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What are the primary procedures used to liquidate an insolvent company in your jurisdiction and what are the key features and requirements of each? Are there any structural or regulatory differences between voluntary liquidation and compulsory liquidation?
The primary procedure is the opening of bankruptcy against the insolvent company, which may occur in any of the cases set out above. The key feature is that the procedure is regulated by Law 85/2014 on preventing insolvency and insolvency proceedings and requires the appointment of a judicial administrator to perform all actions leading to liquidation under the supervision of the creditors and the syndic judge.
Voluntary liquidation requires a decision by the company’s shareholders and may be applied only if all of the company’s debts towards its creditors are paid.
Thus, voluntary liquidation is governed by Law 31/1990 on commercial companies, while compulsory liquidation is regulated by Law 85/2014.
In terms of final legal effects, both procedures are aimed towards the dissolution and liquidation of the company followed by its deregistration with the trade registry.
How are liquidation procedures formally approved?
Liquidation following bankruptcy is regulated by Law 85/2014 and is formally approved by a resolution of the syndic judge.
The voluntary liquidation procedure is approved by the shareholders’ meeting.
What effects do liquidation procedures have on existing contracts?
Existing contracts are usually terminated at the commencement of the liquidation procedure, since the company preserves legal personality only for the purposes of the liquidation.
What is the typical timeframe for completion of liquidation procedures?
It depends on the complexity of the case, but usually ranges between three months (for voluntary liquidation) and several years.
Role of liquidator
How is the liquidator appointed and what is the extent of his or her powers and responsibilities?
The judicial liquidator is proposed by the debtor or creditor in the request to commence the bankruptcy procedure. The syndic judge approving the commencement of bankruptcy appoints the liquidator (who will be further confirmed by the creditors).
The main responsibilities of the judicial liquidator are:
- examining the debtor's activity and drafting a detailed report on the causes and circumstances leading to insolvency, listing potentially liable persons;
- managing the debtor's activity;
- filing actions for the annulment of any fraudulent acts and operations carried out by the debtor to the detriment of the creditors, as well as patrimonial transfers, commercial transactions and other preferential operations intended to prejudice the rights of creditors;
- applying seals, carrying out an inventory of the assets and taking appropriate measures for their preservation;
- terminating contracts concluded by the debtor;
- verifying claims and, where appropriate, making objections to them, notifying creditors in the event of partial or full rejection of claims and drafting the table of creditors;
- monitoring the collection of debts from the bankrupt company's debtors resulting from the transfer of goods or funds carried out before the opening of the procedure, cashing receivables and filing actions for the recovery of the debtor's debts;
- cashing payments on behalf of the debtor and transferring them to the debtor's account;
- conducting the sale of the debtor’s assets;
- concluding transactions, discharging of debts and waving the fiduciary and real guarantees subject to confirmation by the syndic judge;
- referring to the syndic judge any matter that requires confirmation; and
- carrying out any other attributions established by the syndic judge.
What is the extent of the court’s involvement in liquidation procedures?
The syndic judge must examine and ensure that the legal provisions are fully observed. However, the managerial prerogatives belong to the liquidator and creditors.
The main prerogatives of the syndic judge within the bankruptcy procedure are:
- rendering the decision for the commencement of bankruptcy;
- settling any challenge filed by the debtor against the creditors’ request to open the bankruptcy procedure;
- settling any challenge filed by the creditors against the debtor’s request to open the bankruptcy procedure;
- appointing the liquidator;
- confirming the liquidator after he or she has been approved by creditors holding more than 50% of the values of receivables;
- replacing the liquidator for valid reasons;
- lifting the debtor’s right to manage its activity;
- settling any request to trigger the liability of members of the management body who contributed to the insolvency of the debtor;
- settling actions filed by the judicial liquidator in order to annul fraudulent acts, operations and payments performed by the debtor after the commencement of the bankruptcy procedure;
- settling any challenge filed by the debtor or the creditors’ assembly against the measures taken by the judicial liquidator;
- settling a request submitted by the judicial liquidator to cease the reorganisation of the debtor and open the bankruptcy procedure;
- settling challenges filed against the judicial liquidator’s activity reports;
- settling challenges filed against decisions of the creditors’ assembly; and
- rendering the decision to close the bankruptcy procedure.
What is the extent of creditors’ involvement in liquidation procedures and what actions are they prohibited from taking against the insolvent company in the course of the proceedings?
In principle, the creditors (via the creditors’ meeting) and the creditors’ committee are involved in the adoption of any management decision affecting the company’s activity.
The creditors have the following main prerogatives under the liquidation procedure:
- to approve the terms and conditions of the sale of the debtor’s assets;
- to approve the appointment of specialised valuers or service providers, if necessary, in order to maximise the debtor’s estate and protect its assets;
- to take note of the activity reports prepared by the liquidator and, if necessary, to challenge them; and
- to submit actions for the annulment of fraudulent acts or operations made by the debtor when such actions have not been filed by the judicial liquidator.
As of the date of opening the insolvency procedure, all enforcement procedures against the debtor or its assets are stayed automatically, and therefore any claim for the payment of the receivables outside the liquidation procedure is prohibited.
Director and shareholder involvement
What is the extent of directors’ and shareholders’ involvement in liquidation procedures?
Once the special administrator has been appointed by the shareholders (to protect their and the company’s interests), the prerogatives of the shareholders’ assembly and the board directors cease automatically. Notwithstanding, the company executives are still involved in the company’s business, but under the management and supervision of the judicial administrator.
What are the eligibility criteria for initiating liquidation procedures? Are any entities explicitly barred from initiating such procedures?
The initiation of bankruptcy procedures may occur in the following circumstances:
- The debtor declares its intention to become bankrupt;
- None of the creditors holding at least 20% of the total value of receivables, the judicial administrator or the debtor proposes a reorganisation plan;
- No proposed reorganisation plan is approved by the creditors or confirmed by the syndic judge;
- The payment and distribution programme under the reorganisation plan is not observed;
- The debtor accumulates unpaid receivables during reorganisation; or
- The judicial administrator’s proposal to open the bankruptcy is approved by the creditors holding at least two-thirds of the voting creditors.
Only a prosecuted company under the Criminal Code may be barred from filing for bankruptcy.
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