Blog Bucharest

For a bilateral chamber of commerce such as the British Romanian Chamber of Commerce to exist, it necessarily requires that there should be international business between the two countries. Whilst some may argue in favour of protectionism and trade (and other) barriers I think that it is fairly safe to suppose that readers of TheBizz are not likely to be of that view, but rather of the view that international trade links promote wealth of nations and international understanding.

Trade is done by enterprising people and international trade supposes a willingness of such people to leave their home countries to do business and live in other countries. I will mark the 25th anniversary of my move from the UK to Romania in a couple of months and I have been struck by how much Romania and the UK – and, particularly, Scotland – have in common, each having a relatively large diaspora.

Spring is at last upon us and we are well past 25 January, when the immortal memory of Scotland’s national poet Robert Burns is celebrated. Whilst we may hope as expatriates that our presence in our host countries is to the general benefit of those host countries, there is a line of Burns’s poetry that comes to mind:

„O wad some Pow’r the giftie gie us, To see oursels as others see us!”

For those who are unfamiliar with the Scots in which this is written, the poet makes the point that it is a good thing to see ourselves from the perspective of others. Distance aids perspective and so living as an expatriate in another country not only broadens our understanding of the host culture but also allows us a better perspective of our home counties. This is particularly so with the advances in the internet and other means of communications which means that I, for instance, can read the Aberdeen Press & Journal at my desk in Bucharest as well as keeping up with developments in Romania. To my mind, the right of free movement was a particular advantage of membership of the EU and many British citizens have taken advantage of that right. Similarly, many Romanians have taken advantage of that right to move to the UK until the recent end of the post-BREXIT transition period.

Some diasporas support their home countries by sending back a part of what they earn abroad. This can be an important source of foreign income but my view is that exchanges of ideas are more valuable. Romania is very fortunate that Romanians have the right to vote based upon their citizenship, not upon where in the world they happen to live. Members of the diaspora, particularly if they decided to move to broaden their understanding, education, and experience or to pursue business opportunities that may not be available at home, can have a different perspective from those who remain at home. In my experience, an independent mind is a particular aspect of members of the diaspora – they are less likely to be influenced by domestic economic factors which may affect their compatriots at home, such as working in the public sector or state-owned sector, or receiving a pension given by the state. Looking back at elections in Romania, the influence of the Romanian diaspora has been remarkable and in my view, has had a very positive influence on the business environment in Romania.

The UK has the reputation of being a beacon of democracy, so it has been difficult for me when asked by Romanian and other foreign friends how I voted in the referenda on BREXIT and on whether Scotland should leave the UK to explain that I had no vote in these matters, notwithstanding that they both affect me directly. This is because the UK bases the right to vote on residence in particular geographic areas of the country and denies the right to vote to those who have not been resident there for more than 15 years. Similar considerations apply to the right to vote in elections to the devolved legislatures such as the Scottish Parliament.

It was therefore very good news to hear that the recent UK budget has allocated funding to allow the abolition of the “15-year rule” and that legislation is to be introduced to restore the UK Parliamentary voting rights of all expatriates. It is fruitless to speculate whether the UK would have left the EU had the voting rights of expatriates not been limited in this way, but my view is that the voices of our diasporas in all of the legislatures in the UK can only be good for the UK and its constituent nations, in the same way, that the votes of Romania’s diaspora have helped Romania.

Source: International business, democratic accountability and the diaspora

We sat down to our Christmas festivities of 2020 safe in the knowledge that a deal had been negotiated between the UK and the EU for many aspects of their future trading relationship. More than one month after the entry into effect of the new relationship, it is interesting to see how far the „Deal” has covered what was expected – and what has since emerged, which was perhaps not expected by many.

The concerns of gridlock on the roads leading to the Channel ports and empty shelves in the shops have, by and large, not been borne out by what has happened. Given that Romania and the UK are on opposite sides of the continent of Europe, it might be supposed that there would be limited chances of disruption being caused by the new arrangements. There is the saying that it is an ill wind which blows no-one any good, and perhaps one fortunate (if that is the correct word) for the effects of the COVID-19 pandemic is that international travel has fallen off dramatically from normal levels. The current lower levels of international traffic do at least give a chance for us to see how the new arrangements between the UK and the EU are to be made to work, particularly in relation to Romania, without too many people being affected by teething troubles.

