IFLR 1000
The Guide to the World's Leading Financial Law Firms

Moldova is not a small country but is better described as a compact country. Nonetheless, the legal market is relatively small and change, if any, occurs at a leisurely pace....

Moldova is not a small country but is better described as a compact country. Nonetheless, the legal market is relatively small and change, if any, occurs at a leisurely pace. Yet, of late, the new bar rules constitute one of the biggest changes impacting practitioners on the market for some time. These came into effect on January 1 2012. "It is a formal step taken to coordinate the legal system. From January 1, only licensed advocates can plead in order to abate corruption and coordinate the profession," one partner says, adding: "Before the reform, anyone without a legal education could plead in court on civil matters but not criminal matters. Persons who were not members of the bar did not pay tax or show their income." Such an arrangement is a historical construct and was inherited from the Soviet Union. Under this arrangement, anyone could come to court and defend themselves, as an advocate was only required for criminal cases. In fact, the judge was meant to play a guiding role as there was a social argument underlying this construct. It was designed to enable a broader base of people access to legal services and prevent a market monopoly.

The key players on the Moldovan legal market comprise law firms, offices of attorneys, those that organise themselves as limited liability companies and many individual lawyers. Moreover, in a small market such as this one, practitioners are not specialised and operate as general business lawyers. On the work front, market players have witnessed changes in requests from refinancing to reorganisation, restructuring and tax optimisation in light of the new amendments to the tax code. "From our practice, there have been several feasibility analyses on reorganisation, of how to restructure for legal and tax benefits," one partner says. Law firms spend most of their time preoccupied by relatively small projects and there is not as much M&A work as before. "Although requests on M&A in the local market were not so much in the past, we hope that M&A will pick up. We're waiting for the crisis to be over," one partner says. As small as the Moldovan market is, it relies on neighbouring economies and growth in countries such as Russia, Romania or Ukraine will reflect positively on deal flow.

On the legislative side, Law 267 of December 23 2011 amends the tax legislation to include a number of changes including raising corporate income tax to 12% and taxation on dividends.

CONTEXT AND TRENDS IFLR1000's 2012 edition saw Moldova in the midst of political crisis. However, in the last 12 months, the situation has improved somewhat and finally, on March 16 2012, parliament elected independent Nicolae Timofti as president of the country, ending a crisis that stems back to April 2009....

IFLR1000's 2012 edition saw Moldova in the midst of political crisis. However, in the last 12 months, the situation has improved somewhat and finally, on March 16 2012, parliament elected independent Nicolae Timofti as president of the country, ending a crisis that stems back to April 2009. "Finally we have a president elected and the political crisis ended. This improves the situation for foreign investments," one commentator says. Moreover, it is clear that the new president-elect is set on motoring towards Europe. Yet, despite the relative stability, many are not sure whether investors will be "landing their fingers on the start button."

One trend that seems to be emerging in recent times is the growing interest from various European and US manufacturers looking to take advantage of labour costs and set up new facilities in Moldova, or relocate them from other Eastern European countries. "It's not happening en masse but it is happening," one partner says, adding that: "Kraft Foods and Nestle won't produce chocolate in Moldova but in Romania. But manufacturers of different components of cars not sold in Moldova can be and are produced here. The volume is growing." Nevertheless, the cost of labour and location is the most advantageous for manufacturers. "We always compete with our neighbours and our direct competitors are Romania, Ukraine and Belarus. Romania is attractive for production and is in the EU. The public image of Belarus and Ukraine is less attractive to investors. It's a similar value workforce in Ukraine but they're more comfortable in Moldova," one partner says.

International Financial Institutions (IFIs) such as the European Bank for Reconstruction and Development (EBRD), the International Finance Corporation (IFC) and the Black Sea Trade and Development Bank (BSTDB) drive the finance market in Moldova. While some European private commercial banks have subsidiaries in Moldova, they tend to look at Moldovan projects directly from their headquarters, as subsidiaries are unable to take on a project's burdens. "IFIs drive transactions and to a lesser extent it's European banks," one partner says. Local banks are willing to lend but are hindered by norms and the fact that they lack funds.

When compared to the financial services sector, M&A is not a big sport in Moldova. "M&A usually does not happen in Moldova," one partner says, adding that, "it's called M&A in Moldova because the assets are in Moldova but the holding is not in Moldova". Nevertheless, looking ahead, there might be some prospects for private equity as private equity funds that have been traditionally active may have to exit. "They've been sitting on investments for the last five years and need to do something. They'll have to exit one way or another. They'll have to exit for exit's sake," one partner says.

A clear trend has surfaced, however, with regard to infrastructure. For the first time in the country's history, it has engaged with the public-private partnership model (PPP) model in the healthcare sector and this is seen as the solution to infrastructure, public services and other developmental issues. "As far as the government is concerned, everything you do must be a PPP. The Minister of Defence wanted to develop an apartment building for officers and the government said that you can only do so via a PPP. It's a flexible process as Moldovan law is flexible". Moreover, the government is moving in this direction with the declaration of further PPPs and there is a chance to utilise the model for Chisinau International Airport, which is "the only real airport in the country."

MAJOR LEGISLATION CHANGES

Law 267 of 23 December 2011 – tax legislation amendment
In effect as of January 13 2012, but applies retroactively from January 1 2012