Bank finance and regulation. Multi-jurisdictional survey. Romania. Enforcement of security interests in banking transactions

Bank finance and regulation Multi-jurisdictional survey Romania Enforcement of security interests in banking transactions Alina Radu, Corina Dumitru and Diana Ispas NNDKP, Bucharest Alina.Radu@nndkp.ro/Corina.Dumitru@nndkp.ro/Diana.Ispas@nndkp.ro Part I - types of security 1. What are the most common types of security in banking transactions in your jurisdiction (eg, standard security package)? Please provide a brief characteristic of each type of security. Under the Romanian jurisdiction, banking transactions are generally secured with mortgages, security interests in movable assets, assignment of receivables for security purposes, guarantees (fidejusiune), promissory notes and/or financial collateral, which are available for both domestic and foreign creditors. The security package depends on the type of financing (acquisition financing, project financing, real estate financing etc.), generally including mortgages and security interests in movable property. Security interests in movable property can be created over specific movable assets such as receivables, bank accounts, shares, stocks or over the fond de commerce, all movable assets of the debtor or over its inventory. Mortgages Security over immovable property is created by executing a mortgage agreement, as a notarised deed, in Romanian language. A number of conditions must be complied with for the mortgage to be valid, including: the debtor must be the owner of the mortgaged property and have full legal capacity; the mortgage agreement must identify each piece of mortgaged property and establish the maximum secured amount; the mortgage can be granted only over existing property (in principle, mortgages cannot be granted over future assets, except for mortgages established as security for a mortgage loan which must fulfil the conditions set by Law no 190/1999 regarding mortgage loans). The creation of a mortgage under Romanian law does not imply any transfer of title. The debtor is free to transfer the ownership over the mortgaged immovable asset unless the parties have entered into a restrictive covenant preventing this which has been registered with the Land Book. If no such restrictive covenant has been registered and the mortgagor transfers the ownership title to a third party, the mortgage shall remain in place and the transfer should not affect the lender's right to realise the mortgaged property in satisfaction of the outstanding secured debt, provided that registration of the mortgage with the Land Book was performed before the transfer of the mortgaged property. Mortgages (and any restrictive covenant prohibiting the subsequent transfer of, or further encumbrance over the relevant asset) must be registered with the Land Book in which the mortgaged property is registered to ensure the priority rank and serve notice to third parties; the registration procedure takes a few days (generally two days after submitting the relevant documentation with the Land Book operators). The registration is valid for 15 years and may be renewed. The mortgage over any improvements to the initial mortgaged immovable asset must be additionally registered with the Electronic Archive for Security Interests in Movable Property ( Electronic Archive ). Thus, mortgage agreements are usually registered

both with the Land Book and the Electronic Archive. The registration with the Electronic Archive may be performed in the same day when the documents are submitted with the operator. The registration with the Land Book and the Electronic Archive has as purpose servicing notices to third parties with respect to the creation of the mortgage and ensuring the priority rank. The rank of a mortgage depends on the time of registration with the Land Book. The first creditor who has registered the mortgage agreement will be preferred towards any other unregistered or future creditors. The execution and registration of a mortgage agreement implies significant costs, mainly including the following: (a) Notary fees, calculated depending on the value of the secured amount (a fixed amount + 0.1 per cent of the secured amount, if the secured amount is higher than approximately 120,000 EUR); (b) Registration fees: On registration of a mortgage with the Land Book, a fee of 0.1 per cent of the secured amount + RON 100 (approximately Euro 30) is due. The registration fees for the Electronic Archive for Security Interests in Movable Property amount to approximately EUR 20 for the initial registration (irrespective of the agreement's value) and to approximately EUR 15 for each amendment to the initial registration; (c) Translation fees and related notary certification of the translator s signature costs. Security interests in movable property The most common form of security interest in movable property is the security interest in movable property created pursuant to the provisions of Title VI of Law no. 99/1999 regarding security interests in movable property ( Security Interests Law ). The charged movable asset may remain in the debtor s possession, as the security interest created pursuant to the Security Interests Law does not require the creditor to take the possession of the charged movable property. The creation of a security interest in movable property under Romanian law does not imply any transfer of title. The debtor is free to transfer the ownership over the charged asset to a third party, while the security shall remain in place and the transfer should not affect the secured party's right to enforce the charged property in satisfaction of its outstanding secured debt, provided that registration of the security interest with the Electronic Archive was performed before the transfer of the charged property. Notarised form is not required for validity of the agreements creating security interests in movable property and, therefore, security interests can be created pursuant to private deeds. The Security Interests Law requires that a security agreement specifies the maximum secured amount. For serving notice to third parties and obtaining priority, security interests in movable property must be registered with the Electronic Archive; the registration may be performed in the same day when the documents are submitted with the Electronic Archive operator. A registration is valid for 5 years and may be renewed. The registration fees amount to approximately EUR 20 for the initial registration with the Electronic Archive (irrespective of the