This article will provide a snapshot of the major regulatory reforms in the Republic of Moldova affecting the M&A sector. Having been directly involved in assisting the Moldovan government to cope with the challenges of the reform era, our legal specialists would like to share in this brief overview just some of the actions which have influenced or will influence the M&A sector in Moldova, which is ready to start growing.
Protection of Competition
In July 2012 the new Competition Law was approved in Moldova. The law provides for specific rules on competition clearance of economic concentrations by the Competition Council, the competent Moldovan competition authority. Thus, prior to putting an economic concentration into operation, parties involved in the transaction should take care to obtain proper competition clearance, otherwise their transaction may lead to negative legal consequences.
The new Competition Law has set out more clearly the thresholds that make competition clearance mandatory. An economic concentration is subject to notification when the combined turnover of all undertakings involved in a deal exceeds MDL 25 million (about EUR 1.6 million) for the year preceding the intended transaction, and at least two of the undertakings concerned had a turnover in Moldova exceeding MDL 100 million (about EUR 633,000) in the year preceding the transaction. The penalty for failure to notify the competent competition authority can be significant, reaching up to 4% of the turnover for the preceding year.
At the moment, only three economic concentrations have been cleared and authorized by the Competition Council. However with the improvement of the economy and an increase in the efficiency of the Competition Council, we expect to see growth in M&A deals next year.
Simplification of the corporate reorganization procedure
M&A deals as a rule lead to corporate reorganizations which are subject to proper registration by Moldovan competent authorities. The legal formalities related to corporate reorganizations have been rather lengthy and bureaucratic in Moldova, sometimes exceeding six months prior to formal entry of changes in corporate documents. Companies involved in reorganization were required to publish an announcement on their reorganization in two consecutive issues of the Official Gazette of the Republic of Moldova. Upon being informed of reorganization, any creditors could request that the company being reorganized provide additional guarantees for their claims within two months of the announcement’s publication.
a) The term for creditors to request additional guarantees was reduced from two months to one month from the moment of publication of the announcement in the Official Gazette of the Republic of Moldova or from the date of other notice to the creditor.
b) The number of notifications required to be published was reduced from two announcements to one.
c) The term for submission of reorganization documents for registration was reduced to thirty days after proper notification of creditors, while prior to reform it was three months.
d) Finally, all notifications published in the course of the reorganization process will be also placed free of charge on the official website of the Moldovan registration authority, which will reduce the costs of informing the creditors.
Alternative dispute resolution mechanisms in M&A deals
One of the major challenges to foreign investments in Moldova is the quality of the judicial system and enforcement of judgments. As a prevailing practice foreign investors insist that a foreign law governs M&A deals involving Moldovan entities and that potential disputes be settled in a foreign forum (the usual choices are the arbitration courts of Hague, Stockholm or Paris). Still a number of aspects in an M&A deal are subject to Moldovan legislation, a fact which requires the close attention of Moldovan counsel preparing a legal opinion on any transaction. It should be noted that a choice of Moldovan law and venue in fact may offer decent comfort to foreign investors, at a much lower cost. Of course, there’s little doubt that a better legal framework and more transparent dispute resolution process would significantly improve the current situation and increase the attractiveness of the Moldovan dispute resolution mechanisms which are more affordable to Moldovan companies.
To boost this sector the Government has undertaken to reform both arbitration and mediation legislation to reflect the best and most efficient practices. We await a major shift in ADR which will definitely smoothen some of the issues affecting the M&A sector as well.
By Cristina Martin and Andrei Caciurenco, Partners, and Carolina Parcalab, Senior Associate, ACI Partners Law Office
This Article was originally published in Issue 4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.