There have however been some issues reported. It should be remembered that the UK’s departure from the EU has not affected the relationship existing between the UK and Romania either under the bilateral investment protection treaty between the two countries or under the bilateral treaty on avoiding double taxation. A large part of the framework for business, therefore, remains the same. Notwithstanding the UK’s interest in striking trade deals with countries around the globe, the advantages of doing business and investing between the UK and Romania remain clear, particularly if we can look forward to a period of stable and predictable government in Romania.

The issues of which I have heard should not pose a particular concern for business people. Sending goods – even if they are presents of relatively low value – between the two countries has now caused surprises to some recipients when they find that they are liable to pay VAT on them. On the other hand, I have also heard that companies that deal with the import and export of goods have created more jobs to deal with the new formalities, so there is perhaps a „silver lining” to this particular cloud.

The largest concern appears to be for the free movement of people. Shortly after the New Year I became involved in the situation of a UK citizen who arrived in Romania intending to start work for a business here. It appears that this person’s documentation as an intended employee was not in order and despite the efforts of the Chamber in raising the situation with the British Embassy, admission to Romania was refused and the person was returned to the UK. This is hopefully an isolated incident and may perhaps be explained by confusion over the rights of UK citizens to visit Romania, but it illustrates that a flexible approach to fixing issues with employment documents for newcomers once they have arrived in Romania cannot yet be guaranteed. Such interpretations of the new arrangements are not helpful for business between the two countries and the BRCC urges that a more business-friendly approach will be adopted on both sides.

This brings me to the title of this article. Personal imports of dairy and meat products are now no longer permitted – and the resulting confiscation of the cheese-and-ham sandwiches of lorry drivers arriving in the Netherlands from the UK was a particular story in the British media. We will need to see how such rules are applied in practice as Brexit fades into the past, but the idea of a former Anglican chaplain in Bucharest of bringing in a sausage machine and seasonings from the UK so as to be able to make British sausages with Romanian pork may yet prove to be a good model for future business!

Source: Be careful what you wish for – or the unexpected case of the cheese and ham sandwiches

On 6th July 2020, the European Commission published a notice to stakeholders regarding the transfer of personal data from the EU to the UK after the end of the transition period, i.e. 31 December 2020.  Until 31 December 2020, the EU law is applicable to the UK.

Data protection law in the UK before 31 December 2020

All UK organisations that process personal data are currently bound by two laws: the EU GDPR and the UK DPA (Data Protection Act) 2018. Both of this two laws continue to apply until the end of the transition period.

What happens after 31 December 2020?

After 31 December 2020, any transfer of personal data from the EU to the UK will need to comply with the requirements applicable to transfers of personal data from the EU to third countries.  The exceptions to this rule are the ones provided by article 71 (1) of the Withdrawal Agreement (the “Withdrawal Agreement”) concluded between the EU and the UK regarding the terms of withdrawal of the UK from the EU.  

  • “were processed under the EU law in the UK before the end of the transition period or;
  • are processed in the UK after the end of the transition period on the basis of the Withdrawal Agreement”.

Under the provisions of Chapter V of the European General Data Protection Regulation (“GDPR”), the transfer of personal data from the EEA countries to non-EEA countries may be performed if certain safeguards are applied, such as:

  • Standard data protection clauses;
  • Binding corporate rules;
  • Codes of conduct and certification;
  • Derogations.

The personal data of the subjects located outside the UK may be processed in the UK after 31 December 2020, if:

  1. is transmitted to the UK or otherwise processed in the UK before 31 December 2020; or
  2. is transmitted to the UK or otherwise processed in the UK after 31 December 2020 on the basis of the Withdrawal Agreement.

https://ec.europa.eu/info/sites/info/files/brexit_files/info_site/data_protection_en.pdf
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:12019W/TXT(02)&from=EN

The Data Protection Act 2018 enacts the EU GDPR’s requirements in UK law. The UK Government has issued a statutory instrument – the Data Protection Privacy and Electronic Communications (Amendments etc) (EU Exit) Regulations 2019 – which amends the Data Protection Act 2018 and merges it with the requirements of the EU GDPR to form a data protection regime that will work in a UK context after Brexit – this will be known as UK GDPR.