agreement's value) and to approximately EUR 15 for each amendment to the initial registration. However, depending on the type of the secured asset, additional publicity formalities might be necessary (eg, the security interests over ships and aircrafts can be perfected only by registration with the registries (kept by the competent authorities) where the respective assets are registered). It is noteworthy that negative pledges under sanction of acceleration of the loan are prohibited to be included in security interests agreements governed by the Security Interest Law. Such clauses are deemed null and void by virtue of law, except when the creditor has objective reasons to believe that the asset subject to the security or the payment under the facility agreement was or is in danger. Assignment of receivables for security purposes A common form of security granted over claims and receivables is an assignment of receivables for security purposes. The assignment of receivables for security purposes is commonly used to create security over: receivables, contractual rights and benefits (but ultimately such would not ensure the benefit of certain rights which are granted intuituu personae), rights and receivables deriving from insurance policies. 2

The assignment of receivables for security purposes may be performed pursuant to a written agreement between the assignor and the assignee. The assignment of receivables for security purposes represents a conditional assignment and can be enforced only in case of the debtor s default with respect to the secured obligations. The consent of the assigned third party is not required by law for the validity of the assignment. Under the Security Interests Law, the assignment of receivables for security purposes must be registered with the Electronic Archive to ensure priority with respect to other creditors and must be notified to the assigned third party. Please see below in section 2 (e) further comments regarding the assignment of receivables for security purposes. Security Financial Collateral Following the implementation of the Financial Collateral Directive (EU Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements), through the Government Ordinance No. 9/2004, creation of security financial collateral is theoretically possible. Romania has opted for a limited ratione personae implementation of the Financial Collateral Directive and hence, both the collateral taker and the collateral provider must be qualified financial institutions (eg, the central bank, financial institutions, credit institutions, investment firms) in order to benefit from the special regime applicable to financial collateral arrangements. Basically, as a matter of principle, Government Ordinance No 9/2004 derogates from all formalities related to the creation, publicity, preference rank and enforcement procedures applicable to security interest agreements over shares and cash under the general regime of the Securities Interest Law. It is to be noted, however, that the requirement to ensure that the financial collateral is provided (under the control of the collateral taker) is not deemed to be a formality in the meaning of the law and should be therefore properly ensured. Furthermore, the law provides for the requirement that the financial collateral be executed in writing or other equivalent form which is meant to ensure proper evidence of the agreement. Although the creation of a security financial collateral agreement with no special registration formalities attached is theoretically possible, this type of security interest raises significant debates due to the lack of proper correlation with other key pieces of legislation and the manner of implementation of certain provisions of the Financial Collateral Directive. Legislative uncertainty related to this type of financial collateral arrangements is further enhanced by the lack of relevant guidelines, doctrine and case law. As a rule, there are no extra costs involved in establishing this type of financial collateral. 2. In relation to the following types of assets, please provide the types of security that can be created or granted in your jurisdiction and give details of any registrations required: (a) Real estate The security over immovable property (real estate) is created by executing a mortgage agreement. The mortgage agreement has to be executed as notarised deed (in front of a Romanian notary public), in Romanian language. Registration in the Land Book and the Electronic Archive is required to serve notice to third parties and ensure a priority rank. (b) Charging assets (inventory, stocks etc) The security interest over charging assets is created by executing a security agreement in movable property. The security agreement may be executed as a private deed. Registration in the Electronic Archive is required to ensure the priority rank and serve notice to third parties. (c) Movables The security interest over movables is created by executing a security agreement in movable property. 3

The security agreement may be executed as a private deed. Registration in the Electronic Archive is required to ensure the priority rank and serve notice to third parties. Depending on the type of the secured asset, additional publicity formalities might be necessary (for example, a security interest over aircrafts should be registered with the register where the aircraft is registered). (d) Shares The security interest over shares is created by executing a security agreement in movable property. Agreements of security interests over shares of closed companies must be concluded by private agreement and registered in the shareholders registry and with the Electronic Archive. Security interests over shares of public joint-stock companies must be registered with the Central Depositary. It is noteworthy that the transfer of ownership over shares in case of enforcement is subject to certain formalities which may require, in certain cases, cooperation of the person granting the security interest or court intervention. Under the Romanian law, the transfer of shares held in a limited liability company to a person which is not a shareholder requires the approval of shareholders representing at least three quarters of the registered capital. Therefore, the consent of the general meeting of shareholders is typically required in practice when entering into an agreement creating a security interest over shares. (e) Rights under contracts (receivables) A security interest over receivables is created by executing a security interest agreement