A Q&A guide to restructuring and insolvency law in Romania.
The Q&A gives a high level overview of the most common forms of security granted over immovable and movable property; creditors' and shareholders' ranking on a company's insolvency; mechanisms to secure unpaid debts; mandatory set-off of mutual debts on insolvency; state support for distressed businesses; rescue and insolvency procedures; stakeholders' roles; liability for an insolvent company's debts; setting aside an insolvent company's pre-insolvency transactions; carrying on business during insolvency; additional finance; multinational cases; and proposals for reform.
This Q&A is part of the PLC multi-jurisdictional guide to restructuring and insolvency law. For a full list of jurisdictional Q&As visit www.practicallaw.com/restructure-mjg.
The most common forms of security over immovable property are:
Mortgages. A mortgage is a real right (as opposed to a personal right) over immovable property, created to secure the performance of an obligation (Civil Code). Mortgages arise from a debt, by contract or by operation of law.
On failure to pay a debt secured by a mortgage the creditor must follow a specific enforcement procedure under the Civil Procedure Code to recover its debt. It cannot take over the mortgaged asset in exchange for the debt without court enforcement proceedings.
Privileges. Privileges over real property are rights arising from a debt and are similar to the US mechanic's lien. Privileges over immovable property can be created by operation of law in favour of:
a seller of immovable property, for any of the price remaining unpaid;
a co-owner;
architects, constructors or workers who built the immovable property, for any of their remuneration remaining unpaid;
creditors who lent money to pay for the acquisition (or construction) of the immovable property.
Lenders are currently attempting to extend privileges to include all types of real estate financing so they extend to lending for the construction of immovable property as well as acquisitions.
Privileges grant the creditor priority over other secured or unsecured creditors, provided specific registration formalities have been carried out. If registration formalities are not performed, privileges are outranked by any properly registered security. In the event of a conflict between a privilege and a mortgage over the same immovable property, a properly registered privilege takes precedence.
The most common forms of security over movable property are:
Pledges. A pledge is a contract ancillary to a debt under which the debtor offers an asset to a creditor to secure the performance of an obligation. A pledge can be created with or without the creditor taking possession of the property. If the obligation is not performed, depending on the pledge agreement, the pledge can be enforced through either the:
Civil Procedure Code (which is difficult);
Title VI of the Security Interests Law (Law 99/1999).
A pledge agreement can also be made against future assets, although it only becomes enforceable when the debtor acquires the asset in question. A pledge agreement can also secure the fulfilment of future obligations (for example, the obligation to pay penalties, which only occurs if there is non-performance of other obligations).
Liens. A lien is the right to retain possession of a debtor's property until a debt is settled. The debt must be linked to the property, derived from it or otherwise related to it. The lien holder does not have the right to dispose of the property if the debt is not paid. For example, a mechanic that repairs a car has the right to retain the car until paid in full for his work, but does not have the right to sell it. A warehouse owner can hold stored property until he is paid the warehousing fees in full.
Fonds de commerce (fonds de comert). This is a type of pledge over all movable and immovable, tangible and non-tangible assets of a debtor, except debts. If a default occurs, the creditor can enforce its security against the debtor's assets and goods in their entirety and general enforcement rules apply. If the security is intended to cover immovable property, it is advisable to also execute a mortgage agreement.
The formalities required for creating a security are:
Mortgages. To be valid, the mortgage must be correctly executed and notarised. In addition, to be effective against third parties and to ensure the creditor's priority and ranking, mortgages must be:
executed in front of a public notary; and
registered with the Land Book.
Privileges. Privileges over real property must be registered with the Land Book.
Pledges. Pledges are created by a security agreement and this agreement does not require notarisation. However, to be effective against third parties and for priority and ranking purposes, pledges must be registered with the Electronic Archive for Secured Transactions or with the relevant special register (for example, for ships, aircrafts and intellectual property rights).