The EU GDPR and the proposed UK GDPR are not very different, so the organisations that process personal data should continue to comply with the requirement of the EU GDPR. The EU GDPR’s requirements as implemented by Parts 3 and 4 of the Data Protection Act 2018 will continue to apply for law enforcement and intelligence purpose.

Corporate rules and standard contractual clauses that will be binding

If the EU and UK do not reach an adequacy decision by 31 December 2020, organisations in the UK that process EU residents’ personal data will have to rely on other safeguards. After UK leaves the EU, the Information Commissioner’s Office will no longer be a supervisory authority under the EU GDPR, and will not be able to approve transfers of personal data from the EEA to the UK. 

What non-compliance penalties will be applied after 31 December 2020?

UK companies continuing to do business with the EU after Brexit will need to comply with the Regulation to avoid infringements.

The infringements of the EU GDPR’s requirements for transferring personal data to third countries or international organisations are subject to the higher level of administrative fines: up to €20 million or 4% of annual global turnover – whichever is greater. Organisations that process EU residents’ personal data should therefore put measures in place to ensure they continue to comply with the law after 31 December 2020 in case no adequacy decision is reached.

For a long time, the companies have been fighting with the enforcement procedures started by the fiscal bodies, as well as with their actions submitted in the insolvency procedure in order to block the procedure and to ensure the state’s priority.

According to the former insolvency law, the assets alienated in the procedure were acquired free of any encumbrances, except for the precautionary measures issued during the criminal proceedings. This legal text has given rise to much controversies in both doctrine and judicial practice.  

The judicial liquidators proceeded to:

  1. Capitalization of the assets in the insolvency procedure, considering – correctly – that once the criminal process is solved, the claim obtained by the fiscal body will be an unsecured one, which will not prevent in any way the sale of the insolvent company’s assets and will not prevent the distribution of the price to the secured creditor; OR
  2. Request to the criminal court to lift the precautionary measure; the decision, in this case, was to reject the request as unfounded due to the fact that the basis of the precautionary measure still subsists; OR
  3. Request to the syndic judge to lift the precautionary measure; this request was rejected as inadmissible due to the fact that it is not in its jurisdiction to decide on issues of criminal law; OR
  4. Request to the syndic judge, to the detriment of the secured creditors, the suspension of the insolvency procedure until the final decision is issued in the criminal case file. The basis of this request was the assessment of the insolvency practitioner regarding the nature of the claim that has to be definitively established by the criminal court and its priority as a result of the persons holding this claim (art. 2328 from the Civil Code).

Unfortunately, although in the new insolvency law, the text related to the capitalization of assets which are object of the precautionary measures established by the criminal bodies was modified, the problems in the legal practice remained.

By Decision no. 1/20.01.2020, the High Court of Cassation and Justice established that “the existence of precautionary measures established in the criminal proceedings on the assets of a legal entity, prior to the opening of the insolvency proceedings, for special confiscation, reparation of damage caused by crime or guaranteeing the execution of judicial costs:

a) does not suspend the liquidation procedure provided by Law no. 85/2014 regarding the seized property;

b) does not make unavailable the assets on which the capitalization procedure was initiated according to the provisions of Law no. 85/2014;

c) does not prevent the liquidation of the assets carried out by the judicial liquidator in the exercise of the attributions conferred by Law no. 85/2014 “.

In other words, with this decision, a big step was taken in the process of unblocking the insolvency procedure. Of course, the courts specialized in the field of insolvency started to take into consideration this decision also in relation to the insolvency proceedings started under the rules of the former law.

After the claim was established definitively by the criminal court, as a result of this “priority”, there were situations in which the fiscal bodies began the enforcement procedures against the insolvent company, blocking the debtor’s accounts and the procedure of capitalization of assets under the insolvency law. This was succeeded by the challenges submitted by the secured creditors, debtor or even by the judicial liquidator aiming for his fee.

The judicial practice regarding the challenges submitted against this kind of enforcement procedures has always been controversial, the decisions being quite surprising.

It should be mentioned that the legislator chose that these enforcement challenges have to be solved by the district courts as first courts and in appeal by tribunals that are not specialized in insolvency. Although, most likely, the basis of this regulation was the low complexity – in general – of this challenges and also the relief of the superior courts, this provisions, unjustifiably, increased the duration of the court cases and led to court decisions in total contradiction with the judicial practice carried out by the courts specialized in insolvency.

