After several attempts including an appeal to the Constitutional Court of Romania the legislators have now adopted a new law regarding insolvency and bankruptcy. The new law is Law no. 85/2014 and was issued in June 2014 coming into force on 28th June 2014.
As this had brought about a fundamental review of the Romanian law of insolvency and bankruptcy we like many Romanian law firms have been asked to review and advise as necessary. We will try to update you regarding these new provisions, briefing the main changes made according to the new law.
The new law contains many changes and one positive change is represented by the fact that it brings together under one piece of legislation, all the measures aimed at preventing the insolvency of a company. The new law starts with the measures previously provided for, such as an arrangement concluded with the creditors and also the use of a Special Mandate.
The use of special mandates offers an important advantage to the company which is in financial difficulties. The Special Mandate procedure is where the court appoints a third party insolvency practioner to examine the business of the insolvent company and to advise the company on the steps to be taken to avoid bankruptcy and recover from the insolvency. The Special Mandate procedure is confidential thus helping the insolvent company. This means that a company which has debts can apply for the use of a Special Mandate in order to recover from the financial point of view.
In order to achieve this goal, the company will be helped by the insolvency practitioner, without the risk of damaging the image of the company in front of its business partners and clients. Even before the issue of Law no. 85/2014, companies had the possibility to use these measures, but they were contained in other laws and were frequently ignored.
Another important change is the new limits for submitting the request to open the insolvency procedure in Romania. The value of the debt must now be at least forty thousand (40.000) lei, or six (6) times the gross average wages /employee. The request to open the insolvency procedure can be made either by the company or a debtor. The request to open the insolvency proceedings can also be made by a liquidator in the liquidation procedure, stipulated by Law no. 31/1990 republished regarding the companies. In order to be entitled to open the insolvency proceedings, the creditor must have a certain, ascertain, liquid debt and which has been outstanding for more than sixty (60) days.
There are also new provisions regarding the period of an attempt at restructuring the finances of a company. This is the period of time before the date of opening the insolvency proceedings, the date of confirmation of the reorganization plan or the date of a company entering into bankruptcy. The new provisions are that this period cannot exceed twelve months if a general insolvency procedure has been started against the debtor company. The period is less when the debtor is subjected to the simplified procedure; in this case the observation period cannot exceed 20 days. The Romanian legislators hope by these changes to decrease the period of time when the courts will be involved in the proceedings.
The law also changes the order of preference for the payment of debts in case of bankruptcy. This order has now been changed and consolidated according Law no. 85/2014. The debts resulting from labour contracts are now in third place, and the debts to the state budget occupy fifth place. In the past these debts were situated on top of the list and formed a priority ahead of other unsecured creditors, but behind secured creditors. This new sub classification is due to the placing in second place debts incurred from third parties from sums funds granted to the debtor in order to continue its current activities during the period when the company is in the observation period.
The changes brought about by the new law were necessary both from a practical point of view and also because Law no 85/2014 implements the Directive 2001/24/EC of the European Parliament.
The new law gathers together suitable legal means in order to prevent the unexpected entry into insolvency or bankruptcy of a company. In addition, according to the new provisions, there is a trend which is reflected throughout the EU to try to save as far as possible companies which may for not their own fault be in financial difficulties. This will also mean that the level of unemployment is not increased by the needless failures of such companies.
As an international law firm dealing with multi-jurisdictional issues we hope that these steps will be the first steps in bringing about a more realistic view to failed companies. It is also possible that these steps will also reduce the level of reported corruption amongst the current judges and insolvency practitioners which have bedeviled previous attempt to reform this aspect of the law.