Insolvency 2019 Second Edition

Last Updated November 20, 2019

Romania

Law and Practice

Authors



Zamfirescu Racoți Vasile & Partners (ZRVP) has 12 lawyers in its Insolvency department, active mainly in banking litigation and debt recovery. The team notably acts for banks in insolvency procedure cases, and for large companies involved in the recovery of receivables. It advises both debtors and creditors throughout the insolvency procedure, assisting and/or representing them in specific claims and also in related actions, including objections to the decision of the creditors’ meeting, measures ordered by judicial liquidators, annulment claims, objections to debt claims, liability claims submitted against former debtors’ administrators, and fraud matters, etc. The team also has significant experience in debt recovery.

The first half of 2019 saw a decrease of 29% in the number of insolvency cases compared to the proceedings registered in the same period last year, according to the official records of the National Trade Registry.

One explanation of the decreasing number of insolvency procedures is the constant economic growth in Romania and the anticipated tax legislation (facilities) that entered into force in mid-2019, a trend which is likely to continue. According to the National Institute of Statistics, the Romanian market economy has expanded by 4.8% in the first half of 2019 as compared to the first half of 2018.

A contributing factor to this phenomenon was the reduction of the non-performing loans in the banking industry. According to the National Bank of Romania, in May 2019, the rate of non-performing loans was of approximately 4.80%, down from 5.98% in May 2018.

We also note an increase in the exposure of the suppliers of the insolvent debtors which in certain conditions can trigger chain effects (contamination).

As anticipated, the Government has adopted the Emergency Ordinance no. 88/2018, amending Law 85/2014. While some amendments are useful and will have a positive impact, others are inappropriate or even detrimental to the procedure.

Some changes will facilitate the reorganisation procedure, such as the introduction of the possibility of transferring the budgetary claim by maintaining its nature and the possibility of converting the budgetary claim into debtors’ shares. Another provision entitles the budgetary creditor, provided certain conditions are met, to approve the reorganisation plan even if it provides a haircut of its claim, should this option be the most efficient recovery method.

However, the introduction of the double threshold condition is rather a questionable amendment and refers to the value of the receivable for the initiation of the procedure. The amount should be RON40,000 or above and, if the debtor also has budgetary claims, the amount of these budgetary receivables should be less than 50% of the total declared receivables.

In the same category, we mention the possibility to initiate individual enforcement for current debts due for more than 60 days, throughout the insolvency procedure, and also the possibility to seize the sole insolvency account which may prevent the judicial administrator from taking safeguard measures.

Further, 2019 has brought a change in the approach of the State Budget towards debtors with outstanding budgetary debts. By Ordinance no. 6/2019, certain fiscal facilities were established for companies in financial difficulty that are subject to the risk of insolvency, consisting of measures of restructuring of the outstanding budgetary obligations based on a restructuring plan, cancellation of ancillary obligations in the case of debts under RON1 million, etc.

The restructuring plan, which is subject to approval by the State Budget after the analysis of the measures and conclusion that it is the best method of recovery, is a different instrument from the reorganisation plan. It can, under certain conditions, allow instalments for a period of maximum seven years of a receivable exceeding RON1 million. According to the State’s estimates, facilities may apply to around 2600 companies. The failure of the restructuring plan leads either to an enforcement or to the request of the State Budget for the opening of the insolvency/bankruptcy procedure. Most likely, the effects of the Ordinance will be seen in the second half of 2020.

Currently, the insolvency procedure is regulated by a law (amended substantially in 2014) that provides for two procedures of redressing the solvable debtor’s activity – namely, the ad hoc mandate procedure and the procedure of arrangement with creditors. The provisions of the special law are supplemented, in such a case, to the extent that they do not contravene the rules of the Civil Procedure Code and the Romanian Civil Code.

The law provides, as a rule, for two procedures of redressing a debtor’s activity outside the court room: the procedure of ad hoc mandate, and the procedure of arrangement with creditors. In the case of a debtor in payment default, the law also provides for a judiciary procedure

An ad hoc mandate is a confidential procedure by which an ad hoc proxy negotiates with the creditors in order to outbalance the state of difficulty in which the company finds itself.

An arrangement with creditors is an agreement concluded between the company in financial difficulty and the creditors holding at least 75% of the value of the accepted and uncontested receivables, by whom a plan for redress is proposed. The procedure is co-ordinated by an administrator.

The insolvency procedure may consist either of a simplified procedure, in which case the company enters into bankruptcy directly, or a general procedure, in which case the company may enter, after the observation period, into the reorganisation period (if there are chances of redressing and the creditors agree with the proposed measure) and, possibly (in case of the failure of a reorganisation plan or when such a plan is not proposed or not accepted), into bankruptcy.

Romanian law sets forth that an insolvent debtor is obliged to file a claim with the tribunal requesting that it be subject to the insolvency procedure within a maximum of 30 days from the occurrence of insolvency. This is defined as the point at which insufficient funds are available for the payment of the certain, liquid and payable debts of more than 60 days. The minimum amount of these debts should be RON40,000.

On the occurrence of insolvency, a company may request the initiation of a general procedure, followed, after the expiry of the observation period, by a reorganisation. Alternatively, it may request direct entry into bankruptcy.

Any creditor holding a receivable higher than RON40,000 against a company that is unpaid in a term of at least 60 days from its maturity may request the opening of the insolvency procedure against the company.

