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What are the main insolvency procedures applicable to companies in your jurisdiction?
For insolvent companies
- Insolvency proceedings
- judicial reorganisation
- For distressed companies
- Ad hoc mandate
- Preventive concordat
Insolvency proceedings – Romania has a gateway insolvency proceeding that can be commenced by the company or a creditor. The person filing for insolvency must prove that the company is insolvent on a cash flow basis.
Insolvency proceedings usually commence with an observation period during which a court appointed official receiver supervises the company and a list of the company’s creditors is drawn up.
Judicial reorganisation – If the directors consider there is a chance of rescuing the company it is given the chance to prepare a judicial reorganisation plan that may include any or all of a compromise of debts, a reduction in interest rates on debts or a rescheduling of debt repayments. Creditors are divided into classes and the plan must be approved by the creditors and the court. The plan must be implemented within three years of approval. If it is the company returns to ordinary trading. If the company fails to implement the plan it will be liquidated.
Liquidation – If a company is not capable of rescue or a judicial reorganisation plan is rejected or the company fails to implement a plan it will be liquidated. A court appointed liquidator assumes control of the company solely for the purpose of realising its assets and distributing the proceeds to the company’s creditors.
Adhoc mandate – If a company is financially distressed but not yet insolvent it can apply to the court for the appointment of an ad hoc attorney to negotiate an agreement to restructure its debts and business with one or more of its creditors on a confidential basis. No moratorium arises and the ad hoc attorney has no power to bind creditors to the agreement.
Preventative concordat – If a company is financially distressed but not yet insolvent it can apply to the court for the appointment of a conciliator who has 30 days to agree a restructuring plan with creditors holding at least two thirds in value of the company’s undisputed debts. In order for a plan to come into force no more than 25% of the company’s debts can be disputed and the plan must be approved by a 75% majority in value of creditors (excluding disputed creditors) and the court.
Can a company obtain a moratorium whilst it prepares a restructuring plan?
During a preventative concordat those creditors who approved the plan are automatically subject to a moratorium and the company can apply to court for a temporary moratorium on dissenting creditors enforcing their claims.
Where a company goes into insolvency proceedings a moratorium automatically arises and continues if the company follows the judicial reorganisation path.
To what extent do the directors of the company remain in control of its affairs during any of the above procedures?
On the commencement of insolvency proceedings the shareholders appoint a special administrator who takes control of the company for as long as the company retains the right to manage its own affairs. The special administrator can be an existing director.
The company retains the right to manage its own affairs during a judicial reorganisation subject to supervision by the judicial administrator and the court, unless and until the court orders otherwise. The creditors and the judicial administrator can apply to the court to have the special administrator relieved of the power to manage the company.
On a liquidation, the company automatically loses the right to manage its own business and the liquidator takes control of the company.
Timeline to commence liquidation
How quickly can a creditor generally commence the liquidation of an insolvent company, assuming an undisputed claim and no opposition from the company?
Usually six months to one year, sometimes longer in complex cases or if the courts are busy.
Do your courts recognise insolvency proceedings commenced in the courts of another jurisdiction?
Yes - insolvency proceedings commenced in the courts of other EU members states will be automatically recognised under the EC insolvency regulation.
There is a special court procedure for recognising insolvency procedures commenced in courts of countries outside the EU.
Position of creditors
Forms of security
What are the main forms of security over movable and immovable property?
Security over immoveable property (land and buildings) is taken by mortgage.
Security over moveable property is taken by a mortgage that includes a floating charge.
Which classes of creditor are given preferential status? Are any classes subordinated?
On a liquidation, debts are paid in the following statutory order:
- the expenses of the insolvency proceedings including the fees of the insolvency officer
- loans made after the commencement of insolvency proceedings
- employment claims
- debts incurred during trading after the commencement of insolvency
- taxes, social security payments and fines
- bank loans, payments for goods delivered and services rendered
- other unsecured debts
- loans made by shareholders holding more than 10% of the company’s share capital or voting rights
- claims in relation to gifts
Treatment of foreign creditors
Are foreign creditors treated equally to domestic creditors?
Termination of contract by reason of insolvency
Are contract terms permitting termination of the contract by reason of insolvency valid?
In principle, no (except for certain netting arrangements).
Retention of title
Are retention of title clauses effective?
Yes if the retention of title is correctly publicised. A retention of title takes effect as a mortgage over the asset retained, not as a right to the return of the asset.
Setting aside transactions
Transaction avoidance provisions
What are the main transaction avoidance provisions, and who can challenge transactions?
There are two broad types of transactions that can be avoided on insolvency:
- transactions injurious the company’s creditors (including gifts and transactions at an undervalue)
- transactions with connected parties
Depending upon the value of the transaction, it is vulnerable to avoidance if it is entered into in either the six months or two years prior to the commencement of insolvency.
An avoidance action can be brought by the official receiver/liquidator or by the creditors, acting by the creditors committee or by the majority creditor.
Position of directors
Risks for directors
What are the risks facing the directors of an insolvent company?
Directors can be held civilly liable as persons responsible for part or all the company’s debts, if they committed specific acts leading to the company’s insolvency, including:
- using the company’s assets to the benefit of themselves or a third party
- fictitious accounting
- unfair preferences
- an intentional act leading to the company’s insolvency
Directors can also be held criminally liable for their conduct, whether or not they have been found civilly liable for that conduct.