New insolvency and bankruptcy law: 
More protection for creditors

Law No. 85 of 2014 came into force at the end of June 2014, amending the Romanian legislation on insolvency and bankruptcy.

This law on insolvency proceedings covers what is generally known as an “undertaking”, irrespective of the form of organisation – be it legal person or a natural person. In a completely new ruling, these insolvency and bankruptcy proceedings will now also apply to “regii autonome,” i.e. undertakings that are both commercial and public in nature. Professional practitioners such as lawyers or notaries, however, do not fall under the scope of this law. Other changes involve the rules applying to corporate groups in insolvency. Although there have been proposals to broaden bankruptcy proceedings to include natural persons acting as private individuals – but not as individual undertakings – these persons are not subject to insolvency and bankruptcy procedures. The law has a uniform approach regulating issues that were previously subject to specific legislation, such as insolvency prevention procedures or credit institutions insolvency. Under the new law, insolvency is presumed when a debtor has not paid his debts for more than 60 days after the due date and those debts exceed 40,000 lei (approximately 9,000 euro).

The new law allows a more flexible approach to the process of recovering the State’s debts. The newly introduced “private creditor test” allows the State to participate in the proceedings of reorganisation of the creditor, even if it provides a reduction of its claim, without such reduction of the claim being regarded as State aid.

Position of creditors strengthened
Clearer rules now allow creditors to become involved in the choice of the court-appointed receiver or liquidator. This is to counter previous practice where the debtor in insolvency could impose a receiver convenient to the debtor – a practice that had led to numerous suspicions of fraud against the interests of creditors.

Furthermore, the new law establishes an observation period: It may not exceed one year from the date of initiation of the procedure. In this period a restructuring plan must be approved. If this does not take place, the liquidation procedure must be initiated against the debtor. This rule puts an end to abuses by which the procedure could be extended indefinitely, against the interests of creditors. New rules also apply to the rights of creditors that act as financers under leasing contracts. Within three months of the initiation of the procedure, the financer may choose to take possession of the property, or leave the property to the debtor, instead becoming a creditor whose claim will be paid first. The law offers better protection to creditors who finance the activity of the company during insolvency proceedings. If they are not paid and their claims exceed 40,000 lei for payments due for more than 60 days, they may request bankruptcy and the immediate initiation of liquidation proceedings against the debtor.

Author
Felix Tudoriu
felix.tudoriu@ecovis.com