Secured Lending DefinitionDefinition of the secured credit
Lending via the equity securities sector was restricted (i.e. by the issuance of bonds), but alternate providers of credit - among them Meczanine mutuals, personal loan institutions, businesses, insurance firms, wealth management firms and financial institutions - are exploring the sector and have already completed transactions. Key secured credit industries with significant exposure to credit risk included the manufacturing sector, property (in particular commercial centers, offices and logistic centers), retailing, agricultural, pharmaceutical and technological industries.
Are secured loans a regular business in your jurisdictions? The granting of loans is a regular business in Romania and may only be professionally performed by banks and non-banks approved by the National Central Banks of Romania. In Romania, EU licenced banks may also grant loans on a work-related loan contract by setting up a subsidiary or directly requiring a passport.
The commercial lending without a duly licensed license is a crime. Is there a particular set of regulatorial questions that a potential lender should consider when agreeing or concluding a secured credit arrangement? For corporations, a shareholder decision is required if the credit line amounts to more than 20% of the entire immobilized asset less claims on publicly traded corporations.
Is there a particular set of regulatorial questions that a potential creditor should consider when agreeing or concluding a secured credit arrangement? Who are the current secured financing vendors in your jurisdictions (e.g. global banking, domestic banking or non-banking)? Non-banking financiers are also engaged in secured financing and there are also a number of restricted alternate creditors.
Does your legal system use customary commercial credit transaction documents? Does your legal system typically have secured credit syndication arrangements? Given the normal sizes of Romania's enterprises, however, the use of structured finance is not as widespread as in industrialised or newly industrialising countries. Concerning the safety officer, several practical arrangements are used, among them:
a common creditor architecture between creditors, which allows the creditor nominated as the collateral taker to assert all receivables of the consortium against the creditor and the other debtors; a simultaneous liability architecture for credit contracts of third countries, in which the creditor and the other debtors commit themselves vis-à-vis the collateral provider to make all due payment to all creditors without affecting the creditors' interests (although this has sometimes been equated with common creditor status as far as legal safeguards and interests are concerned).
In your jurisdictions, does the Act allow collateral and warranties to be fiduciarily retained by a collateral fiduciary for the account of the bank consortium? Unfortunately, the establishment of a fiiducia is cumbersome (with specific formalities and various registration procedures and the collection of certain fiscal issues) and has therefore seldom been used in practise to ensure safety.
For example, safety officers are more frequently found in public institutions than safety fiduciaries. In the case of secured financial operations for SEVs (Special purpose vessels, SPVs), is it customary to use the funds to be funded for safekeeping? As a rule, would collateral be provided for the SPV units or would creditors demand immediate collateral?
It is customary for property and property financings to be owned by SPAs. As a rule, the SPV interests and the property to be funded as well as all other SPV property such as immovable property, cash in banks and claims are collateralised. In the first step, for a normal acquisitions funding arrangement, there is a collateral right over all equities of the objective SPV that holds the objective and a collateral right over all current and prospective movable property of the same SPV holding company; following a reduction of debts (by fusion between the objective and its SPV holding company), there are collateral rights over all movable and immovable property of the SPV targets and the SPV holdings that have united.
Does the interest most frequently come from a basic interest rates of a banking institution or a floating interest rates (e.g. LIBOR, EURIBOR or HIBOR)? Is there a regulator's limit on the interest rates that can be applied to credit from banks? As regards interest on arrears, however, a Act on combating payment arrears in business operations provides that unfair terms - for example, under which the contracting partners fix a lower interest on arrears than the statutory interest on arrears (i.e. the statutory interest plus eight points fixed by the National Central Banks of Romania) - shall be null and void.
Do warranties apply in your jurisdictions? Yes, safeguards are generally used in Romania. Guaranties can be provided in the form of a personal document or incorporated into the credit contract. Does legislation influence or limit the provision or enforcement of warranties in your jurisdictions (e.g., up-stream warranties)? According to Rumanian legislation, there are several restrictions that a creditor should take into account when constructing a guarantee provided by other members of the borrowing group (and even by third parties).
This also applies to collateral rights. Secondly, a surety should have a certain business value in respect of any guaranty in order to assist third party debts. Supplementary general restrictions of corporation laws include: a ban on paying dividend in anticipation (if a guaranty would be considered as such); with respect to guaranties provided by corporations, a ban on guarantying loan from director or corporation if such person (or his or her spouse or relative up to the 4th degree) is a director or shareholder of more than 20% of the common stock. 2.
Lastly, a guarantee holder under Rumanian legislation should have and keep in Romania enough financial resources to meet the secured debt. It does not, however, if the creditor requires a particular individual to act as surety (which is the norm in practice). Outline the most commonly used ways to structure the priorities of debt and collateral.
