Pursuant to the issuing by the Romanian government of Government emergency ordinance no. 91/2013 on the Insolvency Code, Ordinance that has been declared unconstitutional by the Romanian Constitutional Court in October 2013, Romanian Parliament adopted a new Insolvency Law (“New Law”), maintaining some of the valuable provisions of the unconstitutional Ordinance.
The New Law consolidates all pre-insolvency, and the vast majority of the insolvency, provisions in Romanian legislation in relation to companies, groups of companies, credit institutions, insurance and reinsurance companies, as well as cross-border insolvency proceedings.
The New Law will come into force on June 29, 2014 and will only apply to newly opened insolvency proceedings. Any ongoing proceedings will continue to be governed by Law 85/2006 on insolvency proceedings (“Law 85”).
The purpose of the New Law \ is to avoid bad-faith use of the insolvency proceedings by the participants (debtor, creditors and official receivers). It also provides clearer instructions and procedures for both judges and participants.
In order to avoid abusive insolvency declarations by debtors, the New Law introduces a debt threshold for any debtor petitioning for insolvency. The threshold (RON 40.000 – approx.. EUR 9100) is applicable to both debtors petitioning for insolvency and creditors seeking insolvency of their debtors. Law 85 only required creditors to meet such threshold.
An important advantage for creditors is that they may now request that the judge appoints their proposed official receiver by joining the debtors’ insolvency petition. Previously, Law 85 generally allowed debtors to propose the appointment of their proposed official receiver, leading to potential bias and/or favourable treatment. Previously, creditors had limited and unclear methods of enforcing the appointment of an alternative official receiver.
The New Law also provides that the initial observation period must be concluded (to either reorganization or bankruptcy) within 12 months. Previously several years could have passed before creditors were even called to take such decision. Additionally the creditors may seek interim measures, even before their insolvency petition is heard, in order to prevent the sale of assets by the debtor.
According to the New Law, summons for Creditors Assemblies must be published 5 days before the date of the Assembly. This will eradicate the situation in which creditors were summoned on very short notice (sometimes less than a day) for Assemblies.
Under Law 85, where bankruptcy proceedings started after the approval of any reorganization plan which provides for certain reductions of receivables, such reductions would also be applicable in bankruptcy. The New Law prevents previous abusive practices aimed at approving a reorganization plan which will still end in bankruptcy, but with lower receivables.
The New Law also regulates creditors financing an insolvent company, providing distinct and well regulated security for the recovery of such loans. Also, creditors’ receivables generated by the continuing activity of the insolvent company are now better protected, as the creditor owning such receivable will be entitled, in case of payment delay of over 60 days for amounts exceeding the RON 40000 threshold, to seek bankruptcy of the insolvent company and recover his receivable before other creditors.