July 06 2012
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:
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.
Romania's main insolvency legislation and regulations are:
General insolvency procedure
The general insolvency procedure applies to:
Simplified insolvency procedure
The simplified insolvency procedure applies to:
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 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.
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 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.
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.
The bankruptcy procedure applies if:
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 (firstname.lastname@example.org or email@example.com). The Musat & Asociatii website can be accessed at www.musat.ro.
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