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The New Code of Insolvency

In the Official Gazette of Romania, part I, no. 620 form the 4th October 2013, was published Emergency Governmental Ordinance no. 91/2013 regarding the proceeding of preventing insolvency and insolvability (hereinafter referred to as ‘’Ordinance’’ or ‘’The Code of Insolvency”).

The Ordinance will come into force starting with the 25th of October 2013 and will apply to professionals who exploit a firm (company), to professionals natural persons who are required to register in the Trade Register, to members of family businesses, as well as autonomous administrations. Also, the Ordinance applies to the procedure of preventing insolvency and insolvability in progress at the moment it came into force, excepting the group of companies to which it applies only for the request introduced only after the bringing into force. The normative act does not apply to liberal professions or pre-university and university educational institutions.

The Code includes in one normative act the legislation general applicable to all the economic operators, the special legislation applicable to credit institutions and insurance companies/re-insurance, the regulation of the insolvency of company groups and the regulation of cross-border insolvency. At the same time, are brought in the light the procedure of preventing insolvency, the widening of the sphere of situations in which the liability of the commandment and/or supervision can be invoked, as well as the attributions of the National Agency of Fiscal Administration (hereinafter referred to as “NAFA”).

The most important amendments brought by the new legislation of insolvency aim at fields such as:

The basic principles of the procedure of prevention of insolvency and insolvability;

The procedure of preventing insolvency;

The opening of the procedure of insolvency;

The procedure of judging the request of insolvency;

The accessory requests in the procedure of insolvency;

The fiscal regime of rises, penalties and spendings;

The period of observation;

The re-organizing plan;

The high-priorities in paying the debts;

The actions in annulment of fraudulent normative acts;

The liability for becoming insolvent;

THE BASIC PRINCIPLES OF INSOLVENCY

The basic principles on which the Code of Insolvency operates are:

Maximizing the percentage of sale and recovery of assets the creditors;
Ensuring an equal treatment among creditors of the same rank;
The acknowledgment of the existing rights of the creditors and respecting the order of priority of the debts;
Limiting the risk of the credit and the risk associated with transactions with derivative financial tools, by acknowledging compensation with immediate exigibility in the case of the insolvency and pre-insolvency of a co-contractant, having as a result reducing the risk of the credit to an owed sum between the parties and event to zero when, for covering the net exposure, financial guarantees were transferred;
Ensuring access to financing during the pre-insolvency, reorganization observation and with the creation of an appropriate regime for the protection of these assets;
Favorizing, in pre-insolvency procedure, negotiation / renegotiation settlement of claims and concluding an arrangement.

THE PROCEDURE OF PREVENTING INSOLVENCY

The ordinance regulates for the first time the tools to prevent insolvency, namely ad-hoc mandate and the preventive concordat.

Specifically, the ad-hoc mandate is a confidential procedure, triggered at the request of the debtor in financial difficulty, through which a representative ad-hoc, appointed by the court, is negotiating with creditors in order to achieve an agreement between one or more of them and the debtor, in order to overcome the difficulty in which he lies.

The objective of ad-hoc representative is to achieve, within 90 days, an agreement between the debtor and its creditors. The ad-hoc representative may propose rescheduling, partial reduction of debt or other necessary measures.
Regarding the second instrument for preventing insolvency, the preventive concordat, this is a contract between the debtor in financial difficulty, on the one hand, and creditors holding at least two thirds of the value of claims accepted and unchallenged, on the other hand . Through this contract, the debtor proposes a plan of recovery and realization of the creditors’ claims on him and the creditors agree to support the efforts of the debtor to overcome the difficulty in which he lies.

Any debtor in financial difficulty can introduce an request at the court for the opening of the procedure of the preventive concordat.

Within 30 days of the appointment of the administrator of the concordat, he must identify with the debtor the list of creditors and must propose them a concrete offer to them on how they will discharge form payment of obligations.

The project of the preventive concordat must contain a recovery plan, including the following minimum elements:

reorganizing the activity of the debtor, such as the restructuring of management, organizational structure changes or cutbacks etc.;
the ways in which the debtor understands to overcome his financial liquidities, such as social capital increase, bank loans or bonds, assets sales.
After approval of the concordat by the creditors, it will be submitted for approval to the bankruptcy judge.

The preventive concordat will be opposable to state creditors, with the condition of respecting the legislation regarding state aid.

During the period in which the preventive concordat was approved by the bankruptcy judge, the insolvency procedure can not be opened against the debtor.

THE OPENING OF THE INSOLVENCY PROCEDURE

According the the Code, the insolvency of the debtor – representing the insufficient funds for paying certain, liquid and exigible debts – is presumed when he does not pay his debt to the creditor after 60 days of due date, and not after 90 days, as required by Law no. 85/2006 regarding the procedure of insolvency (hereinafter referred to as “Law no. 85/2006”). Instead, the definition of the imminent solvency remains under the previous regulation, respectively when it is proven that the debtor can not pay at the due date his exigible debts, with available funds at due date.