Notary fees for immovable property are significant. They are calculated as a percentage of the secured sum. There are no fees for movable property other than the registration fees, which are minimal.
Generally, creditors always rank ahead of shareholders. Creditors have the following order of priority (Insolvency Law (Law 85/2006)):
Secured creditors. Secured creditors are paid from the funds realised from secured assets after deducting the costs of realising those assets, including the:
administration costs;
professional fees of any insolvency official or independent experts hired during insolvency proceedings.
If the value of the debt is higher than the value of the secured asset, the secured creditor can claim the balance as an unsecured creditor. Any amounts in excess of the owed amount belong to the debtor.
General creditors. General creditors are paid after giving priority to procedural costs and expenses, in the following order of priority:
employee claims;
new debts arising from loans and interest payments granted after the opening of insolvency proceedings or from the continuation of the debtor's business after the opening of proceedings;
budgetary claims;
bank loans, as well as product, service supply and rental agreements;
other unsecured claims;
other subordinated claims (including, for example, shareholders' claims).
A privilege is the most commonly used mechanism by trade creditors to secure unpaid debts (see Question 1, Immovable property).
Blank promissory notes are writs of execution (see Question 4, Court judgment) with expedited enforcement rules. They are issued by the debtor if either:
The ownership over purchased assets is transferred before they are paid for in full.
The ownership of assets over which a pledge exists is transferred before the related debt is paid in full.
It is also possible to retain ownership over an asset after its sale. However, this must be expressed very clearly in the sale and purchase agreement, which must be in writing. This is particularly important, as there is an assumption in law that title passes as soon as an agreement is entered into (even before payment is made).
Any creditor can begin court proceedings against a debtor. A judgment against a debtor, once it is final and binding, serves as the basis for collecting any amounts due and is viewed as a writ of execution. Only writs of execution give the right to request the enforcement of a debt. After certain simple court formalities are completed, a writ of execution becomes enforceable (formula executorie). This is the case for both secured and unsecured creditors.
There are no out-of-court procedures to recover debts. However, there is a limited and accelerated court procedure under which certain security agreements (such as pledge agreements) are automatically viewed as writs of execution (Security Interests Law). Since the formalities to make these enforceable are fairly simple, the procedure is similar to an out-of-court means of debt recovery.
With a formula executorie a creditor can enforce his interest against a debtor. The parties can agree in a security agreement on the method used to sell the encumbered goods in the event of default. This opt-out provision is commonly used by financial institutions. However, without an agreement, the creditor must sell the secured property in a reasonable commercial manner to ensure the best price for the asset is obtained. It is possible to sell to third parties or on the public market. However, the creditor must choose the sale method which ensures the best achievable price.
To ensure the sale's validity and to protect against claims for damages, the creditor must notify the sale to the debtor and to any other creditors with a registered security interest over the asset before the sale is made. If the debtor is not also the owner of the secured asset, then the creditor must notify the sale to the asset's owner.
The creditor must start and finish the enforcement of his security within a reasonable period, bearing in mind the type of goods and market practice, to enable a sale at the best achievable price.
On 4 May 2009, the European Commission authorised the Romanian State Aid Scheme N 129/2009 (129 scheme) concerning the rescuing of economic undertakings which are in the portfolio of the Authority for State Assets Recovery (Autoritatea pentru Valorificarea Activelor Statului) (AVAS) and the Ministry of Economy. State aid is to be granted to small and medium-sized enterprises which are deemed to be in difficulty as defined in the Community Guidelines on State Aid. An enterprise is deemed to be in difficulty if either:
It is a public or limited liability company in which an amount equivalent to one-half of the share capital is recorded as a loss and more than one-quarter of this share capital was recorded as a loss in the last 12 months.
It is a company in which at least one shareholder has unlimited liability for all the company's debts when more than one-half of the registered share capital is lost and more than one-quarter of this share capital was lost in the last 12 months.
In addition, the legal requirements for opening insolvency proceedings against a company must be met (for any type of commercial company) (see Question 6).
