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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. 

On 10th of June 2020, the Chamber of Deputies, as the decisional body of the Romanian Parliament, adopted a draft bill (the “Draft bill”) for the amending the Law 129/2019 regarding the prevention and control of money laundering and terrorism financing, as well as amending other bills (“Law 129”).

Currently, in accordance with the provisions of article 56(1) of the Law 129, the obligation to submit the declaration regarding the ultimate beneficiary occurs in any of the following three (3) cases:

  • when the company is incorporated;
  • annualy; 
  • whenever a modification to the beneficial owners already registered in the Trade Registry intervenes, in which case the declaration regarding the ultimate beneficial owner is submitted within 15 days os of the occurence date. 

According to the Draft Bill, the declaration regarding the beneficial owner is to be submitted in any of the two (2) cases: 

  • at the incorporation date and/or
  • whenever a modification to the beneficial owners already registered in the Trade Registry intervenes.  

Where the individuals registered with the Trade Registry are not the real beneficiaries or where the control is exercised by other means, we consider that the obligation to submit the declaration regarding the beneficial owners should continue to exist.

Another amendment which we consider to be opportune is the fact that the declaration regarding the ultimate beneficiary will be submitted only by the companies held by legal persons (thus exempting the companies which are held by individuals).  This amendment is expected to be well received, as, in accordance with the explanatory notes to the Draft Bill, 96,3% of the limited liability companies are set up by individuals, which makes the identification of the ultimate beneficiary very straightforward.

The Draft Bill was sent to the Romanian President for promulgation.  After the promulgation, it will be sent to the Official Gazette for publication in order to enter into force. 

We remind you that on 15th May 2020, other amendments regarding the declaration of the ultimate beneficiary entered into force, namely:

  • the extension of the fifteen (15)-day term until 1st of November 2020 (applicable in case of annual statements or the modification of existing beneficiaries);
  • extension until 1st of November of the term for the companies registered until the entry into force of Law 129, to declare their ultimate beneficiaries.
  • the possibility to submit the declaration of the ultimate beneficiary under private signature and/or in electronic form (with electronic signature) and/or by post and/or by courier.

Conclusion

It is to be seen if the Draft Bill will bepromulgated in the form in which it was adopted.  It is obvious however, that the Romanian business environment requires more than ever a legislative, concise, clear, predictable and digitalised legislative frame, based on the collaboration between institutions.

Starting from the recent events occurred in Romania, as well as in all over the world, it became more and more necessary to properly regulate the contractual clauses, analyze and adapt them in order to protect both contractual parties in case of an event that destabilizes the contractual balance as well as the relations between the parties.

The appearance of the pandemic caused by the Covid-19 virus led to the total or partial impossibility of execution of the contractual obligations for at least one of the parties. In order to minimize the consequences of this unfortunate event, the parties must analyze and rethink their contractual clauses regarding the force majeure and unforeseeability. 

In this context, the question arises – how should these contractual clauses look like? It is indicated, from our point of view, that the parties should consider either a general regulation of these contractual clauses (to be supplemented with the Civil Code) or a very detailed one, covering at least 99% of the situations that the parties may face. 

According to the law, the force majeure represents any external event, unpredictable, absolutely invincible and inevitable. On the other hand, the unforeseeability implies the fact that the execution of the contract has become excessively onerous due to an exceptional change of circumstances which makes it manifestly unfair to oblige a party to the execution of its obligation.

Both of the events that underlie the force majeure and the unforeseeability can lead to the adaptation of the contract or even to the exoneration of contractual liability.

Unlike in the case of contractual unforeseeability, in the case of force majeure, insofar as the parties fail to adapt the contractual clauses, the party that has not performed its obligation will not be able to obtain this in court. Instead, in case of unforeseeability, as we will see below, the parties will be able to appeal to the court in order to restore the contractual balance. 

Also, in case of force majeure, the guilty party will be exonerated (exempt) only from the contractual liability that would have occurred during the period in which the event in question existed (for example, termination of the contract due to non-payment of the price, penalties for non-delivery of goods or non-payment for the provided services). In other words, the exoneration will not be total, respectively, the guilty party will not be totally/partially exonerated from his contractual obligation, but, its execution will be postponed until the end of the event called force majeure. 

How should the contractual clauses be adapted?

A first and – perhaps the most important – way is represented by the negotiation of the contractual clauses by the parties.

The negotiation of the contractual clauses was also encouraged by the Romanian authorities, which established a set of fiscal measures, which would benefit both parties.

Thus, the Romanian authorities have adopted a series of regulations – from exemption of specific tax for the period in which taxpayers interrupt the activity totally or partially during the state of emergency (for example, in the hotel industry) to tax amnesties having as object interests, penalties and other accessories owed by taxpayers.

Also, the legislator provided the reduction of the annual tax on buildings by up to 50% for commercial spaces insofar as the owners of the spaces negotiated with the tenants the reduction of the rent by at least 50%, proportionally with the decrease of the space destined for economic activities. At the same time, according to other legal provisions, the legislator gave the tenant the possibility to obtain the postponement of the rent payment for a certain period.

All these legal benefits were based on the contractual negotiation between the two parties materialized in amendments submitted to the state authorities.

Regardless of the legal benefits, the parties have the freedom to assess the contractual clauses, to analyze the event itself and the effects it has on the contract, but also to decide on the termination of the contract.

The negotiation will be considered as being conducted in good faith, as long as its purpose will be the fair and reasonable adaptation of the contract.

The attempt to renegotiate the contract naturally results from the contractual solidarity and the principle of good faith, which includes the duty of loyalty between the contracting parties. This duty gives rise to the obligation to negotiate in case of an event that leads to the breaking of the contractual balance.

Contractual negotiation is also a preliminary stage of the judicial process. Thus, a second way to obtain the adaptation of the contract is achieved by submitting a claim in court. In this case, the court will analyze whether the execution of the contract has become excessively onerous due to an exceptional change of circumstances which makes it manifestly unfair to oblige a party to perform its obligation.

To the extent that the court agrees with the ones stated above, even if the other party opposes, it will issue a decision in order to adapt the contract, distributing equitably between the parties the losses and benefits resulting from the change of circumstances or even order the termination of the contract.

An important condition that must be met in order to be successful with such an approach is that the party has not waived by contract the benefits of contractual unforeseeability.

In conclusion, in order to choose for an option, it is necessary a pertinent analysis of the contractual clauses, of the occurred event and of the effects it produces on the contract (effect – cause analysis), as well as of the relationship with the other contractual party.