In the same vein, a creditor will be entitled to request the opening of insolvency proceedings if its claim against the debtor’s assets is certain, liquid and due more than 60 days and not more than 90 days.

The new regulations estabilish a treshold value for businesses who want to go in insolvency. If previously a threshold value was imposed only for the creditor in order to introduce a request for opening the procedure, in the new regulations a threshold value is imposed even for the debtor. This is identical wit the one imposed for the creditor, respectively 40.000 lei (Law no. 85/2006 setting a threshold value of 45.000 was applicable only for creditors). Instead, employees or a group of employees may request the opening of insolvency procedure if the amount they have recover is larger than six gross average salaries/employee.

THE PROCEDURE OF JUDGING THE REQUEST OF INSOLVENCY

The jurisdiction to judge claims in the insolvency procedure is attributed to the tribunal, except for the appeal, or, if the case, the specialized court in whose district the debtor had its headquarters for at least 6 months prior to the appeal.

In the case of an request to open the procedure of insolvency filed by the creditor, at the debtor’s request, the bankruptcy judge can order the creditor to record, at a bank, a bail representing 10% of the debt’s amount, but not more than 40.000. The bail will be registered within 5 days of the communication of the measure, under the sanction of rejecting the opening of the procedure.

In case in which the debtor filed an request to open an insolvency procedure, he is compelled to mention all creditors, irrespective of the type of receivables held.

At the same time, the Code equalizes the regime of the opening of the insolvency procedure in the case of competition between the request of the debtor and creditor, 10 days after the filing of the request by the debtor.

Another novelty is that the debtor will not be able to appoint an administrator, this task remaining in the competence of the bankruptcy judge

The normative act also provides that the creditors’ committee meetings will take place whenever appropriate (not necessarily monthly as Law. 85/2006 stipulates), and the vote may be expressed by any means that ensure the transmission of the text and its confirmation, so physical presence is mandatory.

Also, the creditors’ meetings can be called even by the creditors’ committee or by the creditors holding at least 30% of the total voting claims.

THE ACCESORY REQUESTS IN THE INSOLVENCY PROCEDURE

The new regulations also bring novelties regarding terms in accessory requests. Therefore, the accessory requests, found in the procedural stage o fond and appeal, are judged, according to the new Code of Civil Procedure regarding the judging in the first stage, with the following mention:

the deadline for filing the answer shall not exceed 10 days from notification;
the answer is mandatory;
the bankruptcy judge fixes, by resolution, within maximum 3 days from the date of defense, the first hearing, which will be at most 30 days from the date of resolution.

THE REGIME OF THE RISES, PENALTIES AND SPENDINGS

Although the Code provides that no interest, additions or penalties of any kind or expense will be added to receivables arisen before insolvency procedure, if they confirm a reorganization plan, interests, additions or penalties of any kind or incidental expenses to the obligations arising after the date of opening of insolvency procedure shall be paid in accordance with the acts from which result and with the payment schedule. If the plan fails, it is due to the opening of bankruptcy procedure.

Also, NAFA will be able to proceed against the debtor who became insolvent in order to collect debts from taxes and contributions, being also entitled to resort to enforcement.

After filing the request for opening the procedure, the bankruptcy judge can rule on a temporary suspension of any enforcement procedures.

THE PERIOD OF OBSERVATION

Regarding the observation period under a simplified procedure that allows the insolvent debtor to enter directly in bankruptcy – professionals natural persons subject to registration in the Trade Registry, except the liberal professions, family businesses or debtors who do not have any good or whose administrators or acts can not be found – it will be substantially reduced by a maximum of 50 days to a maximum of 20 days.

THE REORGANIZING PLAN

The ordinance states that the reorganization plan must be executed in more than a year, unlike 3-year period stipulated by Law no. 85/2006. It may be proposed by:

the debtor, with the approval of the general shareholders / associates, within 30 days from the publication of the final table of receivables;

the administrator, from the date of his appointment until the fulfillment of a period of 30 days from the publication of the final table of the receivables;

one or more creditors, holding together at least 20% of the total value of the claims contained in the final table of receivables, within 30 days from its publication.

A reorganizing plan can not be proposed by the debtor who has requested another insolvency procedure in the last 5 years.

Furthermore, the Ordinance provides that the execution of the reorganization plan will be extended to 12 months, but not more than 2 years.

The new Code also refers to the avoiding of the situation in which reorganization plans supported by a small number of creditors are approved. More specifically, in order to avoid such situations, the new regulations introduce an additional criterion for approving of the plan, respectively the need for the agreement of creditors holding 50% of the total value of money loans.

HIGH PRIORITIES IN PAYING DEBTS

The Code introduces a high-priority for fundings given during the procedure, including the period of observation. Therefore, the grants given to the debtor in the observation period in order to develop current activities, with the creditors’ committee agreement, benefit of priority to restitution. These funds will ensure, in particular by affecting assets or rights that are not the subject of causes of preference, and in the alternative, if there are no such assets or rights available, with the agreement of the beneficiary creditors of such preference causes.