The maximum amount of state aid for each eligible company is EUR2.5 million (as at 1 February 2011, US$1 was about EUR0.7). This state aid cannot be granted to companies that benefited in the past from illegal state aid. The total value of the state aid available under the current scheme is EUR30 million. The scheme was valid until the end of 2010. However, Romania can prolong the scheme's duration provided that it notifies the Commission of the extension. It is unclear whether this scheme has been extended for 2011.
In addition, the Commission authorised the Romanian State Aid Scheme N 318/2009 (318 scheme) concerning the rescuing of economic undertakings which are in the portfolio of the AVAS and the Ministry of Economy. The conditions for receiving this state aid are similar to under the 129 scheme. The aggregate value of the state aid for the years 2009 and 2010 is EUR180 million and the maximum value for each aid is EUR10 million. This scheme may be extended for another year, subject to the Commission's approval. It is unclear whether this scheme has been extended for 2011.
What is its objective and, where relevant, what are the prospects for recovery?
How is it initiated, when, by whom and which companies can it be applied to?
Can the company obtain any protection from its creditors during the procedure?
What substantive tests apply?
How long does it take?
What consents and approvals are required?
Who supervises the procedure and controls the company's affairs (for example, an independent accountant or the court)?
How does it affect the company, shareholders, employees, trading partners and creditors?
How is the procedure formally concluded and what happens to the company on conclusion?
Objective. The insolvency procedure aims to repay the debts of the insolvent debtor. There are two types of proceedings:
General proceedings, leading to either reorganisation (see below, Reorganisation) or liquidation (see below, Compulsory liquidation).
Simplified proceedings, which are limited to liquidation.
Initiation. Insolvency proceedings are initiated by the debtor or creditor filing a petition with the insolvency court and the court then finding the debtor insolvent (see below, Substantive tests). The simplified procedure applies to companies, individuals and unlimited liability partnerships.
Protection from creditors. See below, Effect.
Substantive tests. There is a rebuttable presumption that a debtor is insolvent if a debt is not paid within 90 days of becoming due. Insolvency is considered imminent if it is demonstrated that the debtor will not be able to pay future debts as they fall due. A creditor can file a petition for opening an insolvency proceeding against a debtor if it has a receivable against the debtor amounting to at least RON45,000 (as at 1 February 2011, US$1 was about RON3.1) due and payable for more than 90 days. The minimum amount of the claim for the debtor's employees is six times the national average salary per employee. Therefore, if the company's debt towards its employees is more than six times the national average salary per employee, then the employee's representative/union can request the opening of insolvency proceedings against the debtor.
Length of procedure. Insolvency procedures (including reorganisation and liquidation) can last for more than five years.
Consents and approvals. The syndic judge decides on whether to open the insolvency procedure and to continue with either reorganisation or liquidation.
If creditors file for insolvency, and the debtor unsuccessfully opposes the insolvency, the debtor cannot then opt for reorganisation. If the debtor files for insolvency but is successfully opposed by the creditors, the procedure can be declared premature and the debtor is then subject to an observation period.
Supervision and control. The process is overseen by a syndic judge. An insolvency specialist is designated to act as the judicial administrator (administrator judiciar), following which he assumes the duties of administering the debtor. The judicial administrator must have his key decisions in relation to the administration and functioning of the debtor confirmed by the creditors and the court. General proceedings apply exclusively to companies, including any type of Romanian-registered company and foreign companies subject to EU cross-border insolvency rules.
Effect. The opening of the insolvency procedure has certain immediate effects:
All the creditors' judicial and extra-judicial actions for recovery of their debts against the debtor are stayed.
Any payments made by the debtor after the opening of the procedure without the judicial administrator's proper approval are void.
Any interests that have not already been registered for priority purposes cannot then be registered.
However, legal set off, enforcement against third-party guarantors and contracts with derivatives (netting operations) continue.