On 20.07.2020, the High Court of Cassation and Justice issued a Review for uniform interpretation of law, stating the following:

  1. the syndic judge has in its jurisdiction the challenges submitted against the enforcement procedures initiated by the fiscal creditors for the recovery of the claims born as a result of the development of the reorganization plan;
  2. the temporary measures regarding the lifting, suspension and temporary suspension of the enforcement procedure, requested through the presidential ordinance, will be solved by the syndic judge that has to solve the challenges mentioned at point 1.

In other words, the Supreme Court granted a decision only regarding the receivables born during the reorganization procedure (insolvency) and owed to the fiscal bodies. In fact, the court ruled only within the limits notified by the General Prosecutor of the Prosecutor’s Office attached to the High Court of Cassation and Justice. The legal reasons of the decision are to be analyzed by the time the decision is drafted and published in the Official Gazette. 

For the same reasons, for the rest of the claims, we consider that it would be necessary to amend the Civil Procedure Code by giving all the enforcement challenges related to the insolvency procedure in the jurisdiction of the syndic judge (fully specialized).

In another decision – Review for uniform interpretation of law no. 18/2019, in opposition to the above, the High Court of Cassation and Justice established that the civil sections of the courts have in their jurisdiction the appeals submitted against the enforcement procedures started under the provisions of art. 260 of the Fiscal Procedure Code.

However, in its decision, the Supreme Court states the following:

“65. Or, if in determining the functionally competent court the nature of the contested act would be relevant, then, by reference to art. 10 of Law no. 554/2004, the case should be solved on the merits by the tribunal or the court of appeal, and not by the district court.

66. However, this solution would contradict the will of the legislator, who, by introducing art. 260 of Law no. 207/2015, understood to treat in the same way, from a procedural point of view, all challenges submitted against enforcement procedures, regardless of whether they concern acts issued in a fiscal procedure or acts issued in the execution of legal relations under private law, stating that they will be in the jurisdiction of the district court, as a first court.

67. Last but not least, by reference to the provisions of art. 95 point 4 of the Civil Procedure Code and art. 10 of Law no. 554/2004, the administrative contentious sections of the courts do not judge on appeal, as the High Court of Cassation and Justice ruled – the competent court in order to judge the Review for uniform interpretation of law Decision no. 17 of September 18, 2017, published in the Romanian Official Gazette, Part I, no. 930 of November 27, 2017, and regarding the challenges submitted against the enforcement procedures, there are no special provisions which derogate from this rule. ”

In other words, a solution to these problems would be to amend the Civil Procedure Code with the purpose of establishing in the jurisdiction of specialized courts all the enforcement challenges concerning legal acts issued in various special procedures (insolvency, tax, labor law). 

On 19 March 2020, the European Commission adopted the State Aid Temporary Framework (the “Temporary Framework”) designed to support the economies of the member states in the context of Covid-19 pandemic (the “Pandemic”).  Since that date, the Temporary Framework has been amended twice but neither change took into account the micro, small and newly founded companies (which include the start ups).

To this extent, on 29 June 2020 the European Commission adopted a third amendment (the “Amendment”) to the Temporary Framework, with the purpose to include support to micro and small companies, including start ups.  If the Amendment is agreed upon by the Member States, then the Temporary Framework would be extended as follows:

  • the Member States will be able to provide state support to all micro, small and newly founded companies (including start ups), even if they faced financial difficulty on 31 December 2019;
  • Provide incentives for private investors to participate in coronavirus-related recapitalisation measures (where the private investors participate in the share capital increase of the respective company, together with the Member State).

Why have the start ups been excluded so far from the benefit of a state aid?

A start up is a new company founded with the purpose to develop an original product and/or service and to put it on the market.  It is thus initially financed by the owner(s) and its family and friends.

In an early stage, start ups have little or no revenue but have the idea of the product or service that they wish to develop.  They have no profit, are short of liquidities and are thus seen in financial difficulty.  Such circumstance excludes the start up from getting a state aid which leads to bankruptcy.

Why is there is a need to grant state aid to start ups?

Even if the start up funding mechanisms have greatly evolved over the last years, including crowdfunding, investment syndicates and Venture Capital firms, the Pandemic has revealed the fragility of these small businesses.

