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Criteria for enforcement What are the common enforcement triggers for loans, guarantees and security documents? Following an event of default (and after expiry of any applicable cure period), a secured lender may in theory accelerate the entire outstanding loan and commence enforcement. In practice, lenders mainly use non-payment events of default as triggers for enforcement. There is little or no jurisprudence on acceleration and enforcement based on events of default such as failure to meet financial covenants, breach of representations and general undertakings and material adverse changes, among others.
Process for enforcement What are the most common procedures for enforcement? Are there any specific requirements with which lenders must comply? As a general principle, enforcement is subject to:
- the secured obligation being certain, liquid and payable;
- to holding of writs of execution; and
- the procedures set out under the Civil Code or the Civil Procedure Code (including authorisations by relevant courts and enforcement officers, registration of the commencement of enforcement with the Electronic Archive and notices to other creditors, if applicable).
Depending on the assets subject to the security interests, common methods of enforcement include:
- sale by public tender (with the price for the first tender being determined by a valuator, but with some price flexibility for subsequent tenders);
- sale of the mortgaged assets in a ‘commercially reasonable’ manner;
- appropriation of the mortgaged assets on account of the outstanding debt, with the consent of the borrower (and assuming no opposition by any other affected parties);
- a mere request addressed to the account bank to transfer to the secured lender any amounts existing in mortgaged bank accounts; and
- as a new but not tested method, taking over the mortgaged asset for administration purposes.
Ranking in insolvency In what order do creditors rank in case of the insolvency of a borrower? As a preliminary aspect, under Romanian law the opening of insolvency proceedings against a company generally suspends any enforcement against the company and its assets; enforcement can continue or re-commence only in limited cases (which are rarely seen in practice).
If an insolvent company is declared bankrupt and its assets liquidated, the secured lenders will have a general priority to the proceeds obtained from the sale of their duly perfected collateral, provided that such proceeds first satisfy:
- taxes, fees, costs and expenses arising from the sale of the assets (including operation and maintenance costs, expenses in connection with these assets that are incurred after the opening of the insolvency proceedings and judicial administrator fees); and
- claims of secured creditors which arise after the opening of the insolvency procedure (including the principal, interests and ancillary rights).
In theory, the secured lenders may even benefit from distributions performed before the sale of their collateral (such distributions being deducted from the amounts obtained following the sale of their collateral).
If the secured lenders are not fully satisfied following the sale of their collateral, the outstanding amounts will be deemed to be unsecured claims – which, as a rule, are paid in the following order:
- taxes, fees, costs and expenses of the insolvency procedure (including operation and maintenance costs and expenses, salaries for the necessary personnel and judicial administrator fees);
- claims under financings made available to the company during the insolvency proceedings;
- claims of employees;
- claims arising during the insolvency proceedings for carrying out the operations of the insolvent company, claims regarding damages for the termination of contracts during the insolvency and claims of good-faith third parties that have returned the assets subject to clawback or their value;
- budgetary claims;
- claims of third parties relating to alimony, minors’ allocation or other regular subsistence payments;
- claims arising under bank loans or the supply of products, services or works, rent, or leasing arrangements and bonds (other than such claims of the insolvent company’s group members);
- other unsecured claims (other than such claims of the insolvent company’s group members); and
- subordinated claims, in the following order of priority:
- claims of bad-faith third parties that have not returned the assets subject to clawback or their value and claims under shareholder loans if that creditor holds at least 10% of the insolvent company’s share capital or voting rights in the general meetings of shareholders; and
- claims under free-of-charge acts.
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