Creditors can ask the syndic judge to lift the debt recovery suspension from secured assets if either:
The assets cover 100% of the lender's due debts, are not vital to the reorganisation and are not more valuable if sold as part of a group of assets.
There is no appropriate protection for the due debt and the asset's value is diminishing or will diminish and is not insured.
If the lifting of the suspension is denied, the creditor can obtain periodical payments to cover the diminished value of the asset or replace the existing security with another.
The syndic judge can decide to continue or amend credit facilities (if the creditors agree), or terminate them if the creditors do not accept the amendments or the credit facilities are considered damaging to the debtor.
Conclusion. The procedure concludes with the insolvency court's decision approving either a reorganisation plan (see below, Reorganisation) or liquidation (see below, Compulsory liquidation).
Objective. Reorganisation aims to help an insolvent company to continue business activities and repay its debts, with protection from creditors under a court order. The procedure requires the approval, implementation and completion of a reorganisation plan to co-ordinate the debtor's activity.
Reorganisation is preferred when the company's business is viable or when the creditors are more likely to be repaid following a better realisation of the company's assets than would be the case in liquidation.
Initiation. After the insolvency procedure is opened, reorganisation may be opted for by:
A debtor, in its petition for insolvency or within ten days of having lodged the petition.
A debtor who does not contest the debt when the insolvency procedure was initiated by the creditors.
Creditors holding debts amounting to at least 20% of the bankruptcy estate.
A judicial administrator within 30 days from the date of the publication of the final list of receivables against the debtor's estate.
Protection from creditors. See below, Effect.
Substantive tests. The plan must comply with certain requirements including:
Having a reasonable chance of success.
Giving fair and equitable treatment to creditors that vote against the reorganisation plan.
Length of procedure. The reorganisation plan's implementation cannot take longer than four years (three years plus a one-year extension if voted for by two-thirds of creditors one and a half years into the plan).
Consents and approvals. The judicial administrator proposed by the insolvency court can be changed by:
The syndic judge, at his own initiative or on the request of the creditors' committee.
Creditors holding at least 50% by value of the company's debts.
The reorganisation plan must be admitted to the court by the syndic judge, voted for by the creditors (there is a complex voting procedure by category of creditor) and confirmed by the insolvency court.
Supervision and control. A reorganisation must be approved by the insolvency court and judicial administrator appointed to administer the reorganisation (see above, Insolvency). Alternatively, the judicial administrator can be appointed directly by creditors representing at least 50% of the company's debts. A court-appointed judicial administrator can be challenged by creditors (see below, Consents and approvals) because this is a court procedure, reorganisation can apply to any Romanian-registered company and foreign companies under the EU cross-border insolvency rules.
Effect. The debtor's activities are reorganised and the debts and rights of the creditors can be amended. The reorganisation may involve, for example:
The sale of one or several inessential assets to repay creditors.
Rescheduling debt repayments.
Changing the administration of the company, by merging or spinning off elements of the company.
Shareholders are not generally allowed to intervene in the administration and management of the company. The judicial administrator must provide quarterly financial reports on the estate of the debtor to the creditors' committee and to all creditors.
The creditors cannot initiate any other procedures against the debtor provided the debtor's activities do not increase its losses and/or provided it properly performs the reorganisation plan. Creditors retain the right to claim against co-debtors and/or guarantors.
Conclusion. The outcome of a reorganisation procedure is either a:
Successful reorganisation, in which the company continues its business and the creditors are paid in full (anyone not included in the reorganisation plan as a creditor does not have any further rights).
Failure, which puts the company into bankruptcy and liquidation (see below, Compulsory liquidation).
Objective. This is a liquidation where the shareholders of a company decide to voluntarily dissolve the company.
Initiation. The procedure must be decided on by:
Shareholders representing 100% of the share capital of the company for limited liability companies (unless the company's bye-laws provide otherwise).
Shareholders holding two-thirds of the share capital, for joint stock companies.