over receivables or an agreement of assignment of receivables for security purposes. Security interests agreement over receivables The security interest agreement over receivables follows the legal regime of a security interest; if the debtor is in default, the creditor may enforce the charged asset in order to cover the outstanding secured amount. The movable security agreement over receivables may be executed as a private deed. Under the Security Interests Law, the movable security agreement over receivables must be registered with the Electronic Archive to ensure priority with respect to other creditors and, as best practice, has to be notified to the debtor against which the security grantor has the charged receivable. In practice, certain creditors are also requiring the obtaining of the acknowledgements of the assigned debtors. Assignment of receivables for security purposes The assignment of receivables for security purposes represents a conditional assignment and can be enforced only in case of the debtor s default with respect to the secured obligations. The assignment of receivables for security purposes agreement may be executed as a private deed. The assignment of receivables for security purposes agreement must be registered with the Electronic Archive to ensure priority with respect to other creditors and must be notified to the assigned debtor. It is noteworthy that there are doctrinal controversies on the differences between a security interest on receivables and an assignment of receivables for security purposes. The main question mark is on whether an assignment of receivables for security purposes is a writ of execution or not. A security interests over receivables is deemed by law as writ of execution. (f) Bank accounts The security interest over bank accounts is created by executing a security agreement in movable property. The security agreement may be executed as a private deed. According to the Security Interest Law, the bank accounts must be specifically identified in the security agreement. Registration in the Electronic Archive and notice served to the bank where the account is open are required to ensure opposability towards third parties and grant the creditor a priority rank. 4

(g) Financial instruments (eg, securities) Security Interest Creating a security interest over financial instruments (eg, shares traded on Bucharest Stock Exchange) is done by written agreement registered in the account held by the owner of the financial instruments with the Central Depository - the entity which keeps the registry for all the financial instruments traded on the capital markets. Thus, the security interest is considered to be perfected and the priority rank shall be established by registration of the security interest with the Central Depository. The registration has the effect of blocking the charged securities from trading on the stock exchange. From a practical perspective, considering the fact that often security interests on financial instruments (eg, shares) cover not only the financial instruments as such, but also rights related to such instruments (eg, monetary rights such as dividends paid or payable in relation to the charged shares), in order to ensure observance of publicity and priority rank requirements for the rights related to the financial instruments, the security interest is registered with the Electronic Archive as well. Security financial collateral No formalities are required for the valid creation of security financial collateral under the law implementing in Romania the Financial Collateral Directive, mention being made that registration requirements having the purpose of ensuring valid provision of the financial collateral are not considered formalities in the meaning of the law. For evidence purposes, a written financial collateral agreement should be concluded. Please also refer to our answers under Part I Question 1 above (Security Financial Collateral). As a result, implicitly the security financial collateral needs to be provided be under the control of the collateral taker in order to benefit from the special derogatory regime established under the law implementing the Financial Collateral Directive and, hence, registration requirements need to be performed in this respect. Under Romanian law, the financial collateral shall be deemed provided and thus, in the control of the collateral taker when the security interest over securities has been registered with registry of the issuer, according to the law and, respectively when the cash and positive balances has been blocked in accounts opened at a credit institution or by the credit institution. (h) Intellectual property The security over intellectual property is created by executing an agreement of security interests in movable property. Note should be made that only patrimonial intellectual property rights (and not personal intellectual property rights) can be charged. Arguably, security may be also achieved by assignment of intellectual property receivables for security purposes, but such assignment will not be subject to the Security Interest Law and, as such, it will not be registered with the Electronic Archive, it will not qualify as writ of execution and will not be able to be enforced in accordance with the simplified procedure provided by the Security Interest Law. Moreover, specific assignment conditions should be observed, depending on the type of IP rights that are assigned for security purposes. The security interest agreement may be executed as a private deed. Registration in the Electronic Archive and with the State Office for Inventions and Trade Marks (for other intellectual property rights than copyright) are required to ensure opposability towards third parties and grant the creditor a priority rank. (i) Plant and machinery The security over plant and machinery is created by executing a security interests agreement in movable property. If the plant also consists in assets that are immovable by destinations or by nature, a mortgage agreement shall be concluded. The security agreement may be executed as a private deed. Registration in the Electronic Archive is required to ensure the priority rank and serve notice to third parties. [nu cred ca sunt machinery si am mai si vorbit de ele in alta parte] 5

