Transparency of the Regulatory System
Foreign investors point to the excessive time required to secure necessary zoning permits, environmental approvals, property titles, licenses, and utility hook-ups. The Public Consultation Ministry, established by the previous government in 2016, seems to have lost its previous position as one of the main drivers of transparency and outreach to stakeholders and the general public. With one or two exceptions, new cabinet ministers have not held inaugural press conferences to unveil their agendas. Government agencies’ websites still have information dating back to the previous government, or provide only scarce information about the current leadership.
Romanian law requires consultations with stakeholders, including the private sector, and a 30-day comment period on legislation or regulation affecting the business environment (the “Sunshine Law”). Some draft pieces of legislation pending with the government are available in Romanian at http://www.sgg.ro/acte-normative/ . Proposed items for cabinet meetings are not always publicized in advance or in full. The government appointed a spokesman in early March and has yet to establish the routine of regular press briefings. As a general rule, the agenda of cabinet meetings should include links to the draft pieces of legislation (government decisions, ordinances, emergency ordinances, or memoranda) slated for government decision. Legislation pending with the parliament is available at http://www.cdep.ro/pls/proiecte/upl_pck2015.home for the Chamber of Deputies and at https://www.senat.ro/legis/lista.aspx for the Senate. The Chamber of Deputies is the decision body for economic legislation. Regulatory impact assessments are often missing, and Romanian authorities do not publish the comments they receive as part of the public consultation process.
International Regulatory Considerations
As an EU member state, Romanian legislation is largely driven by the EU Acquis Communautaire, the body of EU legislation. EU regulations are directly applicable, while implementation of directives at the national level is done through national legislation. Romania’s regulatory system incorporates the European standards.
Legal System and Judicial Independence
Romania recognizes property and contractual rights, but enforcement through the judicial process can be lengthy, costly, and difficult. Foreign companies engaged in trade or investment in Romania often express concern about the Romanian courts’ lack of expertise in commercial issues. Judges generally have limited experience in the functioning of a market economy, international business methods, intellectual property rights, or the application of Romanian commercial and competition laws. Inconsistency and a lack of predictability in the jurisprudence of the courts or in the interpretation of the laws remains a major concern for foreign and domestic investors and for wider society. Even when court judgments are favorable, enforcement of judgments is inconsistent and can lead to lengthy appeals. Failure to implement court orders, or cases where the public administration unjustifiably challenges court decisions, constitute obstacles to the binding nature of court decisions.
Mediation as a tool to resolve disputes is gradually becoming more common in Romania, and a certifying body, the Mediation Council, sets standards and practices. The professional association, the Union of Mediation Centers in Romania, is the umbrella organization for mediators throughout the county. Court-sanctioned and private mediation is available at recognized mediation centers in every county seat.
There is no legal mechanism for court-ordered mediation in Romania, but judges can encourage litigants to use mediation to resolve their cases. If litigants opt for mediation, they must present their proposed resolution to the judge upon completion of the mediation process. The judge must then approve the agreement.
Laws and Regulations on Foreign Direct Investment
Romania became a member of the European Union on January 1, 2007. The country has worked assiduously to create an EU-compatible legal framework consistent with a market economy and investment promotion. At the same time, implementation of these laws and regulations frequently lags or is inconsistent.
Romania’s legal framework for foreign investment is encompassed within a substantial body of law largely enacted in the late 1990s. It is subject to frequent revision. Major changes to the Civil Code were enacted in October 2011 including replacing the Commercial Code, consolidating provisions applicable to companies and contracts into a single piece of legislation, and harmonizing Romanian legislation with international practices. The Civil Procedure Code, which provides detailed procedural guidance for implementing the new Civil Code, came into force in February 2013.
Romania has also passed a judicial reform law with the objective of improving the speed and efficiency of judicial processes, including provisions to reduce delays between hearings. The Mediation Law, revised in October 2012, provides alternative dispute resolution options. The new Criminal Code, that includes provisions applicable to economic felonies, came into effect in February 2014. The 2003 Fiscal Code and Fiscal Procedure Code, amended several times since their passage, were revised in September 2015. Fiscal legislation is revised frequently, often without scientific or data-driven assessment of the impact the changes may have on the economy.
Given the state of flux of legal developments, investors are strongly encouraged to engage local counsel to navigate the various laws, decrees, and regulations, as several pieces of investor-relevant legislation have been challenged in both local courts and the Constitutional Court. There have been few hostile take-over attempts reported in Romania, yet Romanian law has not focused on limiting potential mergers or acquisitions. There are no Romanian laws prohibiting or restricting private firms’ free association with foreign investors.