The process involves the following stages:
The shareholders' resolution on the liquidation is filed with the trade register and published in the Official Gazette.
Creditors or any other interested parties have 30 days from publication to file a complaint against the process.
If no complaint is filed (or the complaints are rejected by the court), the liquidation begins with the appointment of a liquidator.
The liquidator drafts the inventory and prepares balance sheets including the final balance sheet.
The final balance sheet is submitted to the trade register and published in the Official Gazette.
The liquidator files for de-registration of the company from the trade register. The procedure applies to Romanian-registered companies.
Protection from creditors. There is no special protection from creditors, as this is a voluntary procedure initiated by the debtor.
Substantive tests. As the process is voluntary the only test is that the majority of shareholders agree (see above, Initiation).
Length of procedure. The length of the process depends on the time it takes to sell the assets. The shareholders may also agree to a division of the assets among themselves depending on the actual percentages they hold within the company. The process is often prolonged by tax difficulties.
Consents and approvals. The required number of shareholders must agree (see above, Initiation). Creditors (and any other interested party) can then apply to the court to oppose it.
Supervision and control. The liquidator controls the procedure. The liquidator is required to implement the creditors' decision and it is supervised by the syndic judge.
Effect. Following liquidation, the company is dissolved and the assets of the debtor are sold. Any creditors are repaid and shareholders receive the remaining estate (see Question 2).
Conclusion. The process ends with the dissolution of the company. The company is then erased from the trade register.
Objective. Compulsory liquidation occurs as the final stage of insolvency proceedings (see above, Insolvency), whether following reorganisation or directly after the opening of the insolvency procedure.
Initiation. Liquidation occurs when all of the following apply:
The debtor or judicial administrator requests it after the insolvency is opened.
A reorganisation plan is not proposed (and/or not voted through by creditors).
Reorganisation is no longer possible. Since this is a court procedure it applies to any Romanian-registered company, foreign companies under the EU cross-border insolvency rules, as well as to individuals or unlimited liability partnerships.
Protection from creditors. During this procedure the debtor, through the special administrator (who is appointed to represent the shareholders' interests), can object to any unlawful steps or measures taken by the liquidator. However, the debtor's right to administer itself is withdrawn once bankruptcy proceedings are opened.
Substantive tests. See above, Insolvency and Reorganisation.
Length of procedure. The length of the process depends on the time it takes to sell the assets.
Consents and approvals. The final decision lies with the insolvency court (see above, Insolvency and Reorganisation).
Supervision and control. The liquidator sells the debtor's assets under the supervision of the syndic judge and based on the resolutions of the creditors' assembly.
Effect. Following liquidation, the company is dissolved and removed from the trade register. The debtor's assets are sold together or as separate assets, or by any other method that ensures the best recovery of money for the debtor's estate. The creditors are then repaid in order of priority (see Question 2).
Conclusion. The process is concluded by the syndic judge with the distribution of funds to the creditors (and, if money is still available, the shareholders).
Objective. Concordat and ad hoc trustee procedures aim to:
Help a company in distress to continue its business activity.
Safeguard the jobs of its employees.
Cover the existing receivables by a conciliation or agreement concluded with the creditors.
The concordat procedure takes the form of an agreement concluded by the debtor with its creditors. The debtor proposes a financial restructuring plan which the creditors accept to support the debtor's efforts to overcome its financial difficulties. The procedure is complex and similar to insolvency. However, it is an out-of-court proceeding where the role of the syndic judge is intended to be reduced to a minimum.
Initiation. The debtor alone starts the concordat procedure by filing a petition with the relevant court to open this procedure and to appoint an insolvency-licensed practitioner as conciliator. The process is overseen by a syndic judge.
Certain companies are prohibited from applying for this procedure, for example, if:
The company has committed serious economic offences.
The company holds a bad tax record.
Insolvency proceedings have been initiated against the company in the last five years.