Start ups are essential in order for economies to recover and to thrive in the coming months and years.  The investments are also going to be difficult to raise, but the problems which require solutions and products developed by start ups are increasing.

Which are the conditions to benefit from state aid, once the Amendment to the Framework is approved by the Member States?

Further to the provisions of the Amendment, the state aid provided under the Temporary Framework is available for start ups which were already in financial difficulty on 31 December 2019, under the following conditions:

  • The company is not in insolvency proceeding or;
  • Has not received aid which has not been repaid or;
  • It is not subject to a restructuring plan under the State aid rules.

The Temporary Framework has been very well received by the advocacy groups and by the players in the field and shows that the small and micro enterprises are important for the EU economy.

  1. https://ec.europa.eu/commission/presscorner/detail/en/ip_20_1221

The concept of insolvency according to the Romanian Law

Over the years, most of the companies considered the insolvency procedure as the beginning of the end. As the time went by and the insolvency provisions were adapted to the needs of the debtors and creditors, they stared to understand the necessity of insolvency and also began to take an interest in the options available in order to recover their companies.  

Even though most of the people consider that the insolvency procedure and the bankruptcy procedure are the same thing, the two notions are very different from the definition to the conditions, applicability and effects. 

Pursuant to Law no. 85/2014, one company can enter into insolvency in case it does not have any cash availability, but wants to pay its creditors. Anyone who has interest can initiate the insolvency procedure – the creditors or even the debtor. 

In comparison to the insolvency procedure, the bankruptcy procedure consists in capitalization of the assets of the company. By way of exception, in the insolvency procedure the assets of the company can be sold in case they are not necessary in order to carry out the reorganization plan. In case the debts are very big and the debtor does not have any possibility to attract investment, the company can request to enter directly into the bankruptcy procedure. 

Basically, it is not necessary to enter into bankruptcy. The company can appeal to several options in order to avoid entering in the bankruptcy procedure and to manage to save the company by paying only some of the claims and continue its activity. 

The stages of the insolvency procedure

The insolvency procedure has 2 stages: 

  1. The observation stage – which lasts until the period of 30 days – after the final table of creditors is issued – ends. After this moment, the company goes into reorganization or bankruptcy; 
  1. The reorganization stage which consists in devising a plan in order to come out successfully from the insolvency procedure; the most important thing is that in this stage, the debtor chooses to pay just some of the creditors (maybe the most important ones); in case the debtor fulfills all its obligations stated in the reorganization plan, the company gets out successfully from the insolvency procedure without any kind of debts; in case the debtor does not fulfill its obligations, the company enters into bankruptcy. 

The advantages of the reorganization procedure

The advantages that the company has once it enters into the insolvency procedure and it fulfills the obligations stated in the reorganization plan are: 

  1. Once the insolvency procedure is opened, all the enforcement procedures started against the debtor are suspended; all creditors have to register their claims to the creditor`s table issued in the insolvency procedure;  
  1. Once the insolvency procedure is opened, the employees of the company are registered automatically by the judicial administrator (approved by the creditors) to the table of creditors and claims; 
  1. Through the reorganization plan, the debtor has the possibility to choose to pay just a part of the creditors; this means that some of the claims will suffer a haircut; in case the company does not fulfill its obligations stated in the reorganization plan, the haircut of the claims is no longer valid, but in case they are fulfilled, the company is not held responsible for the rest of the debt;  
  1. Once the debtor manages to fulfill its obligations stated in the reorganization plan, all its debts are being wiped out; 
  1. The employees are always protected through the reorganization plan; even in case of bankruptcy, the employees have priority in relation to other creditors; 
  1. The debtor continues its activity and manages to keep all/some of the employees; 
  1. In the reorganization procedure, the administrator of the company can manage the activity of the debtor under the supervision of the judicial administrator approved by the creditors; once the debtor enters into bankruptcy, the right of the administrator of the company is lifted; 
  1. The administrator of the company has the right to propose an action plan considered appropriate for the recovery of the firm (for egg, based on attracting an investor or on the signing of different contracts). 

In conclusion, through the reorganization procedure, the company can get rid of the “broken” part of it. Therefore, in case this stage is carried out correctly and according to the law, the company has all the reasons to continue its activity.