In brief: liquidation and reorganisation processes in Romania

Types of liquidation and reorganisation processes

What are the requirements for a debtor commencing a voluntary liquidation case and what are the effects?

The voluntary dissolution followed by the liquidation procedure is set out by the provisions of Law No. 31/1990 (the C Law) and it can be carried out by the shareholders or with the appointment of a liquidator. The voluntary liquidation procedure requires the decision of the shareholders regarding the dissolution and liquidation. Liquidation proceedings are aimed to ensure that creditors are fully repaid and any remaining assets are distributed to shareholders, after which the company may be liquidated and deregistered from the Trade Registry. Liquidation does not release the shareholders or associates and does not hinder the opening of insolvency proceedings of the company.

Another available voluntary liquidation procedure is set out by the provisions of Law No. 85/2014 on insolvency prevention proceedings and on insolvency procedure, namely the simplified bankruptcy procedure, which applies to the following categories of debtors:

• professionals:
  • who have no asset in their patrimony;
  • whose articles of association or accounting documents cannot be found;
  • whose director may not be found; or
  • whose headquarters no longer exist or no longer correspond to the address in the Trade Registry;
• entities that have been subject to voluntary dissolution, prior to submission of the request to initiate insolvency proceedings, even though the judicial liquidator was not appointed yet or, although appointed, his appointment was not registered at the Trade Registry;
• debtors that have declared their intention by filing a claim with the courts to undergo bankruptcy proceeding; and
• any individual or entity who is conducting business-like activities and who has not obtained the necessary authorisation for exploitation of a company and is not registered in the special publicity register.

What are the requirements for a debtor commencing a voluntary reorganisation and what are the effects?

The possible voluntary reorganisation options for the debtor are the following:

• the restructuring agreement (solvent debtor);
• the composition agreement (solvent debtor); or
• the reorganisation plan (insolvent debtor).

The new amendments transposed in the Law No. 85/2014 on insolvency prevention proceedings and on insolvency procedure offer more concise and effective preventive solutions for the debtors aiming to restructure their business. Thus, the two available pre-insolvency are the following options.

The restructuring agreement procedure is the new insolvency prevention procedure whereby the debtor, in order to recover its activity, submits to the confirmation of the syndic judge a restructuring agreement negotiated in advance with the creditors whose claims are affected.

The characteristics and effects of the restructuring agreement are as follows:

• mostly out-of-court procedure, only after negotiations and obtaining votes will the confirmation request be submitted to the syndic judge;
• the negotiation can only be started by the debtor;
• foreclosures are not suspended. The premise for starting negotiations is the good relationship between debtor and creditors, the company in difficulty not being pressured by forced executions started or to be started;
• the flow of interest is not suspended, but their fate will be foreseen after the negotiations, through the restructuring agreement; and
• there is no limit to the negotiation period and no maximum period of the agreement, but monitoring by the restructuring administrator is mandatory for at least three years.

The preventive composition procedure represents the judicial procedure for preventing insolvency, whose opening suspends forced executions under the law, and the debtor recovers its activity and pays all or part of its affected receivables based on a restructuring plan voted by creditors whose claims are affected and approved by the syndic judge.

The characteristics and effects of the preventive composition are as follows:

• it is a judicial procedure;
• the negotiation can only be started by the debtor;
• enforcement actions are suspended for a period of four months, and can be extended up to 12 months;
• the flow of interest and accessories of any kind shall be subject during the negotiation period until the approval of the restructuring plan, subsequently having the regime provided by the plan;
• from the date of initiation of proceedings, it is prohibited to terminate essential contracts or refuse to perform them on the grounds that outstanding amounts have not been paid;
• the negotiation period is 60 days from the opening of the procedure and the restructuring plan may be modified during this period;
• the limitation period shall be suspended from the initiation of the procedure, during negotiations and restructuring, if the plan has been approved; and
• any enterprise in difficulty, but not in a state of insolvency can benefit from those proceedings.

The debtor may propose a reorganisation plan in the insolvency proceedings with the approval of the general meeting of shareholders or members, within 30 days of publication of the final statement of claims, provided that the intention to reorganise is previously formulated. The plan may provide either for the restructuring and continuation of the debtor’s business, the liquidation of some of the debtor’s assets, or a combination of the two reorganisation options.

