Restructuring and insolvency law in Romania

In Romania, the primary legislation governing insolvency and restructuring proceedings is represented by:

• Law 85/2014 on preventing insolvency proceedings and insolvency
• Law 246/2015 on recovery and dissolution of insurers, and
• European Regulation 2015/848 on Insolvency Proceedings. 

Insolvency proceedings are initiated by submitting an insolvency petition in court. The petition may be filed either by the debtor through its representatives, or by any interested creditor meeting the legal conditions.  

Therefore, any company is entitled to petition for insolvency in court as soon as it determines that it is/soon will be unable to perform payment of its current/or future debt exceeding the threshold of RON 50,000 (approx. EUR 10,040) (“Threshold”).  

At the same time, any creditor of a company may file an insolvency petition in court if its receivables against that company exceed the Threshold and are overdue for more than 60 days. The debtor may defend against the creditor’s petition indicating that even if the above conditions are met, it has sufficient liquidity. In certain cases, the court may decide to oblige the petitioning creditor to pay a bond of up to 10% of the value of the debt (but not exceeding the Threshold) in order to cover any damages incurred by the debtor in case the creditor’s petition is without merit.

Debtors’ employees (deemed to be creditors) may petition for the insolvency of their employer as long as their salary receivables exceed six times the average gross salary per employee.

Romanian law defines insolvency as the state of the debtor’s estate characterised by the insufficiency of funds needed for payment of due debts. The law provides the following grounds for the commencement of insolvency proceedings: 

• insolvency status, i.e. the inability of the debtor to pay the creditor receivables over Threshold within 60 days of the debt becoming due
• imminent insolvency, i.e. the prospective inability of the debtor to pay, at a specific point in time, the due debts with the amounts available at that specific point.

Law 85/2014 provides two main types: insolvency proceedings and bankruptcy proceedings.

Insolvency proceedings

Insolvency proceedings are aimed at the restructuring and survival of the debtor, while paying the creditors’ receivables to the greatest extent possible. The debtor, judicial administrator or creditor(s) owing at least 20% of the total registered receivables may propose a reorganisation plan in order to restructure and continue the debtor’s activity, or liquidation of some of the assets it owns, or a combination of the two. Reorganisation plans need to contain a payment plan for the registered receivables that may stretch up to 3 years. Plans usually contain reductions of receivables, deferrals of payments and payment in instalments.

If the plan is completed, all historical debt is waived and the proceedings are closed by the syndic judge. 

Bankruptcy proceedings

If the debtor fails to observe a reorganisation plan at any moment, any creditor may ask for the debtor to be placed under bankruptcy and for liquidation to begin.

The debtor can also enter bankruptcy directly, provided the debtor does not express the intention to propose a reorganisation plan.

In both cases, any court’s decision, reports/summons issued by the judicial administrator and information on creditors’ meeting decisions must be published in the Official Insolvency Gazette, a public database which ensures that any interested person may find relevant information in connection with any company subject to such proceedings.    

The law provides several categories of creditors as follows: 

• secured creditors
• employees
• state creditors (tax-related)
• unsecured creditors
• subordinated creditors.    

Creditors’ receivables generated by economic operations performed during insolvency proceedings will be paid by their due date. 

The receivables of secured creditors are usually satisfied in full unless the value of the receivables is not covered by the value of the secured assets, in which case each creditor will become an unsecured creditor for the remaining amount of its receivable. 

The remaining creditors are paid in their priority order (employees–state–unsecured) only if the creditors in the higher priority group are fully paid. 

Subordinated creditors are the last to be paid, as their receivables are deemed to be in connection with a certain debtor’s conduct. 

If the debtor is insolvent (see point 3 above, conditions for “insolvency status”), Romanian criminal law provides that non-submission or late submission of an insolvency petition by the legal representative of the debtor for more than 6 months from the time period provided by the law for acting in this respect is punished by imprisonment between 3 months and 1 year or by a criminal fine.

Regarding imminent insolvency (i.e. the scenario when the debtor estimates it will not be able to pay its debts in the future), the law does not impose an obligation to submit such a  request. 

The representative bodies have the obligation to supervise the financial situation, as they have the obligation to petition for insolvency in due time. (Failure to comply to such obligation might trigger criminal liability as described under point 6.)

On the other hand the representative bodies, as well as any other individual which caused the insolvency status, are personally liable if they for example:  

• used the company’s goods for personal purposes
• kept fictitious accounting records
• ordered the continuation of an economic activity which obviously led to insolvency
• hid part of company’s assets and fictionally extended its debts
• in the month prior to petitioning for insolvency, performed certain payments to a creditor to the detriment of other creditors
• perpetrated any other actions with the intention to contribute to the insolvency status of the company. 

In such a case, civil liability is triggered; and criminal liability may be triggered if such acts fall under the provision of criminal law. 

In all cases, a “special” administrator will be appointed by the shareholders of the debtor soon after proceedings are initiated. In the case that administration rights are lifted, the special administrator only represents the interests of the shareholders in the proceedings, as the judicial administrator manages the debtor. Otherwise the special administrator would manage the debtor under the supervision of the judicial administrator. Although the representative bodies are not involved in insolvency proceedings, they have to provide all the information requested, as well as any other help to the person in charge of the debtor’s activity.   

Under Romanian law shareholders have limited attributions during insolvency/bankruptcy. The only notable obligation is that they appoint a special administrator at the beginning of the proceedings. Otherwise, their activity is suspended. 

Shareholders only need to approve the proposal by the debtor of a reorganisation plan. Otherwise they are not directly involved, as their interests are represented by the special administrator. 

The solvent liquidation of a company may be halted by the objection of a dissatisfied creditor. While creditors have important rights and roles in insolvency proceedings, they are rarely able to halt proceedings. Therefore, solvent liquidation is an alternative only if all creditors of the company are satisfied. 

The legal framework under Romanian law consists of preventive concordat proceedings, an agreement concluded between debtor and creditors under specific terms with the purpose of: 

• saving the debtor’s business and covering creditors’ receivables
• providing the required support by the creditors for the debtor in question. 

In such a case, a contract will have to be concluded between the debtor and the creditors that are holding at least 75% of the value of the accepted and unchallenged claims, which will be subject to syndic judge approval.

The effects of such proceedings, once the court validates the preventive concordat agreement, are:

• enforcement procedures commenced by creditors are stayed by effect of law
• lapse of the statute of limitation for enforcement is stayed
• accrual of interest and penalties is suspended, unless otherwise agreed
• the debtor performs its activities as usual in respect to the preventive concordat agreement and under the supervision of the judicial administrator.  

As the law does not provide specific economic requirements for a reorganisation plan, given the rather complicated voting procedure for the approval of a plan and that state creditors rarely approve plans unless paid in full, few reorganisation efforts are successful (i.e. a small percentage, perhaps 2–3%).