Romania
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1. Insolvency and restructuring procedures
1.1 – What are the main insolvency and restructuring procedures applicable to companies?
In Romania, the legal framework for insolvency and restructuring is primarily governed by Law no. 85/2014 on Insolvency Prevention and Insolvency Proceedings [“Law no.85/2014”]. This law provides several mechanisms for both insolvency prevention and insolvency resolution of companies.
The insolvency prevention procedures apply to debtors facing financial difficulties, but who are not yet insolvent and they are as follows:
- The restructuring agreement procedure (“Procedura acordului de restructurare”) is a preventive mechanism aimed at helping financially distressed, but not insolvent companies to restructure their debts with creditor support. This procedure was updated in 2022 to align with the EU Directive on Preventive Restructuring Frameworks, focusing on early intervention to avoid formal insolvency proceedings.
- The Composition Procedure (“Concordat Preventiv”) is also a preventive mechanism aimed at restructuring a company’s debts with the agreement of its creditors to avoid formal insolvency proceedings.
The formal Insolvency Procedures address insolvency through reorganization or liquidation and are, as follows:
- General Insolvency Procedure (“Procedura Generală de Insolvență”) is a procedure applicable when a company is unable to pay its debts as they become due (i.e., it is insolvent). The procedure can be initiated either by the debtor or by a creditor.
- Judicial Reorganization (“Reorganizare Judiciară”) is a component of the general insolvency procedure, allowing financially distressed companies to reorganize and continue their operations, based on a plan. Successful implementation of the plan leads to the company’s exit from insolvency. If the plan fails, the company proceeds to liquidation.
- Simplified Insolvency Procedure (“Procedura Simplificată de Insolvență”) is a procedure through which the debtor with no real prospects of recovery, such as those with no assets or that have ceased operations, enters directly into the bankruptcy procedure, either upon the opening of the insolvency procedure or after a period of observation of up to 20 days.
- Bankruptcy and asset liquidation (“Falimentul şi lichidarea activelor”) appears when a company is deemed unable to be reorganized, therefor is declared bankrupt, and its assets are liquidated to satisfy creditors. The company’s legal existence is terminated after the distribution of assets and the closure of the bankruptcy proceedings.
1.2 – Can a company obtain a moratorium whilst it prepares a restructuring plan? If so, what is the effect of the moratorium?
Yes, a company can obtain a moratorium while it prepares a restructuring plan and this is designed to protect the debtor from creditor actions during the restructuring process.
1.3 – How long will it generally take for a creditor to achieve the liquidation of an insolvent company, assuming an undisputed claim and no opposition from the company?
Estimating the duration of the liquidation process is challenging. In practice, it can take at least one year, primarily due to the involvement of court decisions, which can be unpredictable in terms of timing. Also, if assets are difficult to sell, the timeline may be extended.
1.4 – Does your jurisdiction make use of a distressed sale process by which the business/assets of the company can be sold?
There is no explicitly established procedure for the distressed sale of a company’s assets or the entire business but such sales are not prohibited. Depending on the type of asset or the nature of the company, a quick sale may be necessary to prevent further loss of value or rapid deterioration. The distressed sale process can occur either during liquidation or as part of a restructuring plan, provided it enhances the company’s ability to satisfy creditor claims and helps prevent further value loss.
2. Insolvency office-holders and courts
2.1 – Who can act as an insolvency office-holder?
Judicial administrators and liquidators act as insolvency office-holders. They are professionals who must be either authorized individuals or firms specializing in insolvency administration, authorized and registered in the insolvency practitioners’ registry.
2.2 – Who decides the identity of the insolvency office-holder, and what restrictions apply?
The identity of the insolvency office-holder is decided by the court or creditors, depending on the applicable type of procedure.
The main restrictions and requirements are primarily designed to ensure their independence, impartiality, and professionalism. The laws prohibit individuals with conflicts of interest, personal or financial ties to the debtor, or certain criminal convictions from being appointed. Insolvency office-holders must remain impartial and independent, avoiding any relationships that could undermine their objectivity. The appointment process is overseen by the court, with creditors able to provide input, and office-holders can be removed if they fail to meet legal or ethical standards.
2.3 – Are insolvency cases heard by specialist judges, or in the general commercial courts?