The insolvency state is a condition that must be met for requesting the opening of a procedure. It may be an already installed insolvency, or it may be an imminent insolvency.

The already installed insolvency is the state of the debtor characterised by the absence of available funds for the payment of certain, liquid and payable debts of more than 60 days. The minimum amount of these debts must be RON40,000.

Insolvency is regarded as imminent when it is proven that the debtor will not, upon maturity of the payable debts, have sufficient funds available to pay them.

The provisions relevant to banks, commercial lenders and other credit institutions are the provisions of Law 85/2014 and Law 312/2015, which also regulate the procedure of redressing and restructuring credit institutions. Special supervision is ordered by the National Bank of Romania in its capacity as resolution authority.

With regard to the regime applicable to the insolvency of credit institutions, we note only some new aspects relating to the characteristics of the state of insolvency of the credit institution, the necessity of obtaining an approval prior to the opening of the bankruptcy procedure, and the protection conferred by the law of depositors in the banking system on the payment (made by the National Guaranteeing Fund).

The provisions relevant to insurance companies and undertakings are the provisions of Law 503/2004 on financial redressing, bankruptcy, dissolution and voluntary liquidation in the activity of insurances, and Law 85/2014 on the procedures of prevention of insolvency and of insolvency.

The procedure of financial redressing ("pre-bankruptcy" procedure) exceeds court control and is overseen by the Financial Supervisory Authority.

In accordance with the legislation of the Romanian state, the financial redressing procedure produces its effects in the entire EU without other formalities, including in what regards third parties from other member states.

In what regards the administrative-territorial units, there are special provisions regulating the insolvency regime, namely Emergency Ordinance 46/2013 on the financial crisis and the insolvency of the administrative-territorial units.

The Insolvency Code (Law 85/2014) does not apply to the pre-university and university education units and research-development institutes, centres or units organised as public, or public law institutions. Hence, if they are national companies, Law 85/2014 shall apply, but if they are educational institutions, schools or medical institutions subordinated to the administrative-territorial units, then the applicable law is the Emergency Ordinance 46/2013.

As an informal and consensual procedure for the prevention of insolvency, the Insolvency Code provides the procedure of the ad hoc mandate, which is characterised by negotiations between an ad hoc proxy and the debtor’s co-contracting parties. However, the law does not provide specific rules for the conduct of the negotiations. Romanian legislation also regulates the arrangement with creditors, a less formal negotiation procedure which we describe below.

In general, restructuring market participants and professionals place greater trust in the possibility of recovering receivables outside of insolvency procedures, ie, within an informal procedure. Nonetheless, the procedures of ad hoc mandates or arrangements with creditors are very rarely used in practice, individual negotiations being preferred.

Banks and other financing institutions try to support companies in financial difficulty by the rescheduling of credit, etc. In the last period banks were more and more supportive of companies, given the rather slight possibilities for financers to cover the entire receivable in the insolvency procedures. 

Romanian law does not make an obligation for prior procedures to be followed before the filing of a claim for the prevention of insolvency or of insolvency. Neither does it require mandatory consensual restructuring negotiations before commencement of a formal “statutory process”.

If a company is in a state of insolvency, its directors must address the tribunal so that, after the opening of the procedure, any negotiation with creditors can only be made through the reorganisation plan.

The use of consensual "standstills" and credit agreement default waivers as part of an initial informal and consensual process is not excluded, and credit institutions use these types of conventions with their debtors.

Having in view that such informal understandings are not mandatory but are left to the choice of the debtor/creditors to opt for them, the law does not provide for any particular obligations incumbent on them.

Usually, in the ad hoc mandate procedure and in that of the arrangement with creditors, no committee or representative of the creditors is appointed, although no such appointment is forbidden. For the appointment of one or more representatives the common law rules of the mandate apply, but most of the time there is no such appointment.

The appointment of remunerated proxies of the creditors is not forbidden, but, as a rule, negotiations are conducted with the main creditors individually. The administrators in arrangements with creditors or the ad hoc proxy receive a remuneration from the debtor.

There are no criteria for the determination of a committee or of co-ordinators.

Usually, in procedures for prevention of insolvency, prior to the opening of the procedure itself, the creditors are given the necessary information in order for them to assess the chances of redressing and of payment of the receivables according to the assumed obligations.

No guarantee may be changed in such a procedure, except with the consent of the guaranteed creditor.

It is possible to invest in a company in insolvency with the benefit of a super-priority. There is no special regulation for this in the procedures for the prevention of insolvency, namely ad hoc mandates or arrangement with creditors, but the parties may conclude a convention in this regard.

Romanian legislation contains no regulation regarding the duties of creditors to each other, or of the company or third parties. However, specialised doctrine has started to talk rather timidly about a possible abuse of majority. Still, we have no judiciary precedents in this regard.

If a reorganisation plan is voted on validly, as we shall describe below, certain clauses from the credit agreements may be amended.

"Cramdown" is not a practice in Romania. Usually, in our jurisdiction, debtors may propose their own reorganisation plan. Nevertheless, there may be situations in which a reorganisation plan is confirmed if it meets the double threshold of being voted by creditors accounting for at least 30% of the total amount of the receivables, and also being accepted by a majority of the categories of creditors, as we shall detail below.

Romanian legislation regulates the following types of collateral and privileges: immovable mortgage, movable mortgage (including on the accounts and receivables or on the movable assets), special privileges, pledge and retention right.

