuring schemes for credit
agreements, and even though companies in financial need may also resort
to loans granted by IFNs, this may not be enough for companies having to
permanently look for alternative financing means in order to survive the
current economic crisis.
Intra-Group Loans
One such potential alternative financing method is represented by
intra-group loans. There was a period, after 2006, when the crediting
activity between companies that are members of the same group, became
more and more uncommon, because of certain legislative discrepancies. At
that point in time, Government Ordinance no. 28/2006 regarding the
regulation of certain financial-fiscal measures was in force. According
to this ordinance, such crediting activity was restricted to the
crediting activities performed under “a professional title” only to
credit institutions and non-banking financial institutions. However,
this law did not provide any definition of the criteria based on which a
crediting activity could be considered as performed “under a
professional title” or not.
In order to clarify these discrepancies, the NBR provided various
official interpretations on the criteria based upon which a crediting
activity was to be considered as performed under a professional title.
According to the NBR’s interpretations, intra-group loans were not
considered as crediting activities performed under a professional title,
and they were therefore possible even subject to the provisions of the
aforementioned ordinance.
However, in order to further clarify the matter, Law 93/2009 expressly
mentions criteria used by the NBR in order to qualify the crediting
activities as activities performed under a professional title. As the
intra-group loans do not represent activities oriented towards the
achievement of income on a “continuous” basis, and also considering the
fact that the lending company does not regularly have an internal
specialized structure in the crediting field, having the role of
analyzing and managing crediting activity, such intra-group loans cannot
be regarded as crediting activities performed under a professional title
and, consequently, they are not bound to comply with the provisions of
Law 93/2009.
In such a context, intra-group loans represent a lawful and viable
solution for companies that are members of the same group, based on
which companies having a more powerful financial status may provide the
necessary financial support to other companies facing difficulties.
Cash-Pooling
Although cash-pooling is not regulated as such under the Romanian law,
it has been increasingly used lately as a financing alternative for
companies in need of cash. Basically, this method compensates for the
lack of cash of a company that is a member of a group, with the cash of
another company of the same group. It can represent a good method of
cash management, and it has proved to be a viable solution for companies
in times where there is a strong need for liquidity. |
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Conclusion |
 In
their attempt to find solutions in difficult financial times, businesses
have had to diversify their functions and roles on the market. Companies
have had to find more flexible financing schemes which could ensure that
they obtain the necessary funds to continue their activity. Especially
for small and medium sized enterprises, the lack of financing may lead
to severe obstacles which could make the activity of that company
impossible to continue. Companies in financial need may now resort to
any of the financing alternatives described above if they are unsuitable
to obtain credit from banks, they may try to obtain loans from IFNs; if
that is not possible, and those companies are members of groups of
companies, they may make use of that capacity and obtain the necessary
financing through an intra-group financing means. However, finding the
most appropriate financing scheme requires taking into consideration the
actual financial status of the company, as well as any other relevant
data regarding the company, and consequently companies in need of funds
should first opt for competent counseling to find the most suitable
financing scheme applicable to them. |
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Editors Note: It is our policy not to mention our clients by name in
The Romanian Digest™ or discuss their business unless it is a matter of
public record and our clients approve. The information herein is correct
to the best of our knowledge and belief at press time. Specific advice
should be sought from us, however, before investment or other decisions
are made.
Copyright 2010 Rubin Meyer Doru & Trandafir, societate civila de avocati.
All rights reserved. No part of The Romanian Digest™ may be reproduced,
reused or redistributed in any form without prior written permission
from the publisher.
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