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We look at the reforms to the insolvency law of Romania prompted by the coronavirus (COVID-19) pandemic. Written by Niculina Șomlea of STRIDE, member of INSOL Europe.
On 16 March 2020, Romania declared a month-long state of emergency. Since then, measures have been taken desperately to contain both the health crisis and the nascent economic one. Recently, the state of emergency was extended by another month, until 15 May 2020.
Among other European countries, unfortunately, Romania stands out as not having emergency measures designed specifically for the insolvency procedure. Of course, the emergency measures taken by the government have and will continue to cause disturbances in the insolvency realm.
The first emergency measure implemented on 16 March 2020 imposed a general stay on the statute of limitations and a general suspension of court proceedings other than urgent cases considered on a case-by-case basis. County courts have had some liberty in this regard, and they maintain their lists of urgent cases. At the time of writing, insolvency petitions are not on the list of cases, with some minimal exceptions. Insolvency courts are however resolving requests to temporarily suspend any enforcement proceedings against the debtor’s assets in urgent cases which could jeopardize the assets of the debtor.
The debtor is obliged to file for the insolvency procedure within 30 days of its insolvency. Non-compliance with this obligation will result in activating the directors’ liability. If the debtor doesn’t file within six months of the term provided by the law, it activates the directors’ criminal liability. The statute of limitation and the general suspension of court proceedings does not absolve one of this legal obligation. You might argue the impossibility of opening an insolvency procedure within most Romanian county jurisdictions. Still, one thing is for sure, within a year or so, we will start seeing some exciting new jurisprudence on the subject.
Also, all transactions, acts and payments made by debtors during this extraordinary situation, including those meant to restructure the debtor, will fall in the suspect period (maximum of two years prior to opening the procedure) and they may be deemed harmful to other creditors and annulled in a future insolvency procedure.
Considering the provisions of the Decree regarding the statute of limitations, we can argue that the creditors’ deadlines to submit their claim are suspended during the state of emergency. However, given that the insolvency proceedings are not suspended during the state of emergency, I would personally recommend creditors to respect the deadline.
On 21 March 2020, the Romanian government decided the best way forward is to infuse cash in micro-enterprises and SMEs. Amending the state aid support scheme ‘IMM Invest’, the state will guarantee loans access by the companies mentioned above and will subsidise the interest rates, the risk and commissions. Banks enrolled in this program will award through this state aid scheme loans and credit lines facilities for financing investments and working capital. The maximum financing period for investment loans is six years and for working capital is three years. The maximum value is capped by different thresholds depending on the size of the company, the turnover and other criteria. The provisions don’t apply to companies in difficulty, in insolvency and in enforcement procedures, among others.
On the same day, the state rolled out a support scheme for companies affected by coronavirus implementing technical unemployment (furlough). The state will pay the indemnity (75% of the base salary), capped at approximately 800 euros per employee during the state of emergency. These provisions don’t exclude firms in difficulty or insolvency.
On the 30 March 2020, the government adopted an emergency ordinance allowing debtors (such as individuals, family enterprises, liberal professions, legal entities) affected by coronavirus to request their creditors (credit institutions and non-bank financial institutions) a moratorium on credit and leasing repayments of up to nine months. The moratorium is not available for debtors in insolvency. The interest accrued during the moratorium will be capitalized and repaid in instalments. To date, approximately 260,000 individuals and up to 10,000 companies have applied for this moratorium, representing 17% of loans to individuals and less than 10% of total loans accessed by legal entities. The provisions have had a limited effect when considering the debtors’ deadline to apply for the moratorium—15 May 2020.
Finally, as the history and hysteria of amendments to the Romanian Insolvency Law intently demonstrates, in the long term, it is preferable to preserve the current form than to adopt a desperate amendment. The courts may interpret the current insolvency law to fit the extraordinary coronavirus situation but insufficiently thought through amendments are more likely to create monsters.
A tracker of insolvency reforms globally produced by Lexis Nexis in partnership with INSOL Europe is now available: Coronavirus (COVID-19) Tracker of insolvency reforms globally.
We look at various countries worldwide which are expediting reforms to their restructuring and insolvency laws, temporarily suspending onerous insolvency law provisions, increasing limits for statutory demands, suspending enforcement powers and introducing other measures to deal with the coronavirus crisis. As the situation is rapidly evolving with more countries adding new measures daily, you should contact local lawyers in the relevant jurisdiction to check the current measures in force.
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