Secured creditors benefit from adequate protection in the insolvency procedure, having special prerogatives. As a rule, all judicial and extra-judicial actions, as well as individual enforcement measures, are suspended from the date of the opening of the insolvency procedure.

Nonetheless, as an exception stipulated in favour of the secured creditors, these are permitted to request the lifting of the measure of suspension and the immediate sale of the asset affected by the guarantee.

The amounts obtained from the sale of the assets affected by the guarantee will be distributed with priority given to the creditors whose receivable is secured with such assets, these at the same time being permitted (unlike the other creditors) to calculate and also to charge accessories to the principal, including after the date of opening of the insolvency procedure.

The period in which a secured receivable can be satisfied may vary very much on a case-by-case basis. In certain conditions provided for by the law, secured creditors may request the rapid enforcement of their guarantees by the courts.

Foreign secured creditors have the same rights as all the other creditors in this category.

Secured creditors have the right of preference and of priority to the satisfaction of their receivable from the amounts obtained as a result of the turning to account of their guarantees and have a special voting right when the reorganisation plan is voted on.

At the same time, they may also calculate interests after the date of opening of the procedure, if the value of the asset affected by the guarantee allows it. Another specific right of the secured creditors is the possibility of individual enforcement of the assets affected by their guarantee, in certain conditions provided by the law – especially when an asset is not essential for a reorganisation plan.

Secured creditors mainly have the rights described in 4 Secured Creditor Rights and Remedies. Unsecured creditors have the right to vote in a distinct class when the reorganisation plan is discussed.

As a rule, receivables held by the simple contract creditors may be reduced, both in the redressing procedures and, in insolvency, by the reorganisation plan. In practice, in most insolvency procedures, the reorganisation plan provides for the satisfaction of these receivables by 50% or even 0%.

In arrangement procedures, simple contract creditors have the right to agree with or oppose the redressing proposal. If they do not agree, the measures contained in the proposal may be opposed by them only in the case of an arrangement with creditors homologated by a court of law.

In insolvency, these creditors have a voting right over the adoption of the proposed reorganisation plan. If, by decision of all the creditors involved in the procedure, the reorganisation plan is approved, simple contract creditors may bring forward conclusions of invalidation of the plan in front of the court of law administering the insolvency procedure.

In the judicial reorganisation procedure, simple contract creditors may file a claim for bankruptcy if their receivables are not paid according to the schedule of payments provided by the plan.

In the special situation in which simple contract creditors have concluded with the debtor a sale-purchase pre-agreement on an immovable asset, these creditors may file a request for the conclusion of the pre-agreements and transfer of the right of ownership over the immovable, without the asset being sold as part of the insolvency procedure (assuming certain specific conditions provided by the law have been met).

As a rule, precautionary measures ordered before the opening of the insolvency procedure cannot have an impact on the insolvency procedure.

Precautionary measures may be considered for determining the secured character of the receivable claimed by the creditor that established such a measure (on condition that certain expressly provided conditions have been met), without yet preventing the possibility of sale of the assets in the liquidation procedure.

An exception provided by the law refers to the existence of a movable mortgage on a cash collateral account of the debtor in insolvency, in which case the available funds will be released to the creditor based on a simple request made within the observation period.

Individual enforcements are suspended by operation of the law when the insolvency procedure is opened against the debtor. Consequently, the simple contract creditor, similarly to the secured one, has the right to register the claimed amount with the body of creditors, within the term provided by the judgment for the opening of the insolvency procedure.

Lessors do not benefit from special rights in the insolvency procedure, but they are assimilated by the law to the simple contract creditors. As a rule, the contractual clauses remain applicable and effective.

Foreign simple contract creditors have the same rights as all the other creditors in this category.

In bankruptcy, the distribution order is regulated by the law as follows:

  • duties and any other procedure expenses, including the fee of the insolvency administrator/judicial liquidator;
  • receivables deriving from financing granted during the procedure (super-priorities);
  • receivables deriving from labour relations;
  • receivables deriving from the continuation of the debtor’s activity;
  • budgetary receivables;
  • receivables that the debtor must cover based on support obligations, allowances for minors or payment of periodical amounts destined to ensuring the means of existence;
  • simple contract receivables; and
  • subordinated receivables.

In extra-judiciary procedures, there is no prioritisation of the receivables.

In the judiciary procedure of insolvency, with reference to the indicated categories, the law establishes the following satisfaction order:

  • duties and any other procedure expenses, including the fee of the insolvency administrator/judicial liquidator;
  • receivables deriving from financing granted during the procedure (super-priorities);
  • receivables deriving from labour relations;
  • receivables deriving from the continuation of the debtor’s activity; and
  • budgetary receivables.

In insolvency, the expenses and duties of the procedure, as well as the financing granted during the procedure, have priority over the secured receivables. After these two categories of receivables, the secured creditors are the first to be satisfied from the sale of the assets under their guarantee.

If, from the price obtained in the sale, the receivable of the secured creditor is not covered, then the uncovered difference will be registered in the category of simple contract receivables. The secured creditor will be satisfied for this difference after the salary and the budgetary receivables.

With regard to the reorganisation plan, the law provides a distinct voting modality from the other decisions that the creditors make in the creditors’ meeting. Each receivable benefits of a voting right that its holder exercises within the category of receivables of which such receivable is a part of.

The following receivables represent distinct categories:

  • the receivables benefiting from preference rights;
  • salary receivables;
  • budgetary receivables;
  • the receivables of indispensable creditors; and
  • the other simple contract receivables.