THE ACTIONS IN ANNULMENT FOR FRAUDULOUS ACTS

The Administrator or, if by case, the liquidator may request the bankruptcy judge to cancel the creation or transfer of property rights to third parties and to dispose the return of goods sent by them and the value of other benefits executed by the debtor through the following acts:

operations in which the debtor’s prestation obviously exceeds the performance received, performed in the 6 months prior to the opening of proceedings – Law no. 85/2006 provided for a period of 3 years;

acts of transfer of ownership to a creditor in order to extinguish a prior debt or in his benefit, made in the 6 months prior to initiation of the procedure, if the amount that the creditor could obtain in the case of bankruptcy of the debtor is less than the value of the act transfer – Law no. 85/2006 provided a period of 120 days;

establishing of a right of preference for a formerly unsecured debt, in the 6 months prior to the opening of proceedings – Law no. 85/2006 cover a period of 120 days;

prepayments of debts ocurred in the 6 months prior to the opening of proceedings, if their due date was set for a later opening of proceedings – Law no. 85/2006 provided a period of 120 days before the opening of proceedings.

Also, there can be annuled the services recovered, acts or transactions carried out in the 2 years preceding the date of opening of proceedings to persons in legal relations with the debtor, namely:

with a general partner or a shareholder holding at least 20% of the capital or, by case, of the voting rights in the general meeting of shareholders, in case the debtor is the limited partnership, or an agricultural society in the name partnership or limited liability;

a member or administrator, when the debtor is an economic interest group;

a shareholder owning at least 20% of the shares of the debtor or, by case, of the voting rights in the general meeting of shareholders, in case the debtor is a joint stock company;

with a director, officer or member of the supervisory bodies of the debtor, cooperative societies, joint stock company with limited liability or, where appropriate, agricultural society;

with any other individual or legal person, holding a position of control over the debtor or its business;

a co-owner or owner of a condominium common good;

with husband, relatives and in-laws up to the fourth degree, of natural persons listed in paragraphs above.

At the same time, it is admited the possibility for the administrator / liquidator to terminate the employment contracts of the debtor emergency personnel, under certain conditions.

THE LIABILITY FOR BECOMING INSOLVENT

At the request of the administrator or judicial liquidator, the bankruptcy judge may order that some or all unpaid liabilities of the debtor entity, who became insolvent, without exceeding the damage found in the causation of the deed, to be supported by members of the management and/or supervision of the company and any others who contributed to the insolvency of the debtor, by one of the following acts:

used goods or credits of the company in their own interest or in the interest of another person;

have taken a personal interest trade, under the cover of a legal person;

ordered, in personal interest, the continuation of activities leading the legal person to the cessation of payments;

held a fictional accounts, made disappear some accounting documents or accounts kept in accordance with law; in the case of not giving the accounting documents to the administrator or judicial liquidator, both the guilt, and the causal link between the act and the injury are presumed relatively;

embezzled or concealed part of the assets of the legal person or have increased the notional liabilities;
used ruinous means to procure funds for the legal entity, in order to delay cessation of payments;

in the previous month of the termination of payments, paid or ordered to pay a preferential creditor at the expense of other creditors;

any other intentional conduct that contributed to the insolvency of the debtor, found under the provisions of the Ordinance.

If the receiver or, by case, the liquidator has not pointed the persons guilty of insolvency of the debtor and / or decided that it’s not the case to introduce an action, it may be brought by the creditors’ committee chairman after the decision of the creditors or, if the committee of creditors is not formed yet, a creditor appointed by the creditors.

Also, the action can be introduced, under the same conditions, by the creditor who holds more than 50% of the claims submitted to the statement of affairs.

In case of plurality of persons, the liability is solidary, with the condition that the insolvency is contemporary or previous to the period of time in which he exercised his attributions or held the position which contributed to the insolvency.

However, the liability of the persons concerned will not be committed if:

In the collegial management institutions of legal persons, there has been opposition to the documents or facts that have contributed to the insolvency state or have missed the decision making that lead to the insolvency state and have recorded, subsequent to the decision, their opposition to these decisions;

in the month previous to the stop of payment, payments have been made, in good faith, by executing an agreement with the creditors, agreement made as a consequence of extrajudicial negociations to reorganize the debts, with the condition that the agreement had to lead to the financial recovery of the debtor and it shouldn’t have had as a purpose the impairment and/or the discrimination of some creditors (these will be applied even in the case of settlements made in the procedure of preemptive concordat).

In the event that the bankruptcy judge pronounced a sentence stating the liability of the administrator, this will be communicated to the National Trade Register Office, ex officio.

The person against whom a final judgment stating the liability was ruled can not be appointed as administrator, or if he is administrator in other companies will be deprived of this right for 10 years from the date the judgment becomes final.

The action regarding the liability of members of the management and / or supervision will be prescribed within 3 years. The prescription begins to run from the date on the person who contributed to the occurrence of insolvency is known or should have been known, but not later than 2 years after the ruling of the court judgment opening the insolvency proceedings.

VASS Lawyers

:: The source: JURIDICE.ro

 

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