On 7 March 2013, the Parliament of the Republic of Moldova (Moldova) passed Act No. 31/2013 on amending and supplementing of certain legal acts (Act No.31). Act No. 31 entered into force on 5 April 2013 and inter alia implemented a series of important changes to Act No. 550/1995 on financial institutions (Act No. 550), Civil Code of Moldova, Code of Civil Procedure of Moldova, and other pieces of legislation.

The new Act’s principal official goal is to align Moldova’s banking legislation with EU standards and reduce the risk of financial instability, and/or disruptions in the national banking system. Unofficially, the changes can be viewed as nothing more than a desperate move by the Moldovan officials to fight the phenomenon of hostile takeovers (so-called "raider attacks") of shares in Moldovan banks.

Background

The necessity of amending Act No. 550 was imposed by international practices with regard to banks’ shareholders structure, in particular by the aim to promote greater transparency in the national banking system. In other words, the aim was to more clearly determine who the effective owners of the Moldovan banks are.

Consequently, the new norms provide the National Bank of Moldova (NBM) with more powers to exercise control over the process of acquisitions by purchasers of significant shares (i.e. exceeding concrete thresholds) of Moldovan commercial banks (MCB).

Novelties

Act No. 31 inserts new legal notions that are intended to make Act No.550 less ambiguous by introducing such new terms as: potential purchaser, actual benefi-ciary, control, gaining / indirect holding, parent company, subsidiary.

In comparison with the former legislation, this development indeed represents progress.

Furthermore, persons residing in jurisdictions that do not implement international standards of transparency are no longer entitled to hold shares in MCB. In such cases, the existing shareholders must sell their share stakes within one year as of the implemented changes. The NBM will approve a list of such concrete jurisdic-tions.

Compulsory Prior Approval by NBM

Under Act No. 31, the free float of shares of MCB’s has been regulated in a spe-cific way. Hence, pursuant to the new norm, a purchaser whose share stake shall reach or exceed the set thresholds of 20%, 33%, 50% (or in case the MCB shall become the purchaser’s subsidiary) cannot effect the deal without the NBM’s pri-or approval.

A failure to follow the stated rule leads to the purchaser’s obligation to sell the acquired shares within 3 months as of the acquisition date. Should the purchaser fail to sell the acquired shares within this period, the MCB’s executive board must annul the respective shares, issue new shares and propose the issued shares for sale on the stock exchange. Should the newly-issued shares remain totally or partially unsold, the MCB’s executive board is to acquire the respective share stake for the purpose of decreasing the MCB’s share capital.

Procedure Before NBM

Pursuant to Act No. 31, a prior approval can be issued after the NBM operates an evaluation of the potential purchaser. Such an evaluation is generally performed within a period of 60 business days following the filing of the application. However, the indicated examination period can be extended in the event that the NBM requests supplementary information from the applicant.

The NBM’s evaluation consists of an examination of the financial situation of the potential purchaser with regard to the object of potential acquisition and inter alia takes into account the following criteria:

  1. the reputation of the potential purchaser;
  2. professional qualifications, reputation and experience of any individual selected to act as the MCB’s manager (RO “Administrator”) following the acquisition;
  3. the financial strength of the potential purchaser;
  4. MCB's ability to fulfill the banking prudential requirements, to exercise effective supervision, and to effectively share information with the relevant authorities;
  5. the existence of reasonable grounds to suspect that in relation to the potential acquisition, crimes related to money laundering or terrorism financing are being committed or attempted, or that the acquisition may increase such a risk; and
  6. the existence of reasonable grounds to suspect that the effective beneficiary of the potential purchaser is a person other than the one declared to the NBM.

The NBM will refuse issuing the prior approval if any reasonable doubts with regard to these criteria should appear. Should a refusal occur, the NBM has the obligation to inform the potential purchaser within two business days about its refusal, inter alia listing the reasoning behind its decision.

Also the NBM has been vested with the right to reserve the possibility of making its decision public; this is likely to be a very important aspect for the participants of commercial transactions.

Other Changes

Act No. 31 obliges the current shareholders of MCB’s to notify the NBM in advance in case their shareholdings are expected to decrease below the set thresholds of 5%, 20%, 33% and 50% (and in the event that the MCB will stop being a subsidiary of that shareholder).

In parallel, the new shareholders’ voting rights (and other corporate rights ) are suspended until approval has been granted by the NBM.

Also in parallel, Act No. 31 implements an interdiction into the Civil Code pursuant to which shares cannot be directly passed in order to close the debts existing between two parties.

Finally, the Act has inserted new norms on the passing of shares on the basis of a court judgment.

Conclusions

Although the intention of the Moldovan Parliament can be regarded as a positive one (e.g. establishing who the effective owners of MCB’s are, interdiction vis-à-vis persons from non-transparent jurisdictions, etc.), in the end it is the results that count. The recent news coming from the Moldovan banking market suggest that the NBM has been vested with insufficient measures to reach the goal.

Accordingly, experienced specialists on your side can help to reduce the risks during the period in which the legislation is still being improved.