A reorganisation plan will be considered accepted by a category of receivables in the event that, in the category of such receivables, the plan is accepted by creditors representing an absolute majority of the value of the receivables from that category. In addition, another condition for the acceptance of the plan is that creditors representing at least 30% of the total value of the body of creditors votes for its approval.

The reorganisation procedure is initiated by the submission of a reorganisation plan within the term provided by the law.

The reorganisation plan may be proposed by the debtor, by the insolvency administrator and/or by one or more creditors holding together at least 20% of the total value of the receivables contained by the final table.

The law does not exclude the possibility of the submission of several reorganisation plans, by category, although only one may be accepted by the creditors.

Reorganisation may be performed, for example, by one of the following means:

  • the debtor maintaining full or partial management of its activity, including the right of disposal of the assets from its estate, with the supervision of its activity by the insolvency administrator;
  • obtaining financial resources to support the achievement of the plan (the financing approved by the plan benefiting from priority at restitution);
  • transmission of all or some of the assets from the debtor’s estate to one or several natural or legal persons, established prior to or after the confirmation of the plan;
  • the debtor’s merger or division, in the conditions of the law;
  • liquidation of all or some of the assets of the debtor’s estate, separately or en bloc, free of any encumbrances, or their being given in payment to the debtor’s creditors (with the consent of such creditors) on the account of the receivables that these have against the debtor’s estate;
  • partial or total liquidation of the debtor’s asset for the execution of the plan (the amounts of money obtained after the sale of certain assets that are the object of guarantees must be distributed to the creditors holding such guarantees);
  • the change or termination of the guarantees, with the mandatory granting of a guarantee or equivalent protection to the benefit of the holding creditor, up to the value of their receivable, including the interests established according to the agreements or according to the reorganisation plan, based on an assessment report;
  • prolongation of the maturity date, as well as the change of the interest rate, of the penalty or of any other clause from the agreement or of the other sources of its obligations; or
  • change of the debtor’s articles of incorporation.

From the point of view of the financial condition of the debtor, the plan must comprise a projection of the cash flow that would allow for the execution of the measures proposed by the plan. In terms of viability, the creditors decide in principal, and then the court of law may resort to a neutral insolvency practitioner that would express a point of view on the possibilities of the plan's achievement.

In principle, the reorganisation plan may be proposed after the general insolvency procedure has been opened against the debtor. Subsequently, at the end of the observation period, after the completion of the body of creditors, any of the persons enumerated above may propose a reorganisation plan.

In the event the proposed reorganisation plan is accepted by the creditors, the syndic judge will analyse the legality of such plan and, if all conditions are met, will confirm the reorganisation. As of the confirmation of the plan, the debtor enters into the reorganisation procedure, its activity being conducted pursuant to the provisions of the plan.

In reorganisation, a necessary and imperative condition which shall be met is the correct and fair treatment of the receivables, so that all receive at least as much as they would have received in bankruptcy.

The main purpose of the reorganisation plan is the company’s redressing, covering of an as high as possible percentage from the body of creditors and subsequently the company’s reinsertion in the economic circuit, which can obviously have numerous benefits, including a social nature by means of the protection of jobs.

Following the confirmation of a reorganisation plan, the debtor will conduct its activity under the supervision of the insolvency administrator, the court following only to solve certain aspects of which it is notified and that are related to the legality of the measures and of the means of execution of the plan.

As mentioned, the reorganisation procedure starts as of the date of confirmation of the plan by the court, as voted by the creditors.

Romanian law does not provide for a distinct expedited procedure, but it does allow that a reorganisation plan may be executed within a maximum of three years, with the possibility of prolongation up to a year (maximum of four years, in total). However, if the debtor’s activity allows it, the plan may last for any period shorter than three years.

The claims for current receivables are assessed by the insolvency administrator, which offers a point of view. In the event there are any disputes with regard to the claimed receivable, the interested creditor may address the court of law.

The reorganisation plan validly voted for by the creditors is also mandatory for the creditors who have not expressed a point of view.

The reorganisation plan is public, may be analysed by each creditor, is submitted to the case file and to the trade registry and is usually also accessible online. Nonetheless, the plan must not contain detailed remarks regarding the conduct of the economic activity, nor disclose the trade secrets of the company.

The plan may be challenged before the syndic judge when the court discusses the confirmation of the plan. The creditors' use of this mechanism does not imply the filing of a separate challenge. For non-legality grounds, however, the interested party may separately challenge the decision of the creditors’ whereby such plan was approved.

The plan is voted on by the creditors on the aforementioned conditions, and subsequently confirmed by the court. The receivables will be paid as per the schedule of payments, which is a mandatory annex of any reorganisation plan. Upon the moment of payment of all the receivables listed in the schedule of payments, the reorganisation procedure may be closed, and the company re-enters into the economic circuit.

From date of the opening of the procedure under the law, all judiciary, extra-judiciary actions or enforcement measures for the recovery of the receivables against the debtor’s estate are suspended. From this point on they may only be turned to account in the insolvency procedure.

The company can continue to operate its business-as-usual after the date of the opening of the procedure, under the supervision of the insolvency administrator. In cases where the court orders the lifting of the management right, the management of the company passes to the insolvency administrator.

After the procedure opening date, the shareholders of the debtor are summoned to elect a special administrator. This will be the only entity able to manage the company, under the supervision of the insolvency administrator.

In the observation period and during the reorganisation period, the debtor can obtain financing through direct negotiation with the financer and following the approval of the loan conditions by its creditors.

From the moment of drafting the preliminary table, the creditors are registered by categories of receivables, namely the receivables benefiting from preference rights, salary receivables, budgetary receivables and simple contract receivables.

The creditors convene in a general meeting of creditors, of which all creditors are part. If there is a large number of creditors, a creditors’ committee of three or five members can be elected, chosen in the creditors’ meeting from those who manifest their intention to be part of the committee, and in the order of the receivables, from the larger ones to the smaller ones, so that each category of creditors is represented. The expenses are incurred by each creditor, these not being settled by the debtor.

Creditors have access to all the information brought to their knowledge by the insolvency administrator by means of its activity reports. These activity reports and the quarterly financial statements drafted in the reorganisation procedure are published in the Insolvency Procedure Bulletin. The documents are submitted to the case file and are communicated to the creditors present in court at the hearings. The quarterly financial statements drafted in the reorganisation procedure are approved by the creditors’ committee.

The receivables of a particular class of creditors may be modified by means of the reorganisation plan, even if the creditors in question voted against the plan. The only conditions are that all the categories shall be treated fairly, and that they should not receive less in the reorganisation procedure than they would have received in the bankruptcy procedure.

Claims may be traded without any approval from other parties except those involved in the assignment of the receivable. The transfer will be effective and recognised once it is notified to the debtor and to the judicial administrator.

A restructuring procedure may not be utilised to reorganise a corporate group on a combined basis for administrative efficiency, but different types of M&A operations can be performed within a reorganisation procedure.

Should a reorganisation plan be accepted by the creditors and confirmed by the judge, then the debtor’s assets may be sold pursuant to the provisions of the reorganisation plan.

The activity of the debtor is run by the special administrator appointed by the shareholders, under the supervision of the judicial administrator.

In the insolvency procedure the assets sold are free and clear of any claims.

The creditors can participate in the auctions and under some conditions they can bid with their own receivable.

During a restructuring proceeding, it is possible to make sales and similar transactions which have been pre-negotiated, provided that these transactions are incorporated within the reorganisation plan that was accepted by the creditors and confirmed by the judge.

No changes to the liens and security arrangements of a secured creditor can be made unless the creditor approves it or if the contractual conditions for releasing such securities are met.

New money investment or loans can be secured by assets of the company that are free of any liens and securities.

It is not possible to use the statutory process as a forum for determining the value of claims and those creditors with an economic interest in the company.

A restructuring or reorganisation plan or agreement among creditors that emerges is subject to an overall “fairness” test. In order for it to be effective, the creditors should accept the plan and the court must confirm it.

A company or statutory office holder may reject or disclaim contracts. The effects of this on the parties are as they would be for any other contract rejected or disclaimed by a company that were not subject to an insolvency procedure.

Any kind of operations that can release non-debtor parties from liabilities must be included in the reorganisation plan and these should be accepted by the creditors and confirmed by the judge in order for it to become effective.

The law provides expressly for the fact that the opening of the insolvency procedure does not affect the right of any creditor to claim the set-off of its receivable with the one of the debtor against it, when the conditions provided by the law in the matter of legal set-off are met at the procedure opening date.

In respect of the netting agreement, the law does not forbid the conclusion of such an agreement, however it does require that certain specific conditions shall be met.

In the event the debtor company fails to fulfil its obligations as per the terms of an agreed restructuring plan, the bankruptcy procedure will be declared. The creditors usually do not have a direct implication in the restructuring plan.

Existing equity owners cannot receive or retain any ownership or other property on account of their ownership interests unless all the other debts are paid.

Romanian law provides certain procedures for prevention of insolvency, such as the ad hoc mandate and agreement with creditors, and insolvency procedures for professionals, administrative and territorial units and natural persons.

There is a distinction between the simplified procedure (where the debtor enters directly into bankruptcy) and the general procedure (which comprises the observation period and the subsequent entering into the reorganisation procedure in the event a reorganisation plan is confirmed and, as the case may be, into bankruptcy in the event the reorganisation plan fails). The main advantages of the reorganisation procedure are the increase of the degree of satisfaction of the creditors and the saving of the business and of the jobs.

An insolvency procedure may be opened by a court of law at the debtor’s request (voluntary) or at the request of one or several creditors (involuntary). Regarding procedures for prevention of insolvency, the request may be filed by the debtor.

Bankruptcy is ordered either at the same time as the opening of the procedure – if specific conditions provided by the law for the simplified procedure are met – or after an observation period, as a result of exceeding the term for proposal of the reorganisation plan or in the event of a failure of the plan.

The debtor may initiate the insolvency procedure in the event the insolvency state is imminent. If the debtor is already in insolvency and has certain, liquid and due receivables of over RON40,000 and outstanding for more than 60 days, the insolvency procedure must be initiated. Moreover, the amount of budgetary receivables shall be lower than 50% of the whole amount of the debtor’s receivables.

One or more creditors may also file a claim for opening the procedure in the event the creditors hold a certain, liquid and due debt against the debtor, which is higher than RON40,000 and outstanding for more than 60 days, and the debtor is in payment default.

For professionals, the court may order direct entry into bankruptcy, without any observation period, in the event the company has not presented accounting documents, if it has been previously dissolved, if the administrator cannot be found or if the registered office no longer exists or no longer corresponds with the address mentioned in the public registries.

If the general procedure is opened and the observation period is conducted, bankruptcy may be ordered if a reorganisation plan is not submitted within the term established under the law or if such plan was proposed, but has not been observed.

Receivables are calculated with reference to the date of opening the procedure, in the national currency. Creditors submit statements of receivables to the court and to the insolvency administrator/judicial liquidator. Recognition and assessment of the receivables will be performed by the insolvency administrator/judicial liquidator. Only receivables that have arisen prior to the date of opening of the insolvency procedure will be registered with the body of creditors. The debtor, the creditors or any other interested party may challenge the preliminary table of receivables (drafted by category of receivables).

After entering into bankruptcy, within the term provided under the law, creditors may request that the receivables that have arisen after the opening date of the insolvency procedure (but before the date the debtor entered into bankruptcy) be registered with the body of creditors.

The insolvency procedure starts on the date a court of law delivers the decision for the opening of the procedure and appoints an insolvency administrator/judicial liquidator. The bankruptcy procedure starts on the date a bankruptcy court decision is delivered.

In the insolvency procedure, there are specific terms regulated by law, such as: a term for the submission of the statement of claim (as established by the court in relation to the decision for opening the procedure), and the term of one year established for the observation period. In what regards the expedited procedures, the insolvency law regulates the simplified procedure by which the debtor enters directly into bankruptcy, provided that certain requirements are met.

Receivables may be assigned on the conditions provided by the Romanian Civil Code; notification of any assignment will be made to the Electronic Archive for Security Interests in Movable Property for opposability against third parties.

The law provides for the suspension of all judiciary, extra-judiciary actions or enforcement measures for recovery of the receivables against the debtor’s estate. All enforcements against the debtor shall be suspended by operation of law.

If the lifting of the administration right has not been ordered, the debtor may operate its own business. In this case, the insolvency practitioner supervises the current operations and for the operations exceeding ordinary business, the approval of the creditors’ committee is necessary. If the lifting of the administration right is ordered, the business will be managed directly by the insolvency practitioner, and the debtor no longer holds control.

Once the debtor is in bankruptcy, the judicial liquidator is in control of the entire business.

The insolvency administrator may maintain or unilaterally terminate ongoing agreements. In the event of a unilateral termination of the agreement, the contracting party shall be entitled to indemnities, however, the indemnity mechanism is not being very clearly regulated.

The law expressly states that opening the insolvency procedure does not affect the right of any creditor to invoke the set-off of its receivable in the event the conditions provided by the law in the matter of legal set-off are met as of the opening date of the procedure.

In what regards the netting agreement, the law does not forbid the conclusion of such an agreement, but requires certain specific conditions are met.

Insolvency procedure is characterised by transparency. Insolvency practitioners are required to submit monthly reports to the case file regarding the debtor’s business activity and the payments made, as well as publishing such reports in the Insolvency Procedure Bulletin.

In the reorganisation period, the amounts obtained by the debtor will be distributed as per the confirmed reorganisation plan. In bankruptcy, the amounts obtained from the sale of the debtor’s assets are distributed pursuant to the legal order depending on the categories of creditors. In total, there are ten categories:

  • procedure expenses and duties;
  • credits granted after the opening of the procedure;
  • salaries;
  • current receivables arising after the procedure opening date;
  • budgetary receivables;
  • support obligations or allowances;
  • amounts necessary for the support of debtor's natural person and family;
  • bank credits, deliveries of products, provisions of services, rents;
  • other simple contract receivables; and
  • subordinated receivables.

The procedure is closed either when the reorganisation plan has been executed or when there are no longer any assets to be sold.

Procedures for the sale of assets or the business are authorised by the creditors’ meeting, and negotiated and executed by the insolvency practitioner. If the debtor’s right of administration has not been lifted, the sale is performed by the special administrator under the supervision of the insolvency administrator.

A purchaser of assets sold in this procedure acquires good title, “free and clear” of claims and liabilities asserted against the company. However, in principle, the sale does not change the quality of the ownership. More exactly, it does not strengthen the title in the event there is any flaw.

Secured or unsecured creditors may bid for the company’s assets. The law even allows the adjudication of the assets on the account of the receivables, provided that the preference order set forth by the law is complied with.

It is possible to make pre-negotiated sales transactions following the commencement of a statutory procedure.

Failure to observe the obligations laid out in the reorganisation plan results leads to the bankruptcy procedure, characterised by the liquidation of the debtor’s patrimony, followed by the company’s dissolution and deregistration.

Financing is possible both before the reorganisation period and as part of the debtor’s reorganisation plan, in which case the financer is granted a super-priority. These advances can be secured by liens/security on the assets of the company should the creditors’ committee approve such transaction.

Law no. 85/2014 regulates the insolvency of groups of companies, complying with specific regulations provided for this procedure.

Creditors are divided into five classes:

  • secured;
  • salary;
  • budgetary;
  • simple contract receivables of the suppliers essential for the debtor’s activity; and
  • the other simple contract receivables.

Within the procedure there is a creditors’ meeting, formed of the creditors registered with the body of creditors. The creditors’ meeting votes on a creditors’ committee formed of three or five creditors from the first 20 creditors, depending on the value of the receivables. This creditors’ committee has powers and duties of representation of the creditors, the activity of the members of the committee not being remunerated.

It is possible to sell assets during insolvency proceedings, the prior approval of the creditors’ meeting being necessary. The assets may be used or leased, the conditions required by the law being different depending on how these are used for the performance of ordinary business activity or whether they exceed the current business and, respectively, if the assets are or are not free of encumbrances. In order to sell the debtor’s assets, the court’s permission is not required if the creditors’ meeting approves such transaction.

A foreign procedure may be recognised in Romania if certain conditions are met:

  • the foreign procedure shall be a collective, public procedure in which the assets and the activity of the debtor are subject to the control or supervision of a foreign court;
  • the person who requests the recognition of the foreign procedure shall manage or administer the reorganisation or the liquidation of the debtor’s assets and activity or act as a representative of the procedure; and
  • there must be reciprocity regarding the effects of the foreign decisions between Romania and the state that delivered the decision by which the foreign procedure was opened.

All reciprocity agreements concluded between Romania and other states also apply to insolvency procedures. Internal legislation includes regulations regarding cross-border insolvency.

Depending on the date of opening of the procedure, the provisions of EC Regulation 1346/2000 or of Regulation 848/2015 on insolvency procedures are applicable.

There is no difference in treatment for foreign creditors in insolvency procedures or prevention of insolvency procedures that are opened within the territory of Romania.

There are various types of statutory officers who may be appointed in proceedings, namely: the administrator in an arrangement with the creditors or the ad hoc proxy or the insolvency administrator/judicial liquidator are appointed from the insolvency practitioners. In a procedure of insolvency of a natural person, the following may be appointed as liquidators: insolvency practitioners, court enforcement officers, attorneys at law and/or notaries.

The ad hoc proxy is appointed for the identification of solutions for reaching an understanding with the creditors. The administrator, in an arrangement with the creditors, prepares the creditors’ table and elaborates, together with the debtor, the arrangement project that would provide for the restructuring of the debtor’s business. The insolvency administrator prepares the creditors’ table, supervises the insolvency procedure and prepares monthly activity reports in which they present the debtor’s activity or, as the case may be, directly controls whether the debtor’s administration right has been lifted. The insolvency administrator may propose a reorganisation plan, may unilaterally terminate the ongoing agreements, and/or may appoint specialists in the procedure. The judicial liquidator manages the debtor’s activity and directly manages the procedure of liquidation of the assets.

In case of insolvency of professionals, the insolvency administrator/judicial liquidator is appointed by the creditors and, subsequently, confirmed by the court of law. The practitioner is appointed from those who have submitted an offer to the case file, depending on the complexity of the procedure, expertise and capacity to manage the procedure. In the case of insolvency of natural persons, the appointment is aleatory.

The insolvency administrator has the powers and duties of supervision of the debtor’s activity and management. If lifting the administration rights has been ordered, the management of the company belongs to the insolvency administrator, who will then have all the powers and duties.

The law regulates several hypotheses in which an insolvency practitioner may not fulfil the role required of it. In particular, these refer to situations in which the practitioner has had prior relations with the debtor during a period of two years prior to the opening of the insolvency procedure. Further, an insolvency practitioner who is a former judge may not be appointed as administrator/liquidator in the area of the court of law in which they have worked in the past three years.

Creditors, statutory administrators or managers may not be appointed as insolvency administrators/liquidators of a company.

In order for a person to fulfil the quality of insolvency practitioner, there are long-term higher-education studies in law or economic sciences that must be completed, as well as at least three years' experience in the legal or economic area. Authorisation to act as an insolvency practitioner is required.

The law provides for the possibility of specialists' engagement in the insolvency procedure. These include advisers, expert accountants, valuators, attorneys at law, archiving firms, etc.

The law provides that any advisors/specialists employed by judicial administrator/liquidator are remunerated from the debtor’s estate or from the liquidation fund. If other parties employ advisors/specialists to assist them, they will bear the costs. According to the recent amendments by Ordinance 88/2018, the budgetary creditor may also contract the services of an evaluator/independent specialist to help in casting its vote on the reorganisation plan.

Specialised persons who are appointed must have the authorisations required by the law in the contemplated area.

Even if their appointment is approved by the creditors’ committee, the specialised persons have an obligation to, and are held accountable by, the insolvent company.

Attorneys at law provide legal assistance and representation services; experts issue specialised opinions; valuators prepare the valuation reports regarding the value of the debtor’s assets; the archiving company deals with the archiving of the company’s documents, etc.

Arbitrations or mediations are not utilised in restructuring, liquidation, insolvency or administration matters in Romania, but mediators may be retained for the debtor as specialists in the insolvency procedure.

Romanian insolvency law does not provide for mandatory arbitration or mediation in a judicially supervised insolvency or restructuring proceeding.

Romanian law does not provide for pre-insolvency agreements to arbitrate disputes. Certain agreements may contain an arbitration clause in such contractual relation, but not in relation to insolvency.

Romanian legislation contains regulations regarding arbitration and mediation, but there are no specific regulations in the matter of insolvency.

If the insolvency administrator considers it necessary to retain a mediator in the insolvency procedure, then the consent of the creditors’ committee may be requested for the appointment and establishment of the mediator’s fee.

There are no special regulations in insolvency law regarding the appointment of a mediator. Anybody who is authorised as a mediator may be hired for the debtor in the insolvency procedure.

The managers have obligations to the insolvent company according to their functioning status. The manager, or any other person who has contributed to the occurrence of the insolvency state, may be held responsible to the creditors if the court makes a decision stating their liability.

