Overview (July 2012) - International Law Office

Introduction
Main laws and regulations
Entities subject to insolvency procedure
Mandatory conditions for the commencement of the insolvency procedure
Procedures

Introduction

Romania's insolvency procedure is in line with modern standards and is based on two significant commercial principles that are typical of any free-market economy:

• the ability to attempt company recovery through reorganisation; and
• the organisation of bankruptcy proceedings so as to enable creditors - as far as possible - to recover their receivables.

Although not all creditors are necessarily satisfied with the order in which these two principles are applied, the benefits of the insolvency regime are obvious.

The main breakthrough in the development of Romanian insolvency law came with the implementation of the Law on Judicial Reorganisation and Bankruptcy Procedure (64/1995), as the previous provisions were partly covered by the Commercial Code and the Civil Code, and some had been in force since the 19th century. In 2006 the Law on Insolvency Procedure (85/2006) was introduced, replacing Law 64/1995.

At present, Romania has modern insolvency regulations that are well adapted to the period of economic transition in which Romania has found itself over the past decade. However, the authorities must continue to improve such regulations in order to keep pace with the constant development of the Romanian business environment.

Main laws and regulations

Romania's main insolvency legislation and regulations are:

• The Law on Insolvency Procedure (85/2006), as further amended and supplemented;
• The Ordinance on the Bankruptcy Procedure of Credit Institutions (10/2004), approved by Law 278/2004, as further amended and supplemented;
• The Law on the Financial Recovery and Bankruptcy of Insurance Companies (503/2004);
• The EU Insolvency Regulation (1346/2000); and
• The Law on International Private Law Relations Concerning Insolvency (637/2002), as further amended and supplemented.

Entities subject to insolvency procedure

General insolvency procedure
The general insolvency procedure applies to:

• corporate entities that are organised and conduct business in accordance with the Company Law (31/1990), as further amended and supplemented, including subsidiaries of foreign companies;
• cooperative companies;
• cooperative organisations;
• agricultural undertakings;
• groups of economic interest (as regulated by Law 161/2003); and
• any other private legal person that carries out economic activities.

Simplified insolvency procedure
The simplified insolvency procedure applies to:

• natural persons who conduct business on an individual basis;
• family associations;
• corporate entities that are organised and conduct business in accordance with Company Law, if:
  • they have no patrimonial assets;
  • their articles of association or accounting documents cannot be found;
  • their director cannot be found;
  • their headquarters no longer exist or no longer correspond to the address in the Commercial Registry; or
  • they have failed to submit to the court certain documents required by the Law on Insolvency Procedure within the stipulated time;
• corporate entities that are dissolved before filing a claim to commence the insolvency procedure; and
• debtors that have declared their intention to enter bankruptcy in the claim filed with the court, or that are ineligible for the judicial reorganisation procedure.

Mandatory conditions for commencement of insolvency procedure

The Law on Insolvency Procedure establishes two criteria which must both be met in order for a creditor to commence proceedings against the debtor:

• The creditor must have a certain, liquid and outstanding receivable against the debtor for more than 90 days; and
• The value of the receivable must exceed Lei45,000 (approximately $12,650) or six times the national average gross salary (in the case of receivables arising out of labour relations).

The debtor must submit a claim to initiate the insolvency procedure within 30 days of the date on which a state of insolvency occurs. For the purposes of the law, 'insolvency' refers to an insufficiency of available funds to pay certain, liquid and outstanding debts. A state of insolvency is presumed to exist if the debtor fails to pay its debt to the creditor within 90 days of the debt maturing; however, this presumption is rebuttable. A state of insolvency is regarded as imminent if it can be proven that the debtor will be unable to pay its outstanding debts with the available liquidities on the maturity date.

Procedures

The law regulates two procedures to be undertaken by debtors that cannot pay their due debts (provided that the mandatory conditions for the commencement of the insolvency procedure are met). These are:

• the judicial reorganisation procedure, which aims to rescue the debtor; and
• the bankruptcy procedure, which aims to liquidate the debtor's assets and pay all outstanding debts.

The law provides that under the general insolvency procedure, entities successively undergo the judicial reorganisation procedure and the bankruptcy procedure, or only one or the other procedure, separately and on a case-by-case basis. Under the simplified procedure, entities enter into the bankruptcy procedure directly.

Judicial reorganisation
Once the reorganisation plan is confirmed, the debtor's business will be managed by a special administrator under the supervision of a receiver (ie, a judicial administrator) appointed by the syndic judge. The special administrator is appointed by the debtor's general meeting of shareholders. The syndic judge may decide to withdraw or limit the special administrator's power to managing the debtor's business.

The debtor will also be subject to a reorganisation plan that envisages specific means of paying the outstanding debts. If the plan is successful, the debtor will continue its activity. If the debtor fails to comply with the plan or if the plan is unsuccessful, the syndic judge may approve commencement of the bankruptcy proceedings.

The judicial reorganisation procedure is becoming increasingly common in practice.

Bankruptcy
The bankruptcy procedure applies if:

• the debtor has expressed its intention to enter into the simplified procedure;
• the debtor has not expressed an intention to reorganise its activity;
• the debtor's objection to a creditor's request to commence the insolvency procedure has been rejected by the syndic judge;
• none of the persons entitled to propose a reorganisation plan have done so, or the proposed plan was not accepted and confirmed;
• the debtor expressed its intention to reorganise its activity, but has failed to propose a reorganisation plan, or the proposed plan was not accepted and confirmed;
• the payment obligations and other obligations have not been fulfilled according to the conditions of the reorganisation plan, or the debtor's activities during the reorganisation procedure have triggered losses to its patrimony; or
• the receiver's report proposing the commencement of the bankruptcy procedure has been approved.

In practice, creditors must generally wait at least one year until the bankruptcy procedure is closed and they can recover their receivables. This period does not include a potential prior reorganisation procedure, which may take up to three years from the confirmation of the reorganisation plan.

For further information on this topic please contact Ana-Maria Placintescu or Iulian Iosif at Musat & Asociatii by telephone (+40 21 202 5900), fax (+40 21 223 3957) or email (ana-maria.placintescu@musat.ro or iulian.iosif@musat.ro). The Musat & Asociatii website can be accessed at www.musat.ro.