(j) Other assets Generally, security interests over movable assets are established pursuant to security interests agreement concluded as private deeds. Additional publicity formalities must be performed in order to serve notice to third parties and for obtaining priority rank in relation to specific categories of assets that may exist in the patrimony of a Romanian company and that are charged under security interests agreements, as follows: if the value of a certain assets is less than the RON (Romanian national currency) equivalent of EUR 300, the publicity requirement is complied with by taking in possession such asset; if the security is created over cash amounts, securities or titles evidencing assets, including warrants and negotiable bills of lading, as well as checks and promissory notes, the publicity requirement is complied with through possession over the instrument or endorsement thereof, if the transfer of the respective instrument requires possession or endorsement; if the security is created over securities traded on the stock exchange, the publicity requirement is complied with through registration thereof in the relevant stock exchange registries; if the security is created over goodwill (fond de commerce), the registration in the Electronic Archive is required to ensure opposability and be granted a priority rank; also, registration with the Trade Registry is required by law; and if the security is created over ships or aircrafts, the publicity requirement is complied with by submitting a security registration form with the registry where such assets have been recorded. 3. Can a trustee or security agent be used in your jurisdiction, or must security be granted in favour of all lenders? Is the parallel debt clause concept recognised in your jurisdiction? The parallel debt concept was invented as a solution to fill the gap between the Anglo-Saxon and civil law systems as regards the trust concept. The Romanian law is a civil law system and the concept of trustee or security agent is not recognised under Romanian law. Therefore, in principle, security interests may only be granted to the creditors of the secured claim and not to a security trustee. Although many civil law jurisdictions use the parallel debt solution, in Romania it is debatable how the parallel debt structure would work in connection with Romanian law governed security documents, since the recognition of the security trustee as creditor based upon a recognition of a virtual parallel debt may be considered as failing to meet the conditions necessary to be acknowledged as creditor. The issue is especially sensitive in an insolvency procedure where other creditors may fight against a faked secured creditor. However, the parallel debt structure is used in practice, in financing agreements governed by foreign laws. However, the structure has not been tested in practice and there are no relevant guidelines regarding its nature and legal treatment in Romania. The joint and several right to claim the repayment of a debt may also raise significant problems, since, in the end, the security trustee has only the right to claim its part of the claim. This becomes extremely relevant in relation to the registration of the security trustee as sole creditor. Since by using this structure only the security trustee is registered in the relevant lien registry as holder of security, it would appear to a third party in an foreclosure or insolvency procedure that only the security trustee is holder of a claim against the debtor and therefore third parties may contest participation in such procedure of other creditors from the club/syndicate of banks / financial institutions. It is noteworthy that the new Romanian Civil Code, which may enter into force in the following few years (most probably, not earlier than 2011), shall include the concept of fiduciary in Romanian law. The new concept will bring the Romanian legislation closer to the common law concept of security trustee and may eventually eliminate concerns related to the applicability of the security trustee concept in Romanian law security documents. 4. Please explain the latest amendments to the law governing secured transactions in your jurisdiction. Are there any amendments which will be introduced in the near future (within one to two years) which might have an impact on the legal framework of secured transactions? Please also explain recent practical developments regarding secured transactions in your jurisdiction. Romanian legislation governing security has not been significantly amended during the last few years. A new Civil Code may enter into force in Romania in a few years and if so, it will replace the current Civil Code in force in Romania enacted in 1864. The new Civil Code will provide for a unique legal framework 6

for all security interests, in both movable and immovable property, and bring some major changes to the current regime. Security interests in immovable assets The following main changes shall be brought in relation to security on immovable property: security interests over lease receivables arising from lease agreements on immovable assets will not be registered in the Electronic Archive, but in the Land Book where the relevant immovable asset is registered; security interests in future immovable assets will no longer be prohibited; and prohibitions on the transfer of mortgaged assets, as well as negative pledges, will be expressly forbidden. Security interests in movable property The following main changes shall be brought in relation to security on movable property: the security interests over movable property shall be named mortgages over movable properties and shall be created by execution of a notarised deed or a private deed; in the case of transfer of the secured asset in the usual course of business, the security will automatically transfer over the replacement asset or amount; although floating charges will still be permitted, a more detailed description of the assets over which security is created will need to be provided; a reference to all the debtor's present and future assets will no longer be acceptable; and the requirement that a security interest be created by private agreement will apply exclusively to non-possessory security interests. Possessory security interests (pledges) will become a distinct type of security (perfected by way of possession or registration with the Electronic Archive). One of the major conceptual changes which will be included in the new Civil Code is that related to the inclusion of the concept of fiduciary in Romanian legislation. The fiduciary will be a person/entity that will be able to hold and administer other persons security interests. Such rights held and managed by the fiduciary will be part of a special category of rights, not included in the fiduciary