Protection from creditors. See below, Effect.
Substantive tests. This is a voluntary process. However, creditors representing at least two-thirds of the value of the undisputed receivables must agree to conclude a concordat agreement.
The agreement becomes enforceable against third party creditors if certified by the syndic judge. Certification is granted provided both:
The concordat is approved by creditors representing at least 80% of the value of the undisputed receivables.
The value of the disputed receivables is less than 20% of the total value of receivables.
Length of procedure. The procedure can last two to three years. The outstanding receivables must be satisfied within a maximum of 24 months (18 months plus one possible extension of six months) starting with the date of the execution of the concordat agreement.
Consents and approvals. The procedure involves the following steps:
The syndic judge appoints the conciliator.
The concordat offer is registered in a special registry held by the court to be enforceable against third parties.
The National Agency for Fiscal Administration grants prior approval for measures concerning tax liabilities.
The agreement is approved by creditors representing at least two-thirds of the value of the undisputed receivables.
The agreement is certified by the judge following approval of the creditors representing 80% of the undisputed receivables.
Supervision and control. The debtor and creditors control the procedure through an agreement. The role of the syndic judge is intended to be reduced to a minimum.
Effect. During the period in which a certified concordat agreement is in force, insolvency proceedings cannot be opened against the debtor. Any prior enforcement proceedings opened by creditors who executed the concordat agreement are stayed. However, non-adhering creditors are entitled to use any available enforcement procedures (other than opening insolvency proceedings) to satisfy their receivables.
Conclusion. The concordat procedure concludes if any of the following take place:
There is a creditors' decision to terminate the agreement if the debtor defaults under the concordat agreement.
The creditors' receivables are satisfied.
The concordat becomes impossible to achieve.
Objective. The ad hoc procedure has the same general objectives as the concordat procedure (see above, Concordat: Objective). Using an ad hoc trustee is a confidential procedure which aims to conclude settlement with one or several creditors in a determined period of time (see below, Length of procedure), to help overcome the financial difficulties of the debtor.
Initiation. The debtor alone can start the ad hoc trustee procedure by filing a petition with the court to appoint an insolvency-licensed practitioner as an ad hoc trustee.
Protection from creditors. See below, Effect.
Substantive tests. The ad hoc trustee procedure is a voluntary process and therefore no substantive tests need to be passed.
Length of procedure. The procedure can last up to 90 days starting with the date of the appointment of the insolvency practitioner by the court. Within this term the debtor must reach a settlement with one or several creditors.
Consents and approvals. In the ad hoc trustee procedure, the court decides whether an ad hoc trustee should be appointed depending on the seriousness of the financial difficulties the debtor is facing.
Supervision and control. This is the same as for concordat proceedings (see above, Concordat: Supervision and control).
Effect. The law is silent on whether insolvency proceedings can be opened during the 90-day term (see above, How long). The ad hoc procedure has not yet been tested in practice.
Conclusion. The procedure concludes with the following situations:
Termination of the mandate of the ad hoc trustee.
Conclusion of a settlement between the creditors and the debtor.
Failure to reach a settlement within the 90-day term.
In insolvency (see Question 6, Insolvency), the party that files the petition, that is, the debtor or creditor, is the main stakeholder. The process is then overseen by a syndic judge.
In a reorganisation, the debtor's business can be managed by a special administrator under the supervision of the judicial administrator (see Question 10). The creditors can, in certain circumstances, directly appoint the judicial administrator or challenge a court-appointed judicial administrator (see Question 6).
Under a voluntary liquidation, the shareholders are the key stakeholders (see Question 6, Voluntary liquidation).
During a compulsory liquidation, the debtor or judicial administrator requests liquidation after insolvency is opened (see Question 6, Compulsory liquidation).
The concordat and ad hoc procedures are started by the debtor, but the concordat agreement or settlement under ad hoc procedures must be reached with the creditors (see Question 6, Concordat and Ad hoc).