Insolvency cases are heard by specialized judges (syndic judges) in dedicated insolvency courts, rather than in general commercial courts. These courts are integrated into the Romanian judicial system, with judges who are specifically trained and have specialized expertise in insolvency law.
3. Position of directors
3.1 – To what extent do the directors of the company remain in control of its affairs during any of the procedures described above?
The extent to which directors of a company remain in control of its affairs depends on the specific insolvency procedure being applied.
In case of judicial reorganization, the mandate of the director terminates on the date of:
- revocation of the debtor’s management rights. This measure can be taken by the syndic judge, even from the beginning of the insolvency proceedings, depending on the specific circumstances of the case, in order to protect the interests of the creditors and prevent the deterioration of the debtor’s financial situation. As a consequence, the judicial administrator or liquidator takes full control of the debtor’s management and assets, after the revocation of the debtor’s management rights.
- appointment of the special administrator. The special administrator is appointed by the general meeting of shareholders, associates, or members of the debtor, which must be convened by the judicial administrator or provisional liquidator within a maximum of 10 days from the opening of the proceedings. It is important to note that a former director of the company can be appointed as the special administrator; however, their powers are significantly restricted and are subject to the supervision of the judicial administrator, who must approve or oversee key decisions.
In a simplified insolvency procedure, the director retains control of the company during the observation period (up to 20 days) unless the syndic judge decides the revocation of the debtor’s management rights.
In bankruptcy and asset liquidation, the debtor’s right to manage the company ceases automatically on the date when the bankruptcy is ordered, as the director’s powers are transferred to the judicial liquidator.
3.2 – Are there circumstances in which directors are obliged to file for insolvency proceedings? If so, when do those circumstances arise?
Directors are legally required to file for insolvency within 30 days the occurrence of insolvency – insolvency occurs when a debtor does not have enough funds to pay certain, due debts. It is presumed if the debtor fails to pay a debt within 60 days after its due date, though this presumption can be challenged.
3.3 – What are the risks facing the directors of an insolvent company?
Directors of an insolvent company face risks such as personal liability for debts, criminal charges for fraudulent behaviour, civil liability for mismanagement, and/or ban on holding similar positions in the future. These risks underscore the importance of complying with insolvency law and acting in good faith to protect the interests of creditors and the company.
4. Position of creditors
4.1 – What are the main forms of security over movable and immovable property?
Romanian law offers various forms of security over both movable and immovable property to protect creditors’ interests. The most common forms include mortgages for real estate and pledges (both possessory and non-possessory) for movable assets, with proper registration requirements to ensure enforceability against third parties.
These legal mechanisms provide creditors with strong protections and ensure their priority in case of the debtor’s insolvency or default.
4.2 – How does the opening of insolvency proceedings affect the rights of secured creditors?
In Romania, the opening of insolvency proceedings temporarily stops secured creditors’ enforcement actions and imposes a stay on the collection of secured debts. However, secured creditors maintain a preferential right to be paid from the proceeds of the sale of secured assets, either during the liquidation or as part of a reorganization plan. They may also request the syndic judge to lift the stay under certain conditions. The rights of secured creditors are protected but are subject to certain limitations aimed at preserving the debtor’s assets for an orderly insolvency process.
4.3 – Where a debt owed to a secured creditor exceeds the value of the security, is the secured creditor entitled to claim for the shortfall?
Secured creditors are allowed to claim for any shortfall in their debt, but as an unsecured claim. This ensures that creditors are not entirely dependent on the value of the secured asset and can still recover part of their remaining debt through the insolvency process, although they will be paid only if the needed amount remains and after other secured creditors and priority claims have been satisfied.
4.4 – Which classes of creditor are given preferential status? Are any classes subordinated?
Certain classes of creditors are prioritized, such as secured creditors, employees, and tax authorities, giving them preferential status. This structured priority ensures a fair distribution based on the nature of the claims and their importance to the insolvency estate.
Subordinated creditors, are a category of creditors who are paid last, often receiving little to no payment if the debtor’s assets are insufficient to cover higher-priority claims. This category includes creditors who:
- obtained their claims through fraudulent conveyance;
- are associates or shareholders and offered granted loans to the debtor;
- are shareholders with undistributed benefits;
- have claims arising from gratuitous acts.
