When would a loan agreement give rise to the obligation to obtain the prior investment clearance from the Romanian authorities?
A loan agreement needs to obtain prior investment clearance from the Romanian authorities if the following conditions are met:
- First condition: the total amount of the loan must exceed the threshold of EUR 2,000,000 (or RON equivalent);
- Second condition: the borrower must use the amount borrowed in one of the following areas in Romania: the security of citizens and communities, borders, energy, transport, vital resource supply systems, critical infrastructure, information and communication systems, financial, tax, banking and insurance activities, the production and circulation of arms, munitions, explosives, toxic substances, industrial security, disaster protection, agricultural and environmental protection, protection of privatization operations of state-owned enterprises or their management;
- Third condition: the borrower will start a new undertaking with the borrowed funds, expand the capacity of an existing undertaking, diversify the output of an existing undertaking into products or services not previously produced in that establishment or fundamentally change the overall production process of an existing undertaking.
If all of the above three conditions are met, then the loan agreement in question represents the means by which a new investment is made and, as such, needs to obtain investment clearance in advance. It is irrelevant in this case whether the borrower is foreign, EU or Romanian. If the new investment is made on Romanian territory, it must be authorized in advance by the Romanian authorities.
If only the first two conditions above are met and, additionally, (i) the lender is foreign or from the EU, (ii) the borrower is from Romania, (iii) the loan is granted for the borrower to carry out economic activities in Romania and (iv) the loan agreement contains a clause converting the loan into participation to the share capital of the borrower, then the loan agreement represents the means by which a foreign direct investment or an EU investment is made in Romania and such loan agreement will need to obtain clearance in advance from the Romanian authorities. This is because the loan agreement has been entered with the purpose of establishing or maintaining durable and direct links between the lender and the borrower for carrying out of an economic activity in Romania.
In order to ensure that the prohibition of making the investment prior to its authorization is complied with, taking into account the amount of the applicable fine, which is up to and including 10% of the investor’s total worldwide turnover, we recommend that the loan agreement be entered under the condition precedent of the prior authorization of the investment by the Romanian authorities.