s patrimony, therefore no own creditors of the fiduciary will be able to have any claims against the security interests held and managed by the fiduciary. Only credit institutions, investment and investment management companies, financial services companies, insurance companies, lawyers or public notaries will be able to act as fiduciaries. The fiduciary will be able to hold and manage the security interests based on an authenticated agreement concluded with the beneficiaries of such services. Such agreement will be registered with a national registry for serving notices to third parties. The new concept will bring the Romanian legislation closer to the common law concept of security trustee and may eventually eliminate concerns related to the applicability of the security trustee concept in Romanian law security documents. Part II enforcement of security 1. Please explain briefly general rules of enforcement of security indicated in answer to the Question 1 in Part I above (excluding rules in a bankruptcy or insolvency proceeding see Question 3 below). In your answer please explain whether specific security may be enforced only through judicial proceedings or whether extra-judicial methods are also available. Furthermore, please provide estimate of costs (if they create significant obstacle in enforcement, including applicable taxes and any other duties/ costs) and timing for enforcing such security. Please also explain degree of difficulty (eg, burdensome formalities, whether enforcement requires actions of a state body) in enforcing security. Also please explain whether taking security by an entity from other jurisdiction influences possibility of establishing security and its enforcement. The procedures applicable to enforcement of security may differ depending on the type of security and the creditor's choice. In order to proceed with enforcement of its rights, a creditor must hold a writ of execution (in Romanian titlu executoriu ). Under Romanian law, duly executed agreements creating security interests in movable property pursuant to the Security Interests Law qualify as writs of execution by operation of law. When an event of default occurs and the secured payment obligations become due and payable, the creditors 7

should be able to enforce their rights under a security agreement creating security interests in movable property without following a judicial procedure for the recognition of the secured rights. However, if the credit agreement is governed by a foreign law, such is not a writ of enforcement under Romanian law and therefore a court may require a judicial procedure to be initially followed in front of the foreign jurisdiction court in order to acknowledge the default of the borrower under the credit agreement and the amounts that are due thereunder. After such ruling is passed, it must be recognised in Romania following an established procedure (which is different depending on whether the lender is a EU resident or not). Duly executed agreements creating security in immovable property (by way of notarised deed) may be considered writs of execution if the underlying debt is clearly identified therein and it results from the respective mortgage agreement that the payment obligations are due and payable at the moment of initiating the enforcement; however the courts views on this are not unitary. If the agreement creating security in immovable property (mortgage agreement) is not considered by the court as a writ of enforcement, a court decision must be passed to recognise the underlying debt, the default and the creditor s right to proceed to enforcement. In any case, the commencement of the enforcement must be approved by a competent court. Foreign lenders: There are no legal restrictions on granting security to foreign lenders/secured parties. In case of enforcement of a mortgage, if the foreign secured creditor wishes to adjudicate the mortgaged property towards satisfaction of its claims, it may acquire ownership right over land situated in Romania only under strict conditions. EU based entities non-residing in Romania may acquire the ownership right over land as of 5 years after Romania s accession to the EU (seven years in some cases depending on the type of land). Other foreign entities may acquire ownership right over the land based on international agreements to which Romania is a party on a reciprocity basis (Law no. 312/2005 concerning acquisition of private ownership right over land by foreign citizens, stateless persons and foreign legal persons). Costs of enforcement procedures: The enforcement of security in Romania is generally subject to the payment of stamp duties and enforcement fees to the official bailiff, the most significant fees payable in the enforcement process are the fees payable to the official bailiff. According to the official grid of minimum and maximum fees of official bailiffs, the official bailiff may ask for up to one per cent of the amounts realised following the enforcement, if these amounts exceed 100,000 RON (approx. 25,000 EUR). Taxes and fees payable in respect of enforcing security interests in movable property are generally not perceived as prohibitive. Apart from stamp duties and enforcement fees, certain additional costs may arise during enforcement procedures, such as fees for the valuation of the assets. Generally, valuation fees are not calculated as per the value of the charged assets and, therefore, are not, in principle, prohibitive. However, in case of valuation of a large set of assets (such as valuation of a floating charge or of an enterprise), the valuation fees can be significant. Timing of the enforcement procedures: Generally, most enforcement procedures are time consuming. Self-enforcement procedures under Security Interests Law appear faster than those under the Procedural Civil Code. The timing differs depending on the enforcement method, the assets subject to security and the oppositions made by the debtor in the enforcement process. Generally, however, enforcement procedures generally take more than 6 months. Challenges within the enforcement procedures: Most enforcement related actions can be challenged and blocked by debtors and / or third parties, which may cause significant delays of the procedures. Mortgages The enforcement of security in immovable property must be made in accordance with the Romanian Civil Procedure Code, through public sale of the mortgaged asset. The public sale is conducted by an official bailiff. The official bailiff issues a summons, granting the debtor 15-day deadline to pay the debt. If the debtor does not pay the debt within 15 days from the receipt of the summons, the official bailiff shall arrange the valuation of the property and shall request Land Book information about potential rights and charges over the asset. The holders of such rights and charges shall be notified and subpoenaed to the sale. 8

