Eye on Emerging Markets - Crowdfunding in Romania

Eye on Emerging Markets | Q1 2022

Crowdfunding in Romania

Building on tax exemptions and accessible corporate maintenance rules, over the years Romania has established itself as a hub for technological developments and financial start-ups. However, certain types of business have not caught wind in Romania due to the legal framework which raised several entry barriers

One of the more important things to be noted in the Crowdfunding Law is the clear distinction....that accepting funds from investors does not constitute deposit-taking and therefore is not a regulated credit activity which is reserved for credit institutions.

Crowdfunding is one example. Globally, crowdfunding popularity has increased as more startups have turned to this type of funding source to raise capital for their projects. According to Million Insights, a market research and consulting company, the global crowdfunding market size is estimated to reach USD 1.30 billion by 2028. Following the entry into force of Regulation (EU) 2020/1503 on European crowdfunding service providers for business (the "Regulation"), Romania may catch up with this industry as well. To this end, Romania has recently passed Law no. 244/2022 on certain measures to give effect to the Regulation (the "Crowdfunding Law"). Many of these measures reflect the local need for investor protection and establish the supervision powers of the Financial Supervisory Authority (the "FSA") in respect of crowdfunding service providers (CSPs). One of the more important things to be noted in the Crowdfunding Law is the clear distinction – as pointed out in Preamble 11 of the Regulation – that accepting funds from investors does not constitute deposit-taking and therefore is not a regulated credit activity which is reserved for credit institutions. Complementary to the above exception, granting loans to project owners through a CSP is not deemed a lending activity, unless it is performed by a non-banking financial institution (a special type of financial institution established by Law no. 93 on non-banking financial institutions). This is particularly interesting given the complex regulatory background whereby many newly founded digital companies face the big question of whether or not the activities they are performing are regulated. The other noteworthy topic is the fact that such loan agreements concluded on the platform between the investors and the project owners, as well as the ancillary security interests concluded to secure the former, are considered writs of execution. The key aspect for investors here is that they are able to enforce such agreements without the need to go through lengthy court proceedings. This could prove rather useful for more sophisticated investors in complex cross-border deals with multiple parties involved, which may well become the norm. Finally, CSPs are entitled to consult and request information from the local credit bureau (the "RO Credit Bureau", Romanian: Centrala Riscului de Credit). The RO Credit Bureau is an entity held by the National Bank of Romania, specialized in the collection, storage, and centralization of information on the exposure of all participating entities (such as credit institutions or payment institutions, among others). Being entitled to such information, CSPs will have access to the data of the debtors of the participating entities with an exposure of more than RON 20,000 (approx. EUR 4,000) such as name, sector of activity, occupation, type of credit agreement, and many more as such.

Written by Claudia Chiper and Cătălin Sabău, Wolf Theiss

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As a result, investors will be able to rely on the sound assessment made by the CSP before investing in a company. Further, it will prove especially useful for sophisticated investors for the purposes of their own internal KYC checks to rely on already existing information that was previously vetted and provided through the RO Credit Bureau. This is of course an aspect that the parties must handle on a contractual basis. Despite all the things done right by the Crowdfunding Law and the Regulation, there is room to improve the legal framework and pave the way for a successful market for both investors and CSPs alike. An example in this sense is the failure of the FSA to establish the required registry for authorised CSPs. As of the date of this article there is no Romanian established CSPs although there are CSPs which are active on the Romanian market such as Seedblink, which has deemed itself as a crowdfunding service provider. Furthermore, the lack of grandfathering provisions after November 2022 at a European level and the lack of a previous legal framework in Romania makes it easier for new and existing CSPs alike to become authorised by the FSA. To conclude, the crowdfunding market in Romania seems primed to make a case for itself as an alternative to common lending practices.

