On 17 July 2022, Law No 216/2022 on amending and supplementing Law No 85/2014 on insolvency prevention and insolvency proceedings and other regulatory acts (“Law No 216/2022”) entered into force, amending the content on insolvency prevention and insolvency proceedings (“Law No 85/2014”). This new regulation transposes Directive (EU) 2019/1.023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, debt write-offs and write-downs, as well as on measures enhancing the efficiency of restructuring, insolvency and debt relief proceedings and amending Directive (EU) 2017/1.132 (the Restructuring and Insolvency Directive).
Among the most important amendments are the introduction of the restructuring agreement procedure under Articles 151 – 1513 and the substantial modification of the preventive agreement procedure under Articles 16 – 371. These procedures apply to debtors in difficulty but not yet in a state of insolvency.
The restructuring agreement procedure is a new insolvency prevention procedure whereby the debtor, with a view to recovering its business, submits for confirmation to the syndic judge a restructuring agreement negotiated in advance with the creditors whose claims are affected.
Law 216/2022 sets out the stages of the restructuring agreement procedure. The first stage consists of the proposal of the restructuring agreement by the debtor or the restructuring administrator and its communication to the creditors. Negotiations then take place between the debtor and the creditors whose claims are affected. The next step is for the creditors with affected claims to vote on and approve the restructuring agreement.
After this stage of voting and approval of the agreement, no later than 3 (three) days after the conclusion of the minutes of the vote, the request for confirmation of the restructuring agreement is submitted to the syndic judge for the confirmation of the agreement. This is a non-litigious procedure, taken in council chamber procedure, without public, in order to ensure the confidentiality of the procedure.
Following confirmation of the restructuring agreement by the syndic judge, the debtor’s activity will be carried out and for a period of 3 (three) years, the restructuring administrator will communicate to the affected creditors a quarterly report on the manner in which the agreement has been carried out and the fact that the viability of the business is maintained through its implementation. In conjunction with this obligation, the debtor is required to provide the restructuring trustee with all the information necessary to draw up the analysis report within a maximum of 15 days from the date of the financial statements for the quarter being monitored. Failure to provide the information by the debtor shall be deemed to constitute the failure of the agreement.
The final step is the judgment closing the restructuring agreement procedure. The decision to close the procedure is given when the provisions of the restructuring agreement have been fulfilled, when the provisions of the restructuring agreement have not been fulfilled or when the obligations to amend the agreement ordered by the syndic judge have not been fulfilled. After the confirmation of the restructuring agreement and until the closure of the proceedings, the debtor shall not be able to access another insolvency proceeding and insolvency proceedings may not be opened against him at the request of an affected creditor.
One of the advantages of the restructuring agreement procedure is that it takes place largely outside the courts, with the confirmation request being referred to the syndic judge only after negotiations have taken place and votes have been obtained from creditors with affected claims. Negotiations can only be started by the debtor and the confirmed restructuring agreement is enforceable against all creditors, including those creditors who voted against it or did not express an opinion.
However, neither enforcement nor the accrual of interest shall be suspended by operation of law during the proceedings, although, as regards the accrual of interest, the confirmation agreement may expressly provide that
The legislator has not set a maximum period for negotiations nor a maximum period for the restructuring agreement, but supervision by the administrator is mandatory for a period of 3 (three) years.
If the restructuring agreement has not been reached, the effect is that the debts reduced as a result of the payments made during this procedure are revived, and if the restructuring agreement has been reached, the effect is that the debts remain permanently written off.
Other advantages and novelties of the restructuring agreement include the fact that the debtor retains the right to manage the business under common law, the individual and collective rights of the employees provided for by law or by collective labour agreements will not be altered and there is a high degree of confidentiality and, last but not least, the intervention of the syndic judge is limited and occurs after the negotiation and approval of the restructuring agreement by the creditors whose claims are affected. It is therefore a mainly private procedure and finally the principle of “debtor in possession” applies.
The other procedure amended by Law 216/2022 is the preventive agreement. This is a judicial procedure for the prevention of insolvency, the opening of which suspends enforcement proceedings and the debtor recovers and pays off some or all of its affected claims, on the basis of a restructuring plan voted by the creditors whose claims are affected and approved by the syndic judge. The new law clarifies the old rules and sets out the stages of the arrangement procedure.