Company officers are potentially liable in a company's insolvency. Officers include:
Directors.
Executive managers.
Auditors and censors (internal auditors).
Any other individual who has directed the company into insolvency.
Officers can be financially liable and be jointly required to contribute to the debtor company to continue the business during reorganisation, or to cover distributions after liquidation. There can also be criminal liability for certain offences.
Officers' financial liability can be triggered by the:
Abuse of the debtor's assets or credit for personal or a third party's benefit, including fraudulent trading in one's own interest under the guise of the debtor company.
Continued running of a failing business.
Failure to keep financial records in compliance with the law, or engaging in fictitious bookkeeping or enabling the disappearance of certain records.
Concealment or evasion of the debtor's assets, or giving the false appearance of a debt.
Use of ruinous measures to procure funds for the debtor.
Incurring of credit in the month before insolvency to pay certain creditors with the intent of defrauding others.
Criminal liability can be triggered by:
Failure to file for insolvency proceedings or a delay in filing exceeding six months (punishable by imprisonment of between three months and one year, or by fine).
Forging, concealing, and/or destroying business records or concealing assets (punishable by imprisonment of between six months and five years).
Giving the false appearance of non-existent debts (punishable by imprisonment of between six months and five years).
Fraudulently disposing of assets to the creditors' detriment (punishable by imprisonment of between six months and five years).
Fraudulently managing the debtor's assets (punishable by imprisonment of between three and eight years, or between five and 12 years, depending on the gravity of the offence).
Using the debtor's estate (punishable by imprisonment of between one and 15 years, and the loss of certain rights).
Registering or requiring the registration of a non-existent claim (punishable by imprisonment of between three months and one year, or by a fine).
Refusing to make available to the court or to the judicial administrator or liquidator the documentation required by law, or hindering the use of this documentation (punishable by imprisonment of between one and three years, or by a fine).
A liability action must be presented to the court by the judicial administrator or liquidator or by the creditors' committee within three years from the date on which the act was known or should have been known, but not later than two years from the start of the proceedings.
Who can challenge these transactions, when and in what circumstances?
Are third parties' rights affected?
The judicial administrator or liquidator can apply to the court for an order to set aside certain transactions performed before the insolvency. Transactions entered into in the three years before the opening of insolvency proceedings can be challenged if those transactions prejudiced the creditors through fraud. Specifically, the following acts or operations can be set aside:
Free transfers in the three years before the opening of proceedings.
Business operations carried out in the three years before the opening of proceedings in which the debtor's performance manifestly exceeds the performance of the counterparty.
Deeds concluded in the three years before the opening of proceedings with the clear intent of putting assets beyond the reach of creditors or harming the creditors in any other way.
Property transfers to a creditor carried out in the 120 days before the opening of proceedings.
Deeds creating a security interest for an otherwise unsecured claim, entered into in the 120 days before the opening of insolvency proceedings.
Deeds for the advance payment of claims not yet due, entered into in the 120 days before the opening of proceedings.
Transfer deeds or deeds undertaking obligations in the two years before the opening of proceedings, which intend to conceal or delay insolvency, or to commit fraud.
In addition, transactions prejudicing the creditors in the last three years before the opening of proceedings can be challenged and restitution obtained, if the transactions are entered into with connected persons such as:
Shareholders holding at least 20% of the share capital or of the voting rights in a limited liability or joint stock company.
Members or administrators of a company of the same group as the debtor.
Administrators, directors or members of the debtor's supervisory board.
Any natural or legal person controlling the debtor or its activities.
Any co-owner of assets with the debtor.
Transactions concluded by the debtor in its normal course of business cannot be set aside.
Who has the authority to supervise or carry on the company's business?
What restrictions apply?
In a reorganisation (see Question 6, Reorganisation), the debtor's directors or shareholders can continue to manage its business under court supervision. In this case, the shareholders' general meeting designates a special administrator (administrator special) to represent the debtor and participate in the insolvency proceedings. In addition to the special administrator (who is only a participant in the proceedings), a judicial administrator is appointed by the insolvency court to conduct the proceedings and supervise all management operations.