4.5 – Is there a date by which creditors must make claims in the insolvency proceedings? If so, what are the consequences of failing to claim by that date?
After the opening of the insolvency procedure, the judicial administrator will send a notification to all creditors listed in the list submitted by the debtor. Creditors with claims arising before the opening of the procedure (except for employees) must submit their claims for admission within the deadline set by the court’s decision to open the insolvency procedure. The deadline for registering creditors’ claims will be a maximum of 45 days from the opening of the procedure.
However, depending on the circumstances of the case and for valid reasons, the syndic judge may decide to extend the deadline by a maximum of 30 days.
4.6 – Are contractual rights of set-off and/or netting effective in insolvency?
The opening of insolvency proceedings does not affect a creditor’s right to invoke the set-off of their claim against the debtor’s claim, provided that the legal conditions for set-off are met at the time the insolvency proceedings are initiated.
Similarly, netting agreements can also be applied in insolvency proceedings, as long as the conditions for their enforcement are met.
4.7 – Are contract terms permitting termination of a contract by reason of insolvency (“ipso facto clauses”) effective?
Any contractual clauses that provide for the termination of ongoing contracts, due to the opening of the insolvency procedure are considered void and do not apply in Romania. There are some limited exceptions – such as qualified financial contracts or bilateral netting agreements under specific conditions.
The ipso factor clauses’s protection also applies in the case of preventive insolvency procedures.
4.8 – Are retention of title clauses enforceable and (if applicable) what are the main requirements for enforceability?
Yes, in insolvency proceedings, creditors benefiting from a retention of title clause will be able to enforce their claim as creditors holding a preferential right, similar to a mortgage, rather than exercising ownership rights over the property subject to the clause.
In this context, in order for the retention of title clause to be enforceable against other creditors involved in the procedure, it is crucial that the is made public through the legal publicity formalities (e.g., registration in the land registry, inscription in the Electronic Archive of Real Guarantees, or other special registers) before the insolvency procedure opens.
Also, depending on the date the publicity formalities were completed, the priority ranking of the creditor benefiting from the retention of title clause will be determined.
4.9 – Are foreign creditors treated equally to domestic creditors?
Yes, foreign creditors are treated equally to domestic creditors in insolvency procedures, under the condition that they meet the same requirements for claim registration, participation, and enforcement.
5. Setting aside transactions
5.1 – What are the main transaction avoidance provisions applicable to the proceedings referred to above?
In Romanian insolvency proceedings, certain transactions made by the debtor before the opening of insolvency can be challenged and annulled to protect the interests of creditors. These include:
- Fraudulent transactions: Deals made with the intent to harm creditors within a certain period before insolvency can be declared void.
- Preferential transactions: Payments or transfers that favor one creditor over others during a suspect period can be reversed, especially if they were made shortly before the opening of the insolvency procedure.
- Early payments: Payments for debts that were not yet due, made shortly before the insolvency, can also be annulled if they provide an unfair advantage to certain creditors.
- Gratuitous transfers: Gifts or transfers made without receiving equivalent value in return can be undone to ensure that the debtor’s assets are available to satisfy creditor claims.
Also, transactions involving related parties, such as debtor’s associates, shareholders, directors, or anyone with control over the debtor’s operations, including family members up to the fourth degree, can be annulled and the benefits recovered.
These provisions are designed to prevent the reduction of the debtor’s assets and ensure fair treatment of all creditors during insolvency proceedings.
5.2 – Who is entitled to challenge transactions under these provisions?
The following parties are entitled to challenge transactions:
- Judicial Administrator: The judicial administrator, who is responsible for overseeing the insolvency process and representing the debtor’s estate, has the authority to challenge fraudulent or preferential transactions made by the debtor before the insolvency procedure was opened.
- Liquidator: If the insolvency proceedings move to liquidation, the liquidator is also empowered to challenge such transactions. The liquidator’s role is to sell the debtor’s assets and distribute the proceeds to creditors, and they may seek to annul any transactions that harm the creditors’ interests.
- Creditors: Creditors may also request the court to annul certain transactions if they believe their rights have been violated. This typically happens when a creditor is disadvantaged by a preferential transaction or fraudulent act performed by the debtor.
6. Cross-border insolvency
6.1 – Do your courts recognize insolvency proceedings commenced in the courts of other jurisdictions?