The tender itself involves three calls, starting at the valuation price. If no bidder offers at least the starting price, then the tender shall be postponed. The second tender shall begin at 75 per cent of the starting price. If there is at least one bidder willing to buy for this price, the asset is adjudicated. Otherwise, the asset shall be adjudicated to the highest bidder. The creditor may participate to the tender, but it may not adjudicate the assets for less than 75 per cent of the valuated price. Security interests in movable property Where the debtor has failed to fulfill the secured obligations, the creditor can choose between the procedures available under the: (i) the Romanian Civil Procedure Code (using the general enforcement procedure conducted by an official bailiff), or (ii) the Security Interests Law (using the simplified enforcement procedure of self-enforcement), as detailed below. The enforcement under the Romanian Civil Procedure Code This consists of a generally applicable enforcement procedure, in the form of a public sale conducted by an official bailiff. In order to perform the enforcement procedure, the secured creditor shall file with an official bailiff an enforcement petition accompanied by the relevant agreements and documents. In order to block the disposal by the debtor of the charged assets, the seizure procedure (in Romanian sechestru ) or the attachment procedure (in Romanian poprire ) shall be applied, depending on the nature of the charged asset. Normally the seizure procedure is used to block the disposal of movable assets of the debtor, while attachment is used to block, usually in the hand of a third party, money amounts, commercial papers (in Romanian titluri de valoare ) or other intangible assets owed by a third party to the debtor. Before the performance of the seizure procedure, the official bailiff shall issue a notification, granting the debtor one day deadline to pay the debt. The realisation of the assets subject to enforcement procedure may be done through private sale, tender procedure or other means permitted by law. If the secured creditor agrees, the enforcement officer may allow the debtor to perform the procedure of realisation of the assets. This situation is extreme rare in practice as it implies full cooperation of the debtor. Private sale If both the creditor and the debtor agree, the official bailiff may use a procedure of direct sale to a buyer for at least the price stated in the sale announcement/the price stated in the official minutes through which the seizure/attachment was established or the price established by expert s evaluation, as the case may be. This method of private sale is rarely used in practice as it implies the agreement of the secured creditor and the debtor to the procedure, including the acceptance of the price as proposed by the potential buyer. Tender procedure In case the realisation of the charged assets is performed through a tender procedure, the official bailiff will establish the date, time and the place of the tender. The tender sale will start with the price contained in the sale s advertisement and the assets shall be allocated to the buyer who offers the higher price. The secured creditor may not adjudicate itself the secured assets subject to enforcement procedure unless it offers at least 75 per cent of the price resulting from the expert s evaluation of the assets. The secured creditor benefits from the amounts received from the enforcement; however, some claims have priority before the claims secured by a movable security interest (eg, claims regarding enforcement costs) The enforcement under the Security Interests Law Under the Security Interests Law, the creditor may be able to self enforce the security agreement, but if the debtor objects, support of a court bailiff is required. In order to amiably apply the enforcement procedure and peacefully repossess an asset, the security interest agreement must include the following specific provision, in Romanian and written in capital letters (in 12 point character size): IN THE EVENT OF DEFAULT THE CREDITOR MAY USE ITS OWN MEANS TO TAKE POSSESSION OF THE PLEDGED ASSET. 9

In principle, the self-enforcement procedure includes several mandatory stages as follows: (i) (ii) (iii) taking possession of the collateral by the creditor itself, through peaceful means; if such is not possible, the assistance of a judicial bailiff will be required; selling the collateral through a private sale or a tender procedure in a commercially reasonable manner aiming to maximise the proceeds. The method, manner, place and time of the sale must be customary for the sales of similar types of assets. In theory, the sale may be completed even if the collateral is in the pledgor s possession. As a condition precedent for the sale of the charged assets, a five (5) days prior notification of the sale to the debtor, other secured creditors and the owner of the assets (if the case) is required. The notification will indicate the place, date and time of the sale as well as the sale conditions. Failure to notify will trigger the nullity of the sale and the liability of the creditor for damages. The parties may contractually establish the terms and conditions of the sale procedure to be followed in case of enforcement. The sale of the secured asset must be carried out in a commercially reasonable manner by direct sale or by public auction. The law does not exclude the creditor s possibility to adjudicate the asset, but the creditor is bound, prior to the sale and subject to annulment, to allow third parties to participate in the sale. The secured creditor benefits from the amounts received from the sale of the asset; however, some claims have priority before the claims secured by a movable security interest (eg, expenses for preservation, taking possession and sale of the charged asset, enforcement costs). 