Main amendments to the Insolvency Law

Law no./ 113/2020 regarding the approval of the Government Emergency Ordinance no. 88/2018 (hereinafter “Law 113”) has entered into force starting 11 July, with a series of important amendments of Law no. 85/2014 regarding the procedures for preventing insolvency and insolvency procedures (hereinafter “Law 85/2014”) and other normative acts, as follows:

  • Conditions to be met for the submission of the request regarding the opening of the insolvency procedure

i.  The amendment of the minimum amount

One of the amendments brought by Law 113/2020 is represented by the increase of the minimum of the amount from Lei 40,000 to Lei 50,000, for the submission of the request regarding the entrance into insolvency procedures. This condition applies for both debtors and creditors and is also applicable to the claims submitted according to the provisions of Law 31/1990 on companies, by the liquidator appointed in the liquidation procedure.

The amended article maintains the condition that in case there are employees’ claims that might trigger insolvency, the minimum amount necessary for the opening of the insolvency procedure is of 6 average gross salaries per economy, per each employee.

The minimum amount of Lei 50,000 currently provided is not, however, new within the context, this amount was regulated in the past, in the Law no.55/2020 regarding certain measures for the prevention and fighting the COVID-19 pandemic effects, however the request for opening the insolvency procedures could have been submitted only during the alert state (both by debtors and creditors) only for companies which have partially or totally interrupted their activity due to the measures taken during the emergency state.

ii.  The removal of the amount of the budgetary claims

The above mentioned legal provisions, as amended by Law 113, removes the condition regarding the necessity for an amount of the budgetary claims lower than 50% from the total claims whenever the request regarding the entrance into insolvency is submitted by the debtor, removing also some practical impediments.

The former version of the legal provision, although aiming to protect the budgetary creditor, placed that debtor (i) which was facing insolvency and (ii) where the total amount of the budgetary claims was higher than 50% of the total claims, into great difficulty regarding the possibility to file for insolvency.

On the other hand, the former versions lead to the inapplicability of the legal provisions regarding the debtor’s obligation to file for insolvency (in the case mentioned above) within 30 days as of the date the insolvency state occurred.

  • Defining payment agreement

The payment agreement is not something new within the insolvency context, references to such are made within other legal provisions within Law 85/2014, respectively in the section dedicated to the reorganization period, where it is stated that a payment agreement will lead:

i.  To the dismissal of the bankruptcy request submitted by the creditor who has concluded the payment agreement, even though the debtor does not observe the reorganization plan, or it accumulated new debts during the insolvency procedure;

ii.  To the dismissal of the bankruptcy request submitted by the creditor of a claim which is current, certain, liquid and due for more than 60 days, that concluded the payment agreement with the debtor and that has a claim which is represent more than the minimum provided under the legal provisions.

However, the legislator has considered necessary providing a definition for the payment agreement as the understanding between the debtor and the creditor regarding the payment in one or more installments with different due dates according to the contractual or legal provisions.

It is questionable if this payment agreement, as currently defined, may intervene in any stage of the insolvency procedure, namely in the hypothetical situation where the debtor is subject to reorganization and a reorganization plan is in placed, approved by the creditors and confirmed by the syndic judge.

As such, any payment agreement which might be considered in the reorganization stage should not prejudice the rights of other creditors, participants to the insolvency procedures, and should not breach the legal provisions of Law 85/2014 that provide the conditions to be met for the fair and equitable treatment of the existing creditors.

Considering the above, a special role will play the insolvency practitioner that has acknowledged the existence of a payment agreement, which needs to ensure the observance of the principles set by Law 85/2014. 

  • Amendments regarding the claims born after the opening of the insolvency procedures 

Unlike the former legal provisions, the amendments brought by Law 113/2020 aim to clarify and stipulate the date from which the insolvency practitioner is obliged to analyze the payment requests submitted by the creditors holding claims born after the opening of the insolvency procedure as well as the deadline in which such verifications should be performed by the insolvency practitioner.

As per current provisions, the insolvency practitioner needs to verify the grounds for the payment requests only if they were communicated with confirmation receipts by the interested creditors and not if they were simply communicated, as provided under the former legal provisions. In addition, the deadline for the analysis is increased from 10 to 15 days, as of the date of the receipt.

The relevance of the amendment is that, in case of a litigation, the creditor will need to provide evidence that the payment request was communicated and received by the insolvency practitioner, and not only that it was simply communicated.

A very important amendment is the removal of the creditors’ right to file for enforcement proceedings for the claims born after the opening of the insolvency proceedings and which were due more than 60 days.

These provisions seem to be justified considering the insolvency context, as insolvency proceedings were meant to be incompatible with other procedures for the recovery of claims against an insolvent company. The former provisions, basically, granted the unfolding of two parallel proceedings aiming the recovery of the debts, breaching the principles that govern the insolvency proceedings.

  • Amendments with respect to the insolvency practitioner’s offers 

According to the current legal provisions, insolvency practitioners are no longer obliged to provide evidence regarding the time and human resources to be allocated, and also their general or specific experience necessary to managing the insolvency file, the discretionary power of the syndic judge in appointing an insolvency practitioner being removed.

Also, the amended text has been completed in the sense that the provisory appointment of an insolvency practitioner will be made randomly from the National Union of Insolvency Practitioners of Romania only if (i) there are no offers submitted in the file and (ii) there are no proposals from the debtor or the creditors in this respect.

  • Amendments regarding the nature of certain budgetary claim

An important problem in practice that has lead to a great deal of different rulings is represented by the situation where hair cuts were made to claims within the reorganization plan. As such, it was considered that any reduction of the claims is assimilated to an income for the insolvent debtor that need to be subject to tax and the fiscal authorities almost every time considered that these category of budgetary claims are current, that needed to be paid with priority.

According to the current provisions, in the section regarding the closing of the insolvency procedure, the situation above mentioned is clarified. It is expressly stated that these type of budgetary claims are due as of the date the reorganization procedure is closed, followed by the performance of the debtor’s activity or the liquidation procedure following a plan is closed, both attested by a court’s decision, based on the report of the insolvency practitioner that confirms the observance of all payment obligations established through the confirmed plan and also of the due current claims.

  • Conclusions

As a general appreciation, the amendments brought by law 113/2020 are welcomed, have a clarifying and useful role, are closer to the purpose for which Law 85/2014 was adopted and of the principles set by the law. Certainly, the way in which these provisions will be implemented in practice will indicate the efficiency of the measures that have been undertaken.