The first stage consists of the debtor submitting a request for the opening of the arrangement procedure, in which the state of difficulty is analysed. Creditors may also request the opening of this procedure, but with the prior consent of the debtor.
The second stage consists of the debtor proposing the restructuring plan and communicating it to the creditors, with only the debtor being able to exercise this task. Following the proposal of the plan, negotiations will take place between the debtor and the creditors, a stage for which the legislator sets a maximum period during which negotiations can take place, namely 60 days from the opening of proceedings.
The next step is the vote and approval of the restructuring plan by the creditors with affected claims. Only the creditors included in the restructuring plan can exercise their voting rights, and within 3 days of the end of the meeting in which the restructuring plan was approved by the creditors, the debtor must ask the syndic judge to approve the restructuring.
Subsequently, after the approval of the agreement by the syndic judge, the debtor’s activity shall be carried out according to the provisions of the agreement and the debtor’s activity shall be restructured accordingly. At this stage, the insolvency administrator will draw up and file a quarterly analysis report on how the plan is being implemented and will send it to the creditors affected, who will be required to monitor the debtor’s business activities.
The final step is to issue a decision closing the preventive agreement. It is pronounced when the provisions of the restructuring plan have been fulfilled and the debts written off remain definitive or, if the provisions of the restructuring plan have failed, the claims are revived on the date of the decision to close the proceedings, including interest and late payment penalties whose accrual has been suspended during the proceedings.
Preventive agreement is a judicial procedure and negotiations may only be started by the debtor and from the date of opening of the procedure it is prohibited to terminate essential contracts or refuse their performance on the grounds that outstanding amounts have not been paid.
In contrast to the restructuring agreement procedure, enforcement is automatically suspended for a period of 4 (four) months, the suspension may be extended up to 12 (twelve) months, and the accrual of interest and accessory charges of any kind is also suspended for the period of negotiation until the restructuring plan is approved, after which they will have the legal status provided for in the plan. The statute of limitations is also suspended from the opening of the proceedings for the period of the negotiations and the restructuring period, if the plan has been approved.
The restructuring plan has a period of 48 months, which may be extended by a further 12 months. It is enforceable and binding on the creditors affected, even if they have voted against it, but it is not enforceable against creditors whose claims arise or become due during the period in which the plan is drawn up, negotiated or approved and who have not been included in the plan.
If the provisions of the restructuring plan are fulfilled, the syndic judge shall issue the final decision and the debts written off shall become final, and if the syndic judge finds that the restructuring plan has not been fulfilled, the claims shall be reinstated from the date of the decision closing the proceedings, including interest and late payment penalties the accrual of which has been suspended during the proceedings.
The advantages of the preventive agreement with creditors include the fact that the maximum duration of the restructuring plan is 4 years, with the possibility of an extension for a further year, that 10% of the claims affected in the first year must be paid, that the debtor retains the right to manage the business under the conditions of ordinary law, and that the individual and collective rights of the employees provided for by law or collective labour agreements will not be affected.
In conclusion, this new regulation aims to establish insolvency prevention procedures that can be used by debtors in difficulty when it is possible to recover their activity without having to request the opening of insolvency proceedings and aims to harmonise national provisions within European Union.
One year after the entry into force of these new provisions, it is not yet possible to assess their impact. This is not a new chapter for the Romanian legislation, as local pre-insolvency provisions existed before the entry into force of this law.
However, these procedures have not generated a great interest so far, an aspect mentioned in the statement of principles of the bill, as the number of such preventive proceedings is low. The main obstacles in the past have been the lack of flexibility of some institutional actors more often involved in proceedings, such as banks and tax authorities, but also the low appetite for resolving disputes by private methods in general, without resorting to a procedure before a judge. It is therefore too early to say, but we hope that the harmonisation of European legislation will encourage potential participants to use these procedures and thus achieve the objective of the Directive, namely the existence of simple, rapid, confidential and extra-judicial procedures for the preventive restructuring and treatment of financial difficulties.