Rumanian legislation provides for both the preferential structure of debts (secured versus unsecured) and the preferential contract terms, which are usually determined by a letter of substitution or creditor covenant. Is there any tax, stamping tax or other charge to be paid when a credit, surety or interest is granted or enforced?
According to Rumanian legislation, no stamping duties, filing charges or similar charges are to be paid in respect of the grant and enforceability of financial instruments, with the exceptions of: legal and execution charges for procedures relating to the financial instruments; charges to be paid to the Electronic Archives (including the Electronic Archives Operator) and any other official registry for the filing of the secured instruments; charges to be paid for the certification of an immovable mortgages contract by a notarial office; charges to be paid, if any, to a sworn interpreter and civil lawyer in respect of a sworn translation and civil lawyer in respect of a notarial contract; charges to be paid to a sworn interpreter and civil lawyer in respect of a notarial contract in respect of a real estate mortgages contract; and charges to be paid to a sworn interpreter and civil lawyer in respect of a notarial contract in respect of a real estate contract.
It is more usual for it to be governed by domestic laws that regulate the conditions of the plant record, or is the laws of another jurisdication often chosen by the contracting party (e.g. British or New York law)? As a rule, British legislation applies to cross-border credit contracts (in particular for large exposures). Is there any restriction on lending by or the provision of collateral or guarantee to non-resident creditors?
Borrower of Rumanian origin should inform the National Bank of Romania for statistic purpose regarding medium and long-term cross-border credit. In the case of assertion of security interests by non-domestic creditors, certain restrictions exist on assertion by use of the underlying asset (e.g. immovable assets).
Is there any currency restriction that restricts payment to a non-resident creditor under a securities instrument, bond or credit contract? Theoretically, however, the National Bank of Romania may, under currency rules, adopt as a precautionary measure certain limitations on currency supervision which may limit the capacity of the debtor to make due payment under a credit contract or the capacity of the non-Romanian creditor to enforce its claims against a debtor or to transfer the income from execution.
Such limits may include: the obligation to inform the National Bank of Romania at least 10 working days prior to the execution of short-term equity forward contracts; threshold values and other limits for short-term equity forward contracts triggering cash flows; charges or commissions for forward contracts on the inter-bank markets for the purposes of the execution of equity contracts involving the buying or selling of currencies; limits on the initiation of new short-term equity forward contracts).
It is possible to establish a lien over all of a company's financial instruments? Assuming so, would a lump-sum collateral arrangement be sufficient or is a lump-sum collateral arrangement necessary for each kind of financial instrument? Generally, three collateral arrangements are available in connection with a secured lending transaction: a general movable mortgages contract covering most kinds of collateral items (e.g. cash deposits, equities, inventories, supplies, claims, intellectual properties, intangibles and universalities) - such a contract may be divided into different arrangements for each kind of collateral item; a mortgages on equities contract under which the borrower's stockholders pledge their interest in the borrower. However, the collateral arrangement may be divided into three different parts.
Other agreements may be possible based on the actually funded asset (e.g. for aeroplanes, vessels or collaterals). How do you formalise the provision of securities for the most popular types of investment? As a rule, the process of clearing securities is uncomplicated: the secured creditor makes a declaration of debt repayment (in civil law in the case of immovable mortgages), followed by de-registration from the appropriate registries (e.g. the Electronic Archives of Movable Property, the Property Registry and the Share Register).
Is it possible to provide collateral for property? And if so, what are the most commonly used securities for property and what is the process? Rights to property can be secured by immovable mortgages certified by a solicitor. Mortgages should be recorded in the property register in which the property is entered and, in the case of movable property associated with the property, in the electronic archive.
A fixed rate mortgages is usually established by the signature of the contract. In the case of properties entered in property registers for properties in places where all register work has been completed, however, entry of the mortgages contract in the corresponding property register actually establishes the mortgages on the property (this is unusual in practice).
In practice, the authorised representative who signs an immovable mortgages contract on a secured lender's account should be designated by a specific proxy that has been entered in the instrument of signature as a public notary (i.e. the most formal type of documents in the court in which this proxy is signed).
Is it possible to guarantee safety for machines and plants? And if so, what are the most commonly used types of collateral for this type of ownership and what is the process? A movable mortgages is the most frequent type of protection for movable goods such as machines and plant. Movable mortgages are effectively established by a movable contract of mortgages subscribed as a personal document (no authentication is required).
Hypothecated collateral should be described in the contract in sufficient detail to permit adequate recognition of the reals. It may be described by: the establishment of plant schedules; the indication of factors such as quantities or other special formulae for this purpose. As regards universality, the characterisation should contain the contents and type of asset contained therein.