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Eye on Emerging Markets | Q3 2022

Cătălin Sabău Associate, Finance | Wolf Theiss E: catalin.sabau@wolftheiss.com T: +40 21 308 81 00

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Claudia Chiper Partner, Finance | Wolf Theiss E: claudia.chiper@wolftheiss.com T: +40 21 308 81 00

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Eye on Emerging Markets | Q3 2022

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Eye on Emerging Markets | Q3 2022

UAE recognises reciprocal enforcement of English court judgments

In a significant step for the recognition of English court judgments, the UAE Ministry of Justice (the “MOJ”) has issued a communiqué to the Director General of the Dubai Courts (the “communiqué”) confirming that judgments issued by the English Courts should now be enforced in the UAE based on the principle of reciprocity.

Under the same conditions as prescribed in the law of that [foreign] country for the execution of judgments and orders issued in the UAE.

In the absence of a treaty between the UK and the UAE providing for the mutual recognition and enforcement of judgments, the ability to enforce an English court judgment in the UAE is entirely a matter of the domestic law of the UAE. The enforceability of foreign judgments in the UAE is governed by Article 85 of Federal Cabinet Decision No. 57 of 2018 (implementing the UAE Civil Procedure Code) (the “Cabinet Decision”). This provides that a foreign judgment may be executed in the UAE: In short, this means that the UAE will enforce a foreign judgment where there is reciprocity of enforcement between the UAE and the relevant foreign jurisdiction. The recent communiqué follows the (now final) English High Court decision in Lenkor Energy Trading DMCC v Puri [2020] EWHC 75 (QB), which considered the enforcement of a judgment issued by the Dubai courts. In the instant case the English courts were asked not to enforce a Dubai court judgment on the basis it would be contrary to public policy on various grounds, including that the underlying contract was tainted by illegality. However, the public policy arguments made before the court were not accepted, the High Court making it clear that, in order to rely on a public policy defence as a matter of English law, “it is the judgment and not the underlying transaction upon which the judgment is based which must offend English public policy”. It therefore matters not that the fact pattern on which a foreign judgment is based might generate a different outcome had the same facts been tried before the English courts, so long as recognising the judgment itself would not offend English public policy. The judgment of the Dubai courts in its original form was therefore enforceable in England and it is this that has led the MOJ to determine there is reciprocity of enforcement by the English courts.

Written by Barry Cosgrove, Chris Street and Hannah Davies

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However, reciprocity alone does not mean that the UAE courts will now automatically enforce English court judgments. Article 85(2) of the Cabinet Decision also requires the UAE courts to look at (i) whether the UAE courts have (or had) exclusive jurisdiction over the dispute, (ii) whether the judgment to be enforced conflicts with a judgment of the UAE courts, and (iii) whether the judgment is consistent with public policy in the UAE. These additional requirements could therefore serve to limit (at least in some way) the extent to which English court judgments are recognised in the UAE. In particular: • the UAE courts have historically tended to assume jurisdiction in any case involving a UAE national or entity, irrespective of the terms of any underlying document (although the criteria in the Cabinet Decision that jurisdiction needs to be “exclusive” ought to be helpful); • concurrent proceedings may result in conflicting judgments, in which case any judgment of the UAE courts will likely prevail; and the UAE courts have very broad discretion on matters of public policy, which also extends to any outcome that would be incompatible with Shari’a (Islamic) principles. It is also worth noting that there is nothing in the Cabinet Decision that expressly prohibits a UAE court from reviewing the merits of an English court judgment, even if the criteria in Article 85 are otherwise satisfied. To date, it has been common to include an arbitration clause in contracts with a nexus to the UAE due to the uncertainty with respect to the enforcement of foreign court judgments by the UAE courts. Parties looking to enforce an English judgment in the UAE may take some comfort from MOJ’s “desire to strengthen fruitful cooperation in the legal and judicial field”, but, at least in the short term, we expect cross-border agreements to still feature arbitration provisions until it is clear how the UAE courts give effect to this communiqué (particularly given it does not have any binding legal effect).

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Hannah Davies Associate, London E: hdavies@mayerbrown.com T: +44 20 3130 3258

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Chris Street Senior Associate, London E: cstreet@mayerbrown.com T: +44 20 3130 3831

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Barry Cosgrave Partner, London E: bcosgrave@mayerbrown.com T: +44 20 3130 3197

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