Foreign insolvency proceedings can be recognized in Romania if they fulfil specific conditions, including the proper procedure, authorized representative, and meeting reciprocity requirements between Romania and the foreign jurisdiction.
6.2 – If so, what assistance can your courts provide, following recognition?
Following the recognition of foreign insolvency proceedings, Romanian courts can provide the following types of assistance:
- Enforcement of foreign judgments: Once the foreign insolvency proceeding is recognized, Romanian courts can assist in enforcing foreign judgments related to the insolvency. This includes recognizing actions taken in the foreign proceedings, such as asset liquidation or distribution to creditors.
- Coordination with Local Proceedings: The Romanian courts may help coordinate the foreign procedure with local insolvency proceedings, if applicable, ensuring that the interests of local creditors are considered without disrupting the foreign process.
- Appointment of Foreign Representatives: Courts may allow foreign insolvency representatives (e.g., foreign administrators or trustees) to exercise their powers in Romania, including taking control of or managing assets located within Romanian jurisdiction.
- Protection of Assets: Courts may take steps to protect the debtor’s assets in Romania, ensuring they are preserved for the benefit of the foreign insolvency proceedings.
- Communication and Cooperation: The court may facilitate communication and cooperation between foreign and Romanian insolvency authorities, including sharing information or documents that are relevant to the insolvency case.
These actions are intended to support the effective administration of the foreign insolvency proceeding, ensuring that assets are preserved and creditors are treated fairly in both jurisdictions.
6.3 – Is it possible to commence insolvency proceedings in relation to a foreign company?
Yes, it is possible to commence insolvency proceedings in relation to a foreign company, if the foreign company is within the EU.
According to EU Regulation 2015/848, the court with jurisdiction to open insolvency proceedings is determined by the location of the debtor’s center of main interests (COMI). For companies, the COMI is typically presumed to be the location of the registered office, unless the company has relocated its registered office to another EU Member State within the last three months before the insolvency application.
However, this presumption can be challenged if it can be proven that the company’s actual situation differs from this presumption. Therefore, foreign companies may have insolvency proceedings opened in an EU Member State, provided that their COMI is established there, or the presumption of the registered office is rebutted with evidence of a different actual situation.
7. Other matters
7.1 – Please consider whether there is any other feature of your country’s insolvency regime of which a lender, investor or purchasers of distressed debts or businesses should be aware? For example, are there any mistakes that foreign creditors often make?
Foreign lenders, investors, and purchasers of distressed assets should be aware of the following features of Romania’s insolvency regime:
- Preferential Creditors: Employees and tax authorities have priority over other creditors, which may reduce recoveries for lenders or investors.
- Suspension of Enforcement: Once insolvency is initiated, the enforcement of claims is generally suspended, potentially delaying debt recovery.
- Transaction Avoidance: Transactions made prior to insolvency (e.g., fraudulent or preferential payments) can be annulled, which may affect asset availability.
- Cross-Border Insolvency: Romania recognizes foreign insolvency proceedings under EU regulation, but certain conditions (e.g., center of main interests) must be met.
Common mistakes made by foreign creditors:
- Misunderstanding local priorities: Failure to recognize the priority of claims, especially from employees or the tax authority.
- Overlooking transaction avoidance rules: Not considering the risk of transactions being reversed if deemed fraudulent or preferential.
Understanding these aspects will help mitigate risks and improve creditors’ chances of recovering their debts.
7.2 – Are there any other stakeholders or entities (eg governmental or regulatory) which may influence the outcome of any restructuring?
In addition to creditors and debtors, other stakeholders such as government agencies, regulatory bodies, and courts may influence the outcome of a restructuring. For example, tax authorities may negotiate debt reductions or facilitate tax adjustments, while financial regulators may impose conditions on the restructuring plan to ensure compliance with financial market rules. Courts may also be involved in approving the restructuring or resolving disputes. These entities play a significant role in shaping the restructuring process and its success.
7.3 – Are there currently any proposals for significant reform of your insolvency laws?
Currently, there are no significant proposals for further reforms to Romania’s insolvency laws. However, there was a major update to the insolvency framework with the adoption of Law no. 216/2022, which transposed EU Directive 2019/1023. This reform introduced significant changes to improve preventive restructuring procedures, aligning with EU standards to support companies in distress before insolvency occurs.
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