Competition and Anti-Trust Laws
Romania has extensively revised its competition legislation, bringing it closer to the EU Acquis Communautaire and best corporate practices. A new law on unfair competition came into effect in August 2014. Companies with a market share below 40 percent are no longer considered to have a dominant market position, thus avoiding a full investigation by the Romanian Competition Council (RCC) of new agreements, saving considerable time and money for all parties involved. Resale price maintenance and market and client sharing are still prohibited, regardless of the size of either party’s market share. The authorization fee for mergers or takeovers ranges between €10,000 (USD10,600) and €50,000 (USD53,000). The Fiscal Procedure Code requires companies that challenge an RCC ruling to front a deposit while awaiting a court decision on the merits of the complaint.
Romania implemented the EU Public Procurement Directives through four laws passed in May 2016. They outline general procurements of goods and equipment, utilities procurement (sectorial procurement), works and services concessions, and remedies and appeals. An extensive body of secondary and tertiary legislation accompanies the four laws. Separate legislation governs defense and security procurements. In a positive move, this new body of legislation moves away from the previous approach of using lowest price as the only public procurement selection criterion. Under the new laws, an authority can use price, cost, quality-price ratio, or quality-cost ratio. The new laws also allow bidders to provide a simple form (the European Single Procurement Document) in order to participate in the award procedures. Only the winner must later submit full documentation.
The new public procurement laws stipulate that challenges regarding procedure or an award can be filed with the National Complaint Council (NCC) or the courts. Disputes regarding execution, amendment, or termination of public procurement contracts can be subject to arbitration. The new laws also stipulate that a bidder has to notify the contracting authority before challenging either the award or procedure. Not fulfilling this notification requirement results in the NCC or court rejecting the challenge.
Expropriation and Compensation
The law on direct investment includes a guarantee against nationalization and expropriation or other equivalent actions. The law allows investors to select the court or arbitration body of their choice to settle disputes. Several cases involving investment property nationalized during the Communist era remain unresolved. In doing due diligence, prospective investors should ensure that a thorough title search is done to ensure there are no pending restitution claims against the land or assets.
Five investor-state arbitration cases against Romania are currently pending with the International Center for Settlement of Investment Disputes (ICSID).
Romania increasingly recognizes the importance of investor-state dispute settlement and has provided assurances that the rule of law will be enforced. Many agreements involving international companies and Romanian counterparts provide for the resolution of disputes through third-party arbitration.
Romanian law and practice recognize applications to other internationally-known arbitration institutions, such as the International Chamber of Commerce (ICC) Paris Court of Arbitration and the United Nations Commission on International Trade Law (UNCITRAL). Romania has an International Commerce Arbitration Court administered by the Chamber of Commerce and Industry of Romania. Additionally, in November 2016, the American Chamber of Commerce in Romania (AmCham Romania) established the Bucharest International Arbitration Court (BIAC). This new arbitration center will focus on business and commercial disputes involving foreign investors and multinationals active in Romania.
ICSID Convention and New York Convention
Romania is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Romania is also a party to the European Convention on International Commercial Arbitration concluded in Geneva in 1961, and is a member of ICSID.
Duration of Dispute Resolution – Local Courts
According to World Bank Doing Business report, it takes on average 512 days to enforce a contract, from the moment the plaintiff files the lawsuit until actual payment. Associated costs can total around 29 percent of the claim. Arbitration awards are enforceable through Romanian courts under circumstances similar to those in other Western countries, although legal proceedings can be protracted.
Romania’s bankruptcy law contains provisions for liquidation and reorganization that are generally consistent with Western legal standards. These laws usually emphasize enterprise restructuring and job preservation. To mitigate the time and financial cost of bankruptcies, Romanian legislation provides for administrative liquidation as an alternative to bankruptcy. However, investors and creditors have complained that liquidators sometimes lack the incentive to expedite liquidation proceedings and that, in some cases, their decisions have served vested outside interests. Both state-owned and private companies tend to opt for judicial reorganization to avoid bankruptcy.
In December 2009, the debt settlement mechanism Company Voluntary Agreements (CVAs) was introduced as a means for creditors and debtors to establish partial debt service schedules without resorting to bankruptcy proceedings. The global economic crisis did, however, prompt Romania to shorten insolvency proceedings in 2011.
According to the World Bank’s Doing Business report, resolving insolvency in Romania takes 3.3 years on average and costs 10.5 percent of the debtor’s estate, with the most likely outcome being a piecemeal sale of the company. The average recovery rate is 34.4 cents on the dollar. Globally, Romania stands at 49 in the ranking of 190 economies on the ease of resolving insolvency.