Alternatively, if the debtor's management is removed from power, the judicial administrator takes over executive management, while the special administrator's role is limited to representing the interests of the shareholders.
In a liquidation, all executive powers are taken by the liquidator.
Insolvency legislation provides that receivables representing new money granted during the insolvency proceedings, under a confirmed reorganisation plan, are repaid in priority to other secured creditors whose interests were created before the opening of insolvency proceedings. However, there is a risk of conflicting interpretations, as under the normal rules of priority (see Question 2), these new loans are second ranking. Therefore, these rules are yet to be tested in practice.
Do local courts recognise insolvency and rescue procedures in other jurisdictions, and court judgments made during these procedures? Is recognition given under specific legislation or under case law (for example, principles of comity)?
Do courts co-operate where there are concurrent proceedings in other jurisdictions?
Is your jurisdiction party to any international treaties, model laws or EU legislation (if applicable)?
Are there any special procedures that foreign creditors must comply with when submitting claims in local insolvency proceedings?
The Insolvency Law is supplemented by Regulation (EC) 1346/2000 on insolvency proceedings (Insolvency Regulation). Insolvency proceedings in EU member states are recognised in Romania with no further formalities and can be enforced in accordance with Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels Regulation).
For non-EU member states, cross-border insolvency matters are addressed by the Cross Border Insolvency Law enacted in 2002. The Cross Border Insolvency Law follows the UNCITRAL Model Law on Cross Border Insolvency 1997 and contains provisions that:
Establish the law applicable to private international relations on insolvency.
Outline applicable procedural norms.
Set out conditions to be observed by the relevant Romanian authorities when requesting or giving assistance in cross-border insolvency proceedings.
Under these provisions, a non-EU foreign creditor is entitled to:
File for the opening of insolvency proceedings.
Lodge claims in insolvency proceedings.
Enjoy the same rights in the insolvency proceedings (for example, priority ranking) as Romanian creditors.
Non-EU foreign insolvency officeholders can obtain:
Recognition of the foreign proceeding.
Standing in Romanian courts.
Participation rights in a Romanian insolvency proceeding.
The recognition of non-EU foreign judgments is not automatic and is conditional on reciprocity for the recognition of Romanian judgments in the foreign state and on Romanian public policy.
The main insolvency proceedings are opened in the EU member state where the debtor has the centre of his main interests. Secondary proceedings can be opened in parallel with the main proceedings in a member state where the debtor has an establishment. The effects of secondary proceedings are limited to the assets located in that state.
There are no other applicable international treaties.
There are no special procedures for foreign creditors. All the creditors are treated equally.
Although there is no formal proposal to modify the Insolvency Law, given the current financial conditions in Romania, it is likely that certain basic changes will be made to the Insolvency Law. For example, under current law, an individual's entire estate is liable towards its creditors and there is no concept of individual bankruptcy; death debts are transferred along with the estate to an individual's heirs. These rules are likely to come under some pressure to be modified.
Romanian financial institutions and banks are also likely to propose changes to the Insolvency Law to address the issues raised by the financial crisis. It is unclear whether these changes will be to the general rules of insolvency or in relation to enforcement.
T +40 21 311 5654
F +40 21 311 5650
E dana.radulescu@vdalegal.com
W www.vdalegal.com
Qualified. Romania, 2002
Areas of practice. M&A; insolvency and restructuring.
Recent transactions
T +40 21 311 5654
F +40 21 311 5650
E diana.neagu@vdalegal.com
W www.vdalegal.com
Qualified. Bucharest Bar, 2003
Areas of practice. Restructuring; finance; M&A; environmental law; labour matters.
Recent transactions
For more details of recent transactions, publications, and so on, see full PLC Which lawyer? profile here.
