BUSINESS COMPANIES LEGAL OUTLOOK

INSOLVENCY PROCEEDINGS: LEGAL CHANGES

By Laura MARINESCU, Senior Associate GRUIA DUFAUT LAW OFFICE

 

Financial difficulties are an increasingly common risk for companies and their immediate effect is the start of insolvency proceedings. The effects of insolvency are felt not only by the company subject to insolvency proceedings, but also at the macroeconomic level. The large number of companies in insolvency proceedings, reorganization or bankruptcy, having an overall debt of over 63 billion Lei towards the State budget, has determined the change in the applicable legislation. Thus, Government Ordinance (OUG) no. 88/2018, amending and supplementing various regulations in the field of insolvency proceedings, came into force on 2 October 2018. This Ordinance brings several important changes to the legal framework of insolvency proceedings.

 

Applications for insolvency proceedings and the processing of fiscal claims

OUG no. 88/2018 introduces an additional condition to be complied with by the debtor in order to open insolvency proceedings (in addition to the condition regarding the minimum amount of the claim, namely 40,000 Lei). Thus, a company can no longer apply for insolvency proceedings if its fiscal debts represent more than 50% of the total amount of its debts.

In addition, the company must notify the tax authorities before the start of insolvency proceedings and, from now on, the State can become shareholder of the said company, by converting its claim into shares. Such operation will be possible if several conditions are cumulatively met.

As for the tax claims established through a challenged administrative taxation document whose enforcement has not been suspended through a final court ruling, OUG no. 88/2018 provides that such claims will be accepted to the body of creditors and registered under a condition subsequent, until the administrative court issues a ruling on the challenge.

Also, new criteria are introduced for the fiscal creditor’s vote on the reorganization plan that proposes the reduction of unsecured fiscal debts.

Last, but not least, the ordinance stipulates the possibility to transfer fiscal claims, provided that the company cumulatively fulfills several criteria.

 

Special administrator – Incompatibility

The new regulation introduces several incompatibilities with regard to the person who may be appointed as special administrator. Thus, it is forbidden to appoint in this position a natural or legal person who is also a creditor in the same proceeding.

The same Emergency Ordinance stipulates that persons who are in a contractual relationship that is likely to create a conflict of interest or persons affiliated, according to the Tax Code, with the official receiver, the liquidator, the debtor or one of the creditors can not be appointed as specialists (such as lawyers, accountants, assessors or other specialists).

 

New deadline for submitting an action for financial liability

An important change brought by OUG no. 88/2018 also refers to the time-barring of the action for financial liability against the persons liable for the company’s insolvency.

Under the new legal provisions, the action may be lodged within 3 years from the date when the person who contributed to the insolvency was or should have been known, but not later than date of publication in the Bulletin of Insolvency Proceedings of the report of the official receiver/liquidator concerning the causes and the circumstances which determined the insolvency.

According to the previous procedures, the action could have been lodged within 2 years from the date of the court ruling authorizing the start of the insolvency proceeding.

 

Enforcement for the recovery of claims during insolvency proceedings

The chapter referring to the reorganization period has been supplemented by a provision according to which an enforcement procedure may be initiated for debts older than 60 days accumulated during insolvency proceedings.

 

Insolvency of insurance and reinsurance companies

Changes are also brought to the insolvency regime of insurance and reinsurance companies. Thus, the Guarantee Fund will be part of the Creditors’ Committee and the liquidation and valuation of rights from the assets of the companies mentioned above will be carried out both by notifying the Guarantee Fund and with the approval of the Creditors’ Assembly.

In addition, if it is found that the liquidator appointed in the course of the insolvency proceedings of an insurance or reinsurance company has not fulfilled his duties, the Financial Supervisory Authority may apply in court for the replacement of the said liquidator. If the Authority’s application is approved, a new liquidator will be appointed from the list of insolvency practitioners approved by the Financial Supervisory Authority.

 

It should be noted that, within 90 days of the date of the final ruling for the start of the bankruptcy proceeding, the insurance policies contracted by the insurance or reinsurance company are automatically terminated.

In addition, the funds resulting from the valuation of the insurance or reinsurance company’s technical reserves will be fully distributed to the Guarantee Fund, in order to extinguish claims relating to compensation or indemnities granted to insurance creditors from its available funds.

Finally, it should be noted that the deadlines laid down in the Ordinance apply – in principle – immediately, both to requests made under proceedings initiated before the date of entry into force of the Ordinance, and to requests that are not settled on the date of its entry into force. www.gruiadufaut.com

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