How are creditors classified for purposes of a reorganisation plan and how is the plan approved? Can a reorganisation plan release non-debtor parties from liability and, if so, in what circumstances?

The categories of receivables for the restructuring agreement and composition agreement are:

• secured claims;
• salary claims;
• claims of indispensable creditors, where applicable;
• budgetary claims; and
• other unsecured claims.

For debtors who have a turnover of up to €500,000 it is not mandatory to set up categories of receivables.

A restructuring/reorganisation plan is considered accepted by a category of claims if the plan is accepted in that category by the absolute majority of the amount of claims in that category. Each claim offers the right to one vote which the holder shall exercise within the category of claims that the respective claim belongs to:

• privileged claims;
• salary claims;
• budgetary claims;
• claims of indispensable creditors; and
• other unsecured claims.

According to Romanian Law No. 85/2014 on insolvency prevention proceedings and on insolvency procedure, non-debtor parties cannot be released from their liabilities under restructuring/reorganisation plans.

What are the requirements for creditors placing a debtor into involuntary liquidation and what are the effects? Once the proceeding is opened, are there material differences to proceedings opened voluntarily?

At the request of any interested person, as well as of the National Trade Registry Office, the court may order the dissolution of the company in cases where: (1) the company no longer has statutory bodies or they can no longer meet; (2) the shareholders or associates have disappeared or have no known domicile or residence; (3) the conditions relating to the registered office are no longer fulfilled; and (4) the company has not completed its share capital in accordance with the law.

After the final judgment of dissolution has become final, the National Trade Registry Office, through the Registrar, at the request of the company, of any interested person or ex officio, shall appoint, by order, a liquidator.

Also, the creditors whose claim on the debtor’s assets has been certain, liquid and payable for more than 60 days may request the opening of the simplified bankruptcy proceedings against the debtors.

There is no notable difference between the voluntary and involuntary proceedings once opened.

What are the requirements for creditors commencing an involuntary reorganisation and what are the effects? Once the proceeding is opened, are there any material differences to proceedings opened voluntarily?

As part of the insolvency proceedings, judicial reorganisation is the procedure applied to an insolvent debtor, a legal person, in order to pay its debts according to the payment schedule. The reorganisation procedure involves the preparation, approval, confirmation, implementation and compliance with a plan, called a reorganisation plan, which may provide, without limitation, for a combination or separately of the following: (1) operational or financial restructuring of the debtor, or both; (2) corporate restructuring by changing the share capital structure; and (3) the restriction of activity by partial or total liquidation of the debtor’s assets.

In this scenario (involuntary reorganisation), the reorganisation plan is submitted either by the creditors, holding at least 20 per cent of the total value of the claims included in the final schedule of claims, or by the judicial administrator.

Do procedures exist for expedited reorganisations (eg, ‘prepackaged’ reorganisations)?

No. The pre-insolvency proceedings does not offer an expedited time frame for successful implementation of the restructuring plan.

How is a proposed reorganisation defeated and what is the effect of a reorganisation plan not being approved? What if the debtor fails to perform a plan?

Failure of the pre-insolvency proceedings (ie, restructuring agreement or preventive composition) will lead to the following:

• disapproval by the creditors/dismissal of confirmation by the court;
• failure to comply with the provisions of the restructuring agreement upon request of:
  • a creditor whose claim has not been discharged in accordance with the terms of the agreement within a maximum of 60 days from the date specified in the agreement for payment, unless the parties have entered into an agreement to that effect, subject to the rights of other creditors;
  • any creditor, if the debtor’s conduct of business during the course of the agreement results in loss to its estate and does not present reasonable prospects of maintaining the viability of the business; and
  • to the debtor, if the debtor is unable to continue to perform its obligations under the agreement; and
• failure to comply with the obligation to modify the agreement ordered by the syndic judge or the court of appeal within the time limit set by the judgment ordering the modification, either ex officio or at the request of any interested party.