2. Please explain briefly specific features (if any) of enforcement of security established over following types of assets: (a) Real estate The enforcement of security in immovable property must be made through public sale of the mortgaged asset, conducted by an official bailiff. The secured creditor benefits from the amounts received from the sale of the asset; however, some claims have priority before the claims secured by a mortgage. Taking over by a foreign citizen of the ownership title over Romanian land is generally prohibited for the time being.for more details please refer to sub-section Mortgage in Part II section 1 above. (b) Charging assets (inventory, stocks etc) The assets that are subject to this type of security interest become determined only when the enforcement procedure is started. For more details please refer to sub-section Security interest in movable property in Part II section 1 above. (c) Fixed charge over movables Please see comments made on section Charging assets above. (d) Shares Please see comments made on section Charging assets above. The transfer of shares in closed joint stock companies or of social parts (equivalent of shares in Romanian limited liability companies) pursuant to an enforcement procedure is generally reflected by registration of the shares transfer with the Shareholders Registry of the relevant company which has issued the shares and the relevant Trade Registry s office. Attention should be paid to the possible restrictions on shares transfer included in the company s articles of association. 10

Typically, transfer of social parts and registration thereof requires cooperation of the pledgor, of the company whose social parts are pledged and, if the company also has other associates than the pledgor, of the other associates, as the approval of the associates holding at least 75 per cent of the social capital of the company is necessary for the transfer of the social parts to third parties and to allow a new associate into the company. An enforcement procedure of a security interest over social parts can be significantly delayed by various objections raised by other associates of the limited liability company in case that the security interest does not cover 100 per cent of the social parts. As such, usually, the approval of the associates is required as a condition for the entering into the security agreement over social parts. (e) Rights under contracts (receivables) Movable security agreement over receivables The comments made on section Charging assets above are generally applicable. In particular, a creditor secured with a security interest over receivables can exercise the following rights, at its option, in case of enforcement: (i) (ii) to peacefully enter into possession of the documents attesting the receivables and, in this view, to cash the receivables within the limits of the due amount; to appropriate or assign to another person the charged receivables within the limits of the amounts due to the creditor and secured pursuant to the security interests. If the receivables are assigned pursuant to the enforcement, the creditor must notify the assignment to the assigned debtor. Upon receiving the notification, the assigned debtor shall only make payments towards the creditor, unless it asks for a copy of the security interests agreement and the creditor does not provide such copy within 15 days as of the request. The same enforcement provisions are applicable to an assignment of receivables for security purposes. (f) Bank accounts Under the enforcement procedure performed according to the Security Interest Law, a notice must be served to the account bank regarding the commencement of the enforcement procedure. Such notice must be accompanied by a copy of the agreement of security interest on bank accounts and by information regarding the amount to be paid from such accounts. After receipt of such notice, the bank verifies if the security interests on bank accounts has been registered with the Electronic Archive for Security Interests in Movable Property, the rank of the security and if the signature of the authorised representative of the security grantor on the agreement of security interests on bank accounts is the same as the one registered with the bank for the person who may operate the bank accounts on behalf of the security grantor. If the aforementioned conditions are met, the bank will block the relevant accounts so that it will no longer accept to make payments out of the accounts, but may nevertheless accept payments into the accounts. After blocking the accounts, the bank will pay the debt to the secured creditor according to the notification. If another creditor than the one who sent the notification has a higher priority rank, the bank will first pay the latter even if its debt has not yet become due. The account bank is also required to notify the security grantor, within 24 hours, about any operation on its accounts. (g) Financial instruments (eg, securities) Security Interest As a matter of principle, the general rules regarding enforcement of a security interest over shares are applicable, but the provisions set forth under Security Interest Law are very poorly correlated with specific capital markets provisions regulating enforcement of security interest over financial instruments (eg, listed shares). In general respects, a key specific feature of the enforcement of security interests on securities is triggered by the specificities of these financial instruments traded on the capital markets, namely by the fact that listed shares are dematerialised, intangible assets. The main consequences are that listed shares may neither make the object of a pledge with dispossession, nor be subject to the appropriation 11

(direct adjudication) under general rules set forth under the Security Interests Law. Another major specificity is that enforcement of the security interests over listed shares can be done only by selling the shares on a regulated market or an alternative trading system through an authorised intermediary or market operator, in compliance with specific securities law norms. Note should be made that there is no relevant practice, guidelines from authorities or case law to provide an indication on how enforcement of security interests in securities actually works. Security financial collateral As mentioned above under Part I Question 1, Security Financial Collateral, the provisions of the Romanian Civil Code, the Romanian Civil Procedure Code and of the Security Interests Law are not applicable in respect to the enforcement of financial collateral agreements and as a matter of principle, the enforcement of the financial collateral agreement is not conditioned by the fulfillment of any formal procedure. In case of occurrence of an enforcement event, the collateral taker shall be able to enforce its financial collateral by appropriation