Under the new lien in place since 2011, a general definition of mortgage-backed securities, such as "all movable assets" or "all current and prospective movable securities of the mortgagee", is no longer adequate. Execution of a movable hypothec is governed by its completeness, i.e. when all the paperwork has been done.
In the case of movable property loans relating to machines and installations, this advertising is concluded with registering in the electronic archive. In general, the order of priority of a movable security right is defined by the date on which the disclosure formality is carried out (i.e. recording in the electronic archive), regardless of the date on which the secured commitments were entered into.
Is it possible to provide collateral for claims? And if so, what are the most usual types of collateral for this kind of ownership and what is the process? Claims can be secured under Rumanian legislation, the most frequent being a movable one. Collateral cessions are also (albeit less and less frequently) used in practise as an option to a mortgage (these cessions are, in any case, equivalent to the legislation on movable loans for most of their features).
Debt mortgage payments may be subjected to further fine-tuning procedures, such as entry in the register of immovable properties if they refer to pertinent rents or insurances, or notice to the mortgaged/assigned debtor if debt recovery is delegated to the secured creditor. Is it possible to provide collateral for financing documents? And if so, what are the most commonly used types of collateral for this type of ownership and what is the process?
Generally, a collateral for an interest in a Rumanian corporation can be provided by a movable mortage. Share mortgage should be recorded in the company's share registry kept by the company's director or, in the case of publicly traded entities, by the depositary of securities in Romania.
In the case of transferable securities and beneficiaries and creators meeting the admission requirements of the EU Directive on Guarantees for Guarantees for Financial Instruments transposed into Romanian law, guarantees for such transferable securities may be provided in the legal tender (including quoted shares) in the forms of long-term debt instruments, but this is seldom used in practical terms. Is it possible to provide guarantees in the shape of liquid assets?
And if so, what are the most commonly used types of collateral for this type of ownership and what is the process? One of the most frequent ways of securing your money is by means of a movable hypothec on a regular basis. In order to be valid, the specific banking effect of the movable mortgages contract should be defined.
In order to perfect a credit via a banking contact, the secured creditor should have full access to the debited banking contact in order to guarantee security of credit - such access is considered to be granted if: the secured creditor is the banking contact; the secured creditor becomes the owner or co-owner of the banking contact.
Is it possible to provide certainty about mental properties? And if so, what are the most commonly used types of collateral for this type of ownership and what is the process? I. P. R. can be the object of movable mortgage. Which are the joint trigger mechanisms for credit, guarantee and collateralisation? After a case of delay (and after a reasonable grace period), a secured creditor can theoretically speed up the whole pending credit and start foreclosure.
Which are the most commonly used means of enforcing? In general, the secured commitment is secure, cash and due; the proceedings laid down in the Civil Code or in the Code of Civil Procedure (including approvals by the competent court and execution officials, recording of the start of execution in the electronic archive and, where appropriate, notifications to other creditors).
The following joint assertion techniques are commonly used according to the interests concerned: selling by means of open bidding (where the initial bid is priced by a valuer, but with some degree of pricing variability for successive biddings); selling the pledged interests in a "commercially reasonable" way; providing the pledged interests on the basis of pending liabilities with the agreement of the obligor (and on the assumption that there are no objections from other interested parties); as a new but unexamined technique that takes over the pledged interests for management reasons.
According to Rumanian legislation, the opening of bankruptcy procedures against a business generally suspend execution against that business and its property; execution can be continued or resumed only in certain cases (which is rare in practice). In the event that an insolvent firm is deemed illiquid and its liquidation takes place, the secured guarantors have general precedence over the revenue from the disposal of their properly completed securities, provided that these are first satisfied: secured creditors' debts arising after the opening of bankruptcy procedures (including main, interest and incidental rights).
Theoretically, secured creditors can even profit from dividends distributed before the selling of their securities (these dividends are subtracted from the amount received after the selling of their securities). In the event that the secured creditors are not fully settled after the disposal of their securities, the remaining balances are considered uncollateralised receivables - usually settled in the following order:
Tax, duties, charges, costs as well as disbursements of the bankruptcy proceeding (including operating and subsistence charges and expenditures, wages and salary for necessary staff and court fees); financial entitlements made available to the Corporation during the bankruptcy proceeding; employee entitlements; entitlements resulting from the bankruptcy proceeding for the purpose of conducting the business of the bankrupt Corporation; entitlements to compensation for the cancellation of agreements during the bankruptcy and entitlements of bona fide third persons who have restituted the recoverable property or its value;
Budget receivables; third party receivables related to maintenance obligations, the allotment of children or other periodic maintenance obligations; receivables from credit facilities with banks or the delivery of goods, provision of a service or construction work, rental or lease agreements and borrowings (with the exception of such receivables of group members of the bankrupt company); junior-ranking receivables in the following order: