Romania: Reorganisation, A Double Challenge For Romanian Companies

Since the enactment of the new insolvency law in 2006, its proceedings have been amended many times to improve and simplify bankruptcy. In the past few years, the economic downturn has caused more and more companies to request court protection with the hope of undergoing reorganisation, realising that insolvency need not be the death of the company but, rather, a second chance. Further, with the insolvency practice picking up, an increasingly number of debtor companies realise the tools provided by reorganisation, such as the chance to erase some or even all of their debts, generally towards unsecured creditors.

Our legislators' constant attention to bankruptcy proceedings has resulted in inconsistencies in respect of reorganisation that have never been fully settled. So, on top of the fact that reorganisation is usually a challenging procedure, participants are also faced with a second challenge – finding practical solutions in cases where the law does not provide an answer, or where the answers provided are not clear.

The right to manage the company whilst undergoing reorganisation

Pursuant to article 47 of the Romanian Insolvency law, the opening of the insolvency proceedings automatically leads to the debtor's right to manage its estate being withdrawn. Management is performed by a judicial administrator, receiver, or special trustee if the debtor has expressed its intention to undergo reorganisation.

But article 103 provides that the debtor is managed by the special trustee under the supervision of the judicial administrator whilst undergoing reorganisation.

The inconsistency of the law refers to cases when the debtor has not expressed its intention to undergo reorganisation and when, consequently its right to manage its estate should be withdrawn. The judicial administrator or the creditors holding at least 20% of the debts submit a reorganisation plan, which is approved by the creditors and confirmed by the syndic judge. In such a case, the debtor's right to manage its estate should be performed by the special trustee based on the provisions of article 103, despite the fact that the management right might have already been withdrawn based on article 47.

The law is also not clear about what happens when the debtor fails to appoint a special trustee, when failing to appoint such a trustee leads to the management right being withdrawn. It becomes more complicated if a reorganisation plan is later submitted, approved by the creditors, and confirmed by the judge. On the one hand, the management right has been withdrawn because the debtor has failed to appoint a special trustee. On the other hand, the law provides that, whilst undergoing reorganisation, management is performed by the special trustee under the supervision of the judicial administrator.

In practice, the participants in the insolvency proceedings have found solutions to these inconsistencies. First, parties must interpret the decision of the syndic judge. The rule is that as long as the decision opening the insolvency proceedings does not provide that the management right is withdrawn, the debtor continues to manage its estate through the special trustee. Secondly, if the debtor fails to appoint a special trustee, the appointed judicial administrator has the right to call the debtor's shareholders meeting to appoint the special trustee. Also, if the debtor expresses its intention to undergo reorganisation and files a serious and viable plan, the participants tend to support the reorganisation, mostly because the overall results are better than those obtained by the creditors in case of bankruptcy.

Voting rights of creditors already paid during the reorganisation

The reorganisation plan also provides a payment plan of the creditors. Often, some creditors are paid before the end of the reorganisation. The question then arises (not answered by the Romanian insolvency law): do creditors that have been paid still hold any voting rights in the creditors' meeting?

The common and logical approach is that such a creditor no longer has any voting rights because it no longer holds a receivable and is thus no longer a "creditor" within the proceedings. We recommend a new provision in the law stating that once a creditor has been paid in full in accordance with the payment plan provided by the confirmed reorganisation plan, it has no rights to act as a creditor within the proceedings in any capacity.

Does the state have a reserved seat on the creditors' committee?

The creditors' meeting (Adunarea creditorilor) is convened and chaired by the judicial administrator, unless otherwise specified by the law or ordered by the syndic judge. The agenda for each session must be made public in advance to all creditors. Matters not on the agenda may not be discussed unless all creditors are present.

If many creditors are involved in the proceedings, the creditors in the first creditors' meeting must appoint a committee of 3 to 5 creditors for active involvement in the proceedings, particularly in supervising and approving certain actions/transactions of the judicial administrator or the receiver (as applicable). This is the creditors' committee (Comitetul creditorilor).

The creditors making up the creditors' committee must be selected from the (preliminary) creditors' table holding the biggest receivables (ie, from the first 20 creditors holding the biggest claims). All members of the creditors' committee are chosen from the creditors holding fiscal claims, secured and unsecured creditors.

However, the law does not provide that the state authorities holding fiscal claims in the proceedings also ex lege have a reserved seat in the creditors' committee. Nevertheless, in practice, the law is (erroneously) interpreted such that as long as there is a fiscal claim, the state/authority holds a seat. This questionable interpretation has led to errors in practice. For example, there have been numerous cases where the fiscal claims were not within the 20 highest claims, or even significant in relation to other claims, but the authority holding the claim was appointed a seat in the creditors' committee.

These are only some of the issues the participants in insolvency proceedings face, especially companies undergoing reorganisation. Now, with reorganisation proceedings increasing, we expect the inconsistencies to be settled soon.

On top of the fact that reorganisation is usually a challenging procedure, participants are also faced with a second challenge – finding practical solutions in cases where the law does not provide an answer, or where the answers provided are not clear.

This article was originally published in the schoenherr roadmap`12 - if you would like to receive a complimentary copy of this publication, please visit:

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