or set-off, subject to the terms agreed in the security financial collateral arrangement. The appropriation of the financial collateral is possible only if the parties have agreed upon in the pledge agreement on this specific enforcement procedure and on the manner in which the financial instruments shall be valuated. (h) Intellectual property Please see comments made on section Charging assets above and on section 2 (h) above. After the finalisation of the enforcement procedure, the new owner of the intellectual property rights (other than copyrights) has to be registered with the State Office for Inventions and Trade Marks. (i) Plant and machinery Please see comments made on section Charging assets above. (j) Other assets Please see comments made on section Charging assets above. Please note that, depending on the type of the charged asset, special formalities might be necessary (eg, in case of the promissory notes, the secured creditor may cover the outstanding due amount by presenting the promissory note for payment to the issuer s bank). 3. How does a commencement of bankruptcy or insolvency proceedings influence the rights of the security holder to enforce its rights? In bankruptcy or insolvency proceedings, what are the suspect periods, is claw-back possible, and what other types of rights (tax debts, employees, etc.) have preference over security granted? Please explain briefly specific features (if any) of enforcement of security established over following types of assets in a bankruptcy or insolvency proceeding: (I) How does a commencement of bankruptcy or insolvency proceeding influence the rights of the security holder to enforce its rights? In principle, the commencement of a bankruptcy or insolvency proceeding triggers the automatic stay on all court actions or enforcement measures aimed at realising the claims against the debtor or its assets, except for the legal recourse initiated by the debtor (art 36 of Insolvency Law no. 85/2006, as further amended, hereinafter referred to as the Insolvency Law ). However, creditors holding security interests rights (such as mortgage, pledge, lien or other security interest in movable property) may be exempted by the syndic judge (ie, the judge designated to supervise the insolvency proceedings) from such prohibition and may be allowed to enforce their claims provided that certain conditions are met (as detailed in article 39 of Insolvency Law). Mainly, such conditions are as follows: 12

(a) (b) the value of the collateral is inferior to the value of the secured claim and the asset is not essential for the success of the reorganisation plan; or the secured claim is not sufficiently protected by the collateral due to: (i) the decrease of the value of the asset; (ii) the decrease of the secured value of a security having a junior ranking due to the increase of the value of a senior ranking security caused by the accumulation of interest and penalties of the senior debt; or (iii) the inexistence of a proper insurance against loss or deterioration of the collateral. The secured creditors which are not recognised by the syndic judge the special enforcement right pursuant to article 39 of Insolvency Law shall be paid by the liquidator at the end of the bankruptcy procedure with priority from the proceeds of the secured assets. However, secured claims may be outranked by certain privileged claims, as detailed below. (II) In bankruptcy or insolvency proceedings, what are the suspect periods, is claw-back possible, and what other types of rights (tax debts, employees, etc) have preference over security granted? (i) Suspect periods and claw-back provisions The Insolvency Law provides for general hardenings periods of 3 years or 120 days prior to the opening of insolvency proceedings. Suspicious transactions concluded by the debtor within this time frame may be challenged by the receiver (in Romanian: administrator judiciar ) or the liquidator (in Romanian: lichidator ). Transactions that can be challenged include: gratuitous acts concluded up to three years before the opening of the insolvency proceedings; transactions at undervalue, entered into up to three years before the opening of the insolvency proceedings; transactions entered into up to three years before the opening of the insolvency proceedings with the intention of all parties thereto to conceal the debtor s assets or to defraud other creditors; transfers of ownership title to a creditor in order to extinguish a prior debt, concluded within 120 days prior to the opening of the insolvency proceedings, if the value of the transfer exceeds the amount which the creditor could have obtained in case of the debtor s bankruptcy; transactions creating or perfecting security interests for claims which were initially unsecured, concluded within 120 days prior to the opening of the insolvency proceedings; anticipated payments of debts performed up to 120 days prior to the opening of the insolvency proceedings, if the payments were due after the opening of the insolvency proceedings; transfer acts or undertaking of liabilities incurred by the debtor within a period of 2 years prior to the date of opening the proceedings, with the intention to conceal/delay the insolvency status or to deceive a natural or legal person against whom he was debtor on the date of transfer of operations with derivative financial instruments, including the achievement of a bilateral netting agreement, performed under a qualified financial contract; transactions entered into by the debtor with its associates/shareholders holding at least 20 per cent of the social parts/ shares of the debtor or its directors, up to 3 years before the opening of the insolvency proceedings, if the transactions are detrimental to the debtor s creditors. These transactions may be challenged before the syndic judge by the receiver/liquidator or, subsidiary, by a representative of the creditors committee, within 18 months following the opening of insolvency proceedings. As a result of the challenge, the transactions may be annulled by the court. It is also noteworthy that Romanian civil law also recognises the right of the creditors to challenge and require the annulment of the transactions concluded by a debtor with a view to harm creditors interests (actio pauliana). (ii) Priority order In case of the debtor s insolvency, as a rule, secured creditors are paid with priority from the proceeds resulting from the sale of the collateral, after the payment of taxes, stamp duties and other costs relating to the sale of the collateral. 13