Romania: Evolution Of The Insolvency Law During The Economic Downturn

The Romanian legal framework on insolvency procedure has been consistently improved following the enactment of Insolvency Law no. 85 (Law 85), which entered into force on 21 July 2006.

Background

Law 85 replaced the former Bankruptcy Law no. 64/1995, establishing new mechanisms for shortening the judicial procedures in order to accelerate the reorganisation of companies undergoing financial difficulties or to put an end to their existence and preserve as many of the creditors' rights towards the bankrupt companies as possible (through the bankruptcy procedure).

The constant amendments to Law 85 have been mainly influenced by the conditions provided by the Romanian insolvency practice. Before the enactment of Law 85, approximately 71% of insolvency cases led to bankruptcy proceedings, while only a small percentage of insolvent companies managed to undergo a successful reorganisation. New mechanisms for shortening the procedures, and accelerating the reorganisation proceedings were thus necessary. Further, alignment with European Insolvency Acquis Communautaire was mandatory.

During the years of economic growth of the country, Law 85 underwent only minor amendments. However, since the beginning of the economic downturn, the number of amendments has increased (once in 2009 and twice in 2010).

Because of the crisis, more companies have been facing financial difficulties. A lack of liquidities on the market has led to a significant increase in the number of debt recovery proceedings and insolvency cases. In practice, creditors were using insolvency proceedings as a means of debt recovery. Filing for insolvency against their debtors has mainly been done to pressure debtors to settle receivables in order to avoid entering into insolvency.

In order to stop this phenomenon and to ensure that companies facing insolvency have a fair chance to undergo a reorganisation proceeding, Law 85 has been amended. Due to such amendments insolvency has started to be perceived also as a proceeding by way of which the debtor could seek judicial protection from its creditors and companies could actually undergo a successful reorganisation. During 2010 the number of companies filing for insolvency and trying to undergo reorganisation proceedings has significantly increased.

Some of the most important amendments to Law 85 are discussed below.

Shortening the procedure and reducing the number of the insolvency requests

Beginning in 2009 the concept of special insolvency departments (within county courts) has been introduced. These departments are only competent to hear insolvency proceedings under Law no. 85 and the EC Regulation on insolvency proceedings. The establishment of the insolvency departments is an ongoing process, whereas most Romanian county courts have already established such departments.

Prior to the 2009 amendments, the mandate given to statutory management bodies was only suspended following the withdrawal of the debtor's right to manage their estate. Now, however, the mandate of the statutory management is considered terminated upon withdrawal of the debtor's right to manage their estate or upon appointment of the special trustee.

The provisions regarding the appointment of a special trustee by the general assembly of the debtors' shareholders have also been amended in order to speed up the proceedings. Following such amendments, failure by the general assembly to appoint a special trustee automatically triggers the withdrawal of the debtor's right to manage its estate and management is taken over by an appointed judicial administrator. Further, in urgent cases, the judicial administrator was given the right to perform transactions without the prior approval of the creditors' meeting.

Reorganisation before bankruptcy

In order to ensure the companies facing financial difficulties a fair chance at undergoing insolvency proceedings (and also to encourage the reorganisation of the companies and decrease the number of insolvent companies entering directly into bankruptcy), Law 85 introduced the below amendments.

Article 86, introduced in 2009, provides that contracts which are ongoing at the date of opening of the proceedings shall be deemed to continue. Any contractual clauses stating that ongoing contracts are terminated due to the opening of insolvency proceedings shall be null and void. Prior to this amendment, many ongoing contracts of the debtor company were terminated solely on this ground, preventing the debtor from continuing its business and preventing any real chance of reorganisation.

Also, during the observation period, the judicial administrator now has the right to amend the clauses of facility agreements with a view to establish comparability of future performance, provided there is consent from the other contracting parties. Former provisions establishing the obligation to subject such amendment to verification by and approval of the creditors' committee have been excluded from the wording brought by the 2009 amendments.

Further, by derogation from the provisions of the Labour Code, following the opening of insolvency proceedings, the judicial administrator/receiver (lichidator judiciar) has the right to terminate the individual labour agreements of the debtor's personnel without undergoing the collective dismissal procedure. The judicial administrator/receiver is nevertheless obliged to grant the dismissed person a 15 working day prior notice. Previously, the judicial administrator/receiver was only entitled to terminate individual labour agreements on the above terms if the debtor was in bankruptcy proceedings.

Finally, following the most recent amendments, the reorganisation plan may be amended at any time during the proceedings as long as the voting and confirmation procedures are observed. Previously, failure to strictly observe the voted and confirmed reorganisation plan resulted in commencement of bankruptcy proceedings.

Unification of the case law

Law 85 also undertook some amendments in view of unifying the Romanian case law on various issues related to the insolvency proceedings. For instance, article 76 of Law 85 currently provides that failure to register a statement of claims with the file/judicial administrator within the term set by the court results in that creditor not being registered in the creditors' table and not having the right to participate in such capacity within the proceedings. Prior to the amendment the Romanian case law was not unified on this matter.

The Romanian legislator has constantly tried to improve Law 85 and respond to the conditions of the Romanian market. Due to such amendments, Law 85 currently provides sufficient mechanisms enabling companies facing financial difficulties to seek protection from creditors and attempt a successful reorganisation.

This article was originally published in the schoenherr roadmap 11 - if you would like to receive a complimentary copy of this publication, please visit: www.schoenherr.eu/roadmap

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions