Corporate Governance in transition economies TAIEX Ana Maria DOBRE Chisinau, 14 - 15 May 2012
Corporate Governance in transition economies “AB OVO USQUE AD MAL” The Latin expression (Satire 1.3 Horace) is to be translated into English as” From the egg to the apples” and it means "from beginning to the end"; It is the equivalent of the English phrase “From soup to nuts”. In the present case, it could be used to describe the evolution of the Romanian company law, as tailored by the accession to the European Union and by the ongoing process of harmonisation of the national legislation with the “acquis communautaire”.
Corporate Governance in transition economies Romania represents an Easter European Country that twenty years ago was no more than an autarchic economy, completely alienated from the free market rules and with no private initiative. At the point when the European Union was embarked, for example, upon harmonising the disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State (Eleventh Council Directive 89/666/EEC), in December 1989, Romania was facing a violent switch from the communist regime to the status of “transitional country”.
Corporate Governance in transition economies Dichotomous evolution on one hand, within the EU, the focus on raising the efficiency and the competitiveness of business within the Single Market; on the other one, the race towards the status of functioning market economy, in all the Central and Easter European Countries, including Romania.
Corporate Governance in transition economies Communication of 21 May 2003 to the Council and the European Parliament entitled "Modernizing Company Law and Enhancing Corporate Governance in the European Union – A Plan to Move Forward“ European Commission : “A dynamic and flexible company law and corporate governance framework is essential for a modern, dynamic, interconnected industrialized society...”Essential for deepening the internal market and ... for maximizing the benefits of enlargement for all the Member States, new and existing.”
Corporate Governance in transition economies • the Communication mentioned the challenges that the enlargement of the EU, envisaged for 2004 and 2007, will bring for the countries aiming at acceding at the largest economy in the world, also known as the “the European Dream”. • The shift from centrally planned economies into “functioning market economies capable to cope with competitive pressure and market forces...”. The Copenhagen Criteria, http://europa.eu/scadplus/glossary/accession_criteria_copenhague_en.htm; • set up of a functional company law, based on the acceptance of the freedom of establishment.
Corporate Governance in transition economies • Romania had to fulfil the Copenhagen criteria, which established the obligation, for the candidate countries, to harmonize the national legislation with the so called “acquis communautaire”. • Extensive process, which started with the Association Agreement, signed in February 1993, and was further deepened by the Accession Treaty. • The harmonisation process had to focus on two aspects: the freedom of establishment and the company law directives.
Corporate Governance in transition economies Freedom of Establishment Candidate countries, in the first years of pre-accession period, have the tendency to setback the abolition of restrictions on the freedom of establishment, by maintaining provisions requiring for the domestic residence; Starting with 2003, Romania made significant progress towards the identification and the removal of barriers to freedom of establishment. Regular Report from the Commission on Romania’s Progress towards Accession-2003 http://ec.europa.eu/enlargement/archives/pdf/key_documents/2002/ro_en.pdf;
Corporate Governance in transition economies Taking on board EU Company Law Directives Already back in 1999, the Regular Report from the Commission on Romania’s Progress towards Accession http://ec.europa.eu/enlargement/archives/pdf/key_documents/1999/romania_en.pdfwas describing the national legislation to be “to a large extend” in line with the time EC directives, enclosing by now also provisions concerning divisions and merger of commercial companies, as well as relating to the persons responsible for carrying out statutory audits (Eighth Council Directive 84/253/EEC of 10 April 1984 on the approval of persons responsible for carrying out the statutory audits of accounting documents).
Corporate Governance in transition economies Taking on board EU Company Law Directives • in February 2000, 27 individual chapters of the negotiations on the acquis were opened for both Romania and Bulgaria, company law being one of them (Chapter 5); • Chapter 5 included company law in the strict sense, accounting law, intellectual property rights, industrial property rights, and the recognition and enforcement of judgments in civil and commercial matters and of contractual obligations.
Corporate Governance in transition economies • In Romania, from the beginning, this chapter together with competition law was characterized by strong positive developments. • A significant importance had the introduction of a simplified, single procedure for the registration and authorization of traders and accelerated winding-up procedures for companies failing to meet minimum levels of social capital. • http://ec.europa.eu/enlargement/archives/key_documents/reports_2001_en.htm#report2001;
Corporate Governance in transition economies • From the scratch, the harmonization process was built on increasing the level of protection for creditors and third parties. • During 2002, bankruptcy procedures, including measures for creditors’ protection, were introduced, followed by legislation on cross-border insolvency http://www.esiweb.org/pdf/romania_EC-Romania%20Monitoring%20report-2002%20October_en.pdf;
Corporate Governance in transition economies • Some administrative drawbacks were encountered, as 70-80% of the companies that were registered in 2002 did not comply with the obligation to submit their financial statements with the National Register of Commerce.http://www.esiweb.org/pdf/romania_EC-Romania%20Monitoring%20report-2004%20October_en.pdf; • Such a shortcoming embodied a de facto inconsistency with the proper application of the First Company Law Directive and with the basic required safeguards. • As a positive procedural improvement, it is worth mentioning the fact that the per se registration of the companies it was considered as noticeably simplified (four days).
Corporate Governance in transition economies • In 2004 the legislation was for the most part in line with the EC company directives. • Provisions on the EU minimum capital requirements for public limited liability companies had been also introduced, however Takeover Bids Directive was still on hold. • The same setback was met in relation to the disclosure in respect of certain types of companies, as established by the Directive 2003/58/EC amending the First Company Law Directive. • By the end of 2004, chapter 5 on company law was closed and the 2006 Monitoring report on the state of preparedness for EU membership considered the legislation to be fully in line with the acquis.
Corporate Governance in transition economies The Romanian legal framework, applicable for companies, is formed by: • the Commercial Code; • Company law no. 31/1990 as amended and republished (“Company Law”); • Law 297/2004 on capital markets; • Trade Registry Law 26/1990; • specific legislations regulating fields like state- owned companies, the banking or insurance sector or joint ventures between natural or legal persons.
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