The existence of the state of insolvency is determined by the syndic judge when the opening of the procedure is ordered. Subsequently, the first report prepared by the insolvency administrator/judicial liquidator describes the state of the company and the causes that have generated the insolvency, pointing out the persons responsible (if apparent). 

The managers of the company do not have a direct relationship with the creditors, but with the debtor. 

The managers are held liable for the activity they have performed. The managers, as well as any other persons who have contributed to the company’s insolvency, are responsible to all creditors for the state of insolvency.

The obligations assumed by bylaws/agreement by the owners/shareholders/company affiliates/subsidiaries are maintained, in principle, including after entry into insolvency.

The manager or any other person who has contributed to the occurrence of the insolvency state may be made responsible to the creditors. The law concretely provides the cases that may entail the personal responsibility of these persons in order to cover the receivables of the creditors registered with the body of creditors. The action can be brought by the judicial administrator/liquidator, the president of the creditors committee, or by a creditor holding 30% of the total registered debt.

Directors can be subject to other sanctions under applicable criminal or civil law or pursuant to disqualification or other similar proceedings, subject to the conditions provided above.

Creditors may request the entailing of the direct liability of the persons who have caused the insolvency state.

Romanian companies do not typically appoint chief restructuring officers or other restructuring professionals.

There is no concept of shadow directorship in Romania.

Owners/shareholders are potentially liable to creditors if they have contributed indirectly to the management of the company and have caused the entry into the insolvency procedure.

Romanian law concretely provides for several situations in which transactions concluded before the opening of the insolvency procedure may be annulled if they have disadvantaged the debtor. The law mentions:

  • gratuitous transactions;
  • operations in which the services offered by the debtor are obviously disproportionate;
  • transactions concluded with the intention of stealing assets from the debtor’s estate or of hiding or delaying the insolvency state;
  • anticipated payments of payable debts after the date of opening of the procedure;
  • transfer of ownership of assets in order to pay off a debt of the creditor at a higher value than the creditor could obtain in the bankruptcy procedure; and
  • transactions by which a preference is created in favour of a simple contract creditor.

The law also provides for the possibility of annulment of transactions concluded up to two years before the opening of the procedure with a person who had shareholdings or controlled the company, or with a co-owner of a common asset.

As a rule, transactions and operations concluded up to two years before the date of opening of the insolvency procedure are subject to verification.

Claims for annulment of transactions may be filed by the insolvency administrator, the creditors’ committee or by a creditor representing more than 50% of the total body of creditors.

Such claims may be filed in both restructuring and insolvency proceedings.

Valuation of the debtor’s assets is mandatory in the judicial procedure of insolvency. The purpose of valuation is to ensure a balanced treatment of the creditors, the value had in view being the market value of the assets.

The market value of the assets is relevant on the occasion of proposal of the reorganisation plan for the correct representation of the simulation reorganisation/bankruptcy. Judicial reorganisation must ensure satisfaction at least equal to the one of bankruptcy and sale of the assets. In case of bankruptcy, the determination of the value of the assets is necessary for selling the assets by public auction.

In the judiciary procedure valuation must be made by the insolvency administrator. The court may order the valuation ex officio or at the request of the creditors.

In each insolvency procedure, the valuation of the assets is ordered. Romanian insolvency law provides for the possibility of the insolvency administrator and of any of the creditors filing objections to the valuation reports. Nevertheless, the case law in this matter is at an early stage.

A list of valuation experts is agreed by the Romanian National Association of Authorised Valuators. In principle, these experts' fee is paid from the debtor’s estate.

Valuation is usually ordered by the insolvency administrator, but it can also be requested by the creditors or ordered ex officio by a court of law.

Any of the valuation methods provided by the International Valuation Standards may be utilised in order to prepare the valuation report and to identify market values. The insolvency law does not contain specific regulations with regard to the valuation methods.

The insolvency administrator does not make a distinct valuation outside the insolvency procedure but orders the valuation in the judiciary procedure. Secured creditors have their own valuation of the assets affected by their guarantees and may challenge the valuation report prepared in the judiciary procedure by filing objections to the report. The preparation, in parallel, of an extra-judiciary valuation report by the creditors may be considered an opportune action for prudency reasons, and may facilitate the filing of objections to the judiciary report ordered by the insolvency administrator.

It is not necessary to undertake an M&A process or other form of market testing in order to meet legal requirements or mitigate valuation challenges. The valuation expert's determination of market value does not imply a valuation according to the M&A process.

The value determined as a result of the valuation must be achieved according to the International Valuation Standards and must reflect the market value in the likely conditions in which a sale would take place.

Only if there are no other comparison values is it possible and reasonable that liquidation values alone be sufficient for the determination of market values.

Zamfirescu Racoți Vasile & Partners (ZRVP)

12 Plantelor Street,
023974 Bucharest,
District 2,
Romania

+40 21 311 05 17 / 18

+40 21 311 05 19

@zrvp.ro www.zrvp.ro
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Law and Practice

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Zamfirescu Racoți Vasile & Partners (ZRVP) has 12 lawyers in its Insolvency department, active mainly in banking litigation and debt recovery. The team notably acts for banks in insolvency procedure cases, and for large companies involved in the recovery of receivables. It advises both debtors and creditors throughout the insolvency procedure, assisting and/or representing them in specific claims and also in related actions, including objections to the decision of the creditors’ meeting, measures ordered by judicial liquidators, annulment claims, objections to debt claims, liability claims submitted against former debtors’ administrators, and fraud matters, etc. The team also has significant experience in debt recovery.

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