Following the failure of the restructuring agreement:

• the reduced claims shall revive on the date of the judgment closing the proceedings, reduced as a result of payments made during the restructuring agreement procedure; and
• creditors whose rights to the calculation of interest, surcharges or penalties of any kind or expenses, referred to generically as ancillary expenses, have been suspended by the agreement may calculate their ancillary expenses retroactively during the course of the agreement.

After the confirmation of the restructuring agreement and until the closure of the proceedings, the debtor shall not be able to access another insolvency prevention procedure. After the confirmation of the restructuring agreement and until the closure of the proceedings, insolvency proceedings may not be opened against the debtor at the request of an affected creditor. In case the preventive proceedings close without success, an insolvency procedure may be opened.

Failure of the reorganisation plan will include the following:

• disapproval by the creditors or dismissal of confirmation by the court; and
• if the debtor does not comply with the plan or new debts accrue to creditors in the insolvency proceedings, any of the creditors or the insolvency administrator may at any time request the syndic judge to order that the debtor be declared bankrupt.

The effect of a defeated reorganisation plan will automatically begin the bankruptcy procedure.

Are there corporate procedures for the dissolution of a corporation? How do such processes contrast with bankruptcy proceedings?

The following are cases of dissolution of the limited liability company (LLC) according to the provisions of article 227 of the Companies Law No. 31/1990:

• the lifetime of the LLC has expired;
• the LLC is unable to carry out its object of activity;
• the nullity of the LLC has been declared;
• the shareholders have decided, by resolution, to dissolve the LLC;
• the court has ordered by decision the dissolution of the LLC, at the request of the partners, for serious reasons such as serious disagreements between the partners, which prevent the operation of the LLC;
• the bankruptcy of the LLC was ordered; and
• the LLC has been dissolved for other reasons provided for by law or by the company’s articles of association.

According to the provisions of article 229 of Law No. 31/1990, dissolution of an LLC may also arise from bankruptcy, incapacity, exclusion, withdrawal or death of one of the associates when, because of these reasons, the number of associates has been reduced to one. An exception is made in cases where the articles of association contain a clause on continuation with heirs or where the remaining partner decides to continue the existence of the company in the form of a single-member limited liability company.

The dissolution of the company has the effect of opening the liquidation procedure. Dissolution takes place without liquidation in case of merger or total division of the company or in other cases provided by law.

If the liquidator observes that there are insufficient assets to fully repay the debts, they must request the opening of the bankruptcy procedure of the debtor.

The main differences between voluntary liquidation and bankruptcy refer to the ability to fully repay all the registered debts (eg, all the creditors have to be fully paid in liquidation, to close the procedure, while in bankruptcy, the creditors can be paid just in part, in a specific order provided by the law according to their registered quota in the statement of affairs).

Also, the liquidation process can be carried out by company’s existing management, while in bankruptcy it mandatory to appoint a third person (ie, insolvency practitioner). Liquidation procedures are far less formal and have less strict deadlines.

How are liquidation and reorganisation cases formally concluded?

The pre-insolvency proceedings are formally closed when:

• the provisions of the restructuring agreement are fulfilled at the request of either party or of the restructuring trustee to the syndic judge. In this case, if the agreement provides for reductions of claims, the reductions shall become final from the date of the judgment closing the proceedings;
• failure to comply with the provisions of the restructuring agreement; and
• failure to comply with the obligation to modify the agreement ordered by the syndic judge or the court of appeal within the time limit set by the judgment ordering the modification, either ex officio or at the request of any interested party.

The liquidation procedure under the Law No. 31/1990 (Companies Law) is concluded when all the registered debts are fully paid by submitting a final liquidation report with no debts to the Trade Registry, the remaining liquidation estate being distributed between its shareholders.

The bankruptcy procedure under the Law No. 85/2014 on insolvency prevention proceedings and on insolvency procedure is usually closed when the syndic judge has approved the final report, when all funds or assets of the debtor’s estate have been distributed and when unclaimed funds have been deposited with the bank.

A reorganisation through a going concern or winding-up procedure on the basis of a plan will be closed, by a judgment, on the basis of a report by the liquidator that establishes the fulfilment of all payment obligations assumed under the confirmed plan, as well as the payment of current claims falling due or the staggering of their payment, by agreement, in the period following the closure of the procedure, including budgetary claims.