What is the Insolvency according to the Romanian Law? Insolvency state and insolvency procedure
The Romanian Law No. 85/2014 on insolvency prevention and insolvency procedures defines insolvency as the state of a debtor's assets characterized by insufficient available funds to pay certain, liquid, and due debts.
In other words, insolvency involves the lack of available cash to pay debts as they come due, rather than the absence of valuable assets at any given time.
Insolvency is presumed (the creditor requesting insolvency does not need to prove the state of insolvency) if there are overdue debts exceeding 60 days. This presumption is rebuttable, meaning the debtor can overturn it with evidence.
The procedure requires the mandatory involvement of a syndic judge and an insolvency practitioner - the judicial administrator/liquidator.
Once the procedure is initiated, the debtor will have both benefits and limitations.
Benefits include the suspension of enforcement actions, the halt of penalty accruals, the opportunity for financial recovery with the support of the insolvency practitioner, and the ability to file lawsuits to recover the debtor's claims without owing court fees.
On the downside, the debtor will face activity restrictions, restrictions on participating in public tenders, potential damage to reputation, among others.
Debtors facing financial difficulties but not yet insolvent can opt for insolvency prevention procedures, such as a restructuring agreement and composition with creditors.
Details regarding the Restructuring Agreement – here.
Insolvency vs. Bankruptcy. General Procedure vs. Simplified Procedure
The general insolvency procedure involves an attempt to rehabilitate the debtor's activity through the proposal, approval, confirmation, and execution of a reorganization plan (lasting up to 3 years from its confirmation or 4 years from initial confirmation if subsequent modifications are confirmed).
The stages of the general procedure are:
Entities ineligible for judicial reorganization include:
a. Companies that benefited from a judicial reorganization within the 5 years prior to the new insolvency procedure.
b. Companies convicted for specific criminal offenses - intentional crimes against property, corruption, service-related crimes, forgery, crimes under the Romanian Company Law, the Romanian Law on preventing and combating money laundering and terrorism financing, the Romanian Tax Code, the Romanian Law on preventing and combating tax evasion, the Competition Law, or crimes of simple or fraudulent bankruptcy, within 3 years before the new insolvency procedure.
Bankruptcy can also be directly requested in the simplified procedure (from the very beginning or after an observation period of up to 20 days) for certain debtor categories:
a) Professionals required to register in the Trade Register, except those practicing liberal professions.
b) Family businesses, members of family businesses.
c) Professionals as per the Romanian Civil Code if, for example, they hold no assets, their accounting documents cannot be found, the company lacks functional administrative bodies, or conditions related to the registered office are not met.
Who can request the opening of the Insolvency Procedure? Conditions for Opening Insolvency Procedure
The procedure can be initiated by the debtor or creditors meeting legal conditions.
The request to open the procedure requires: certain, liquid, and due claims exceeding 60 days, with a minimum threshold value of 50,000 lei (resulting after any set-offs between creditor and debtor).
Employees can also request the procedure for unpaid salaries and other entitlements, with a threshold value of 6 gross average salaries per economy per employee.
Thus, not every creditor can request insolvency, but once initiated, other creditors can register (submit a claim declaration) within the deadline set by the opening decision; otherwise, they lose their claim rights.
The debtor can request the insolvency procedure even when the insolvency state is (just) imminent, proving that they will lack funds to pay debts as they come due.
Debtor's Obligation to Request Insolvency and Sanctions
Debtor companies in insolvency state are legally required by their administrators/statutory representatives to file for insolvency procedure within 30 days from insolvency state occurrence, notifying the competent tax authority in advance.
If the debtor is negotiating a payment plan with creditors at the time of insolvency, they may file the insolvency procedure request within 5 days after the unsuccessful negotiation finish.
Failure to file (when the procedure is initiated by creditors) or exceeding the filing deadline can result in personal liability for the administrator, meaning they could be held responsible with their personal assets for the company’s debts.
If the filing deadline is exceeded by more than 6 months beyond the legal deadline (30/5 days), criminal consequences may follow – creditors can file criminal complaints for the offense of simple bankruptcy.
The request to open the general insolvency procedure (not the simplified one) does not require a General Assembly Decision.
Creditor's Request to Open Insolvency Procedure
For creditors, the request to open the procedure may sometimes be the only way to recover their claim, especially if they lack enforceable guarantees or have unsuccessfully attempted enforcement.
Sometimes, creditors file insolvency requests without meeting legal conditions to force a voluntary payment. Other unpaid creditors, noting the pending request, might declare accelerated maturity and/or also request the insolvency procedure.
If the court deems a request made in bad faith, fines may be imposed, and the debtor harmed by such a request may obtain damages.
Opening the Insolvency Procedure. Creditor Notification. Registration of Claims
If both the debtor and creditors request insolvency procedure simultaneously, the debtor's request takes priority, and if admitted, creditors' requests are deemed claims declarations by law.
Remaining creditors – about which the debtor is obligated to inform the judicial administrator, must be notified at their registered address by the Insolvency Practitioner, according to Romanian Civil Procedure Code rules.
Notification must reach creditors at least 10 days before the claim registration deadline. A notification will also be published in a widely circulated newspaper and the Insolvency Proceedings Bulletin. After the initial communication, all further communications regarding the procedure will be made through the Insolvency Proceedings Bulletin.
Creditors who do not register within the deadline lose their claim rights.
Creditors who were not legally notified are deemed, by law, in time to submit their claim declarations but must follow the procedure's current stage.
For employees and other claims arising from employment or similar relations, their claims are automatically registered by the judicial administrator/liquidator without requiring claim declarations.
