Romania: Measures in the field of insolvency against the background of the state of alert
As a consequence of the state of alert being declared in Romania at national level for a period of 30 days starting 18 May, Law No. 55/2020 on some measures to prevent and combat the effects of the Covid-19 pandemic (“Law No. 55/2020”) has been adopted.
Against this background, in the following article we will point out the main measures adopted in the field of insolvency that will be enforced during the state of alert:
Possibility for debtor to file for insolvency
Debtors that are in a state of insolvency or reach a state of insolvency will be able to file an application to the courts to be made subject to the provisions of Law No. 85/2014 on insolvency prevention and insolvency proceedings (the “Insolvency Law”).
It is worth mentioning that previously this was an obligation and not an option. Thus, the 30-day period within which an insolvent debtor has to file the application will start to run from the date when the state of alert ceases. Correspondingly, until the same date, the provisions of Article 66 paragraphs (2) and (3) of Law No. 85/2014 are not applicable.
Until the end of the state of alert, there is 5-day time limit within which debtors engaged in extrajudicial negotiations or, as the case may be, in negotiations conducted within an ad-hoc mandate or a scheme of arrangement, are obliged to file for the initiation of the proceedings.
Increasing the value of the claim threshold for initiation of insolvency proceedings
In the case of debtors that have interrupted their activities totally or partially as a result of the measures adopted during the state of emergency and state of alert, the threshold value provided in Article 5 paragraph 72 of the Insolvency Law changes from RON 40,000 to RON 50,000, both for creditors and debtors.
Note: During the state of alert, creditors may file for the initiation of insolvency proceedings only after a reasonable attempt to conclude a payment agreement, evidenced by documents served between the parties by any means, including by electronic means.
Prolonging the observation period and the period for proposing a reorganisation plan
In the event that a debtor finds itself in the “observation period”, this period will be extended by three months. Correspondingly, the period within which the categories of entitled persons may propose a reorganisation plan is to be extended by three months, including if the deadline for submitting the plan has begun to run.
Also, if a reorganisation plan has already been submitted but the prospects for recovery have changed as a result of the effects of the Covid-19 pandemic, there is now the possibility of submitting a modified reorganisation plan within three months after Law No. 55/2020 has entered into force. In this context, creditors must be notified of this intention within 15 days after Law No. 55/2020 has entered into force.
Prolonging the duration of reorganisation plans
In the case of debtors in judicial reorganisation on the date of entry into force of Law No. 55/2020, the duration of the implementation of the judicial reorganisation plan will be extended by two months.
Moreover, debtors in judicial reorganisation who have completely interrupted their activities as a result of the measures adopted by the authorities to prevent the spread of the Covid-19 pandemic may request, within 30 days after Law No. 55/2020 has entered into force, that the syndic judge (judge ruling on the insolvency proceedings) suspends the implementation of the plan for a period that may not exceed two months.
In addition, in the case of debtors that have completely or partially interrupted their activities as a result of the measures adopted by the authorities during the state of emergencies and/or during the state of alert, the duration of implementation of the reorganisation plan may be four years, not three years as it was before the adoption of Law No. 55/2020, with the possibility of extending this up to five years.
Prolongations regarding schemes of arrangement
Regarding scheme of arrangement procedures in progress on the date of entry into force of Law No. 55/2020, namely 18 May 2020, the period in which the negotiations on the draft scheme of arrangement are carried out or the period for preparing or negotiating the scheme of arrangement offer (as appropriate) is extended by a maximum of 60 days.
In addition, the period for satisfying the claims established by the scheme of arrangement will be extended by two months for debtors fulfilling a scheme of arrangement on the date of entry into force of Law No. 55/2020.
Other suspension measures
During the state of alert, debtors may request the initiation of the insolvency proceedings, even if the amount of the budgetary claims is higher than 50% of the declared total amount of their claims.
On the other hand, for debts accrued during insolvency proceedings that are older than 60 days, enforcement cannot be started.
Any questions? Please contact: Razvan Caramoci, Denisa Margas
Practice group: Restructuring & Insolvency