Same as most of the states where SARS-CoV-2 crisis emerged, Romania has adopted a quite extensive package of measures meant to sustain the shaken economy pending the cease of the emergency state. In this context, the Romanian Government regulated and is still implementing certain specific measures for easing the economic burden on companies during the state of emergency.
However, in the situation in which companies directly or indirectly impacted by the current state of play still face financial difficulties, irrespective of the support schemes implemented by the authorities, we should not forget that there is in place comprehensive legislation on insolvency proceedings that offers various tools for both debtors and creditors, but also impose specific obligations and sets certain cases of liability for directors and shareholders.
Economic measures approved by the Romanian Government
The most relevant relief measures in force are the following:
- state guarantees for SMEs who take out investment loans and/or working capital loans/credit lines in various amounts;
- postponement for paying certain local taxes;
- the bonus granted for paying as scheduled the due profit tax or the income tax for micro-companies;
- no delay interest or penalties incurred for outstanding fiscal obligations during the emergency state;
- SMEs that have partially or totally ceased their activities and hold an emergency state certificate issued by the Ministry of Economy, Energy and Business Environment can benefit from a deferral for the payment of utility bills and rent;
- possibility for certain debtors (natural and legal entities) to opt, in certain circumstances, for a suspension of the obligation to pay credit installments (principal amounts, interest, fees) for a period comprised between one month and 9 months, a period which cannot exceed in any case the date of December 31, 2020.
The Romanian Parliament also proposed additional measures aimed at alleviating the financial burden of companies during the emergency state. For example, the Parliament approved a draft law extending the definition of debtors that can opt for the suspension of the obligation to pay their credit installments by imposing fewer conditions to be met by the applicant and another law granting different categories of legal and natural persons the possibility to benefit from a deferral from paying utility bills. However, at this moment, such draft laws although approved by the Parliament have not entered into force, being challenged with unconstitutionality claims.
In any case, in spite of such economic relief measures, the risk for companies to encounter difficulties in maintaining their liquidity, to register a decrease of demand/ level of activity or other financial and/or operational hurdles remains high.
Insolvency – still applicable relating filing obligation and sanctions
Taking into account that the specific regulations enacted in the context of the state of emergency do not suspend the debtor’s insolvency filing duties, it is imperative for the relevant corporate bodies of each distressed company not to disregard their legal obligations in this respect.
Law 85/2014 on insolvency prevention and insolvency procedures (the “Insolvency Law”), defines insolvency as being the situation in which the patrimonial standing of a debtor is characterized by the lack of sufficient funds for paying its certain, liquid and due debts. The insolvency of a debtor can take two forms:
i) Actual insolvency – the debtor is presumed by law to be insolvent if the payment of its debt (outstanding debt of at least RON 40,000 or approx. EUR 8,250) is not made within 60 days from its due date; and
ii) Imminent insolvency – the situation in which relevant evidence exists attesting that the debtor will not have sufficient funds in order to be able to pay its debts at due date.
The Insolvency Law regulates two scenarios for initiating the insolvency procedure, namely upon the request of:
- the debtor, irrespective of the type of insolvency, e., the actual insolvent debtor or the debtor for which the insolvency is imminent; or
- any creditor of the debtor, subject to the former having a certain, liquid and due receivable against the debtor, which is outstanding for over 60 days.
Note: in both cases, the outstanding debt must amount to at least RON 40,000 or approx. EUR 8,250.
The Insolvency Law expressly provides that the debtor must file for insolvency within 30 days from the date the company actually becomes insolvent, i.e., the conditions under the actual insolvency scenario are met, whereas in case of an imminent insolvency, the debtor is entitled to file for insolvency, not being under the obligation to do so.
The responsibility for requesting the insolvency lies with the corporate bodies managing the debtor, i.e., the director(s) of the company or the board of directors (depending on the management structure of the company).
Note: pursuant to the Company Law no. 31/1990, the obligation to file for insolvency cannot be delegated from the director(s)/ board of directors to the appointed managers.
Failure to file such a claim within 6 months after the expiration of 30 days period may also entail the criminal liability for the debtor’s director(s).
Preventive measures for avoiding insolvency
The Insolvency Law provides certain legal procedures that can come to the aid of potential insolvent debtor in order to avoid the need to actually file for insolvency. Such alternatives are represented by:
i) ad-hoc mandate
The ad-hoc mandate is a confidential procedure initiated at the distressed debtor’s request, by means of which an ad-hoc agent, appointed by the court, shall negotiate with the debtor’s creditors in view of obtaining an arrangement for the debtor that could lead to overcoming the economic difficulties currently in place.
ii) out-of-court creditor arrangement (Romanian: concordat preventiv)
The out-of-court creditor arrangement is an agreement concluded between the distressed debtor and its creditors holding at least 75% of the accepted and undisputed receivables, approved by the syndic judge, by means of which the debtor proposes a recovery plan, whereas the creditors accept to endorse the debtor’s actions.
As mentioned, both procedures imply the involvement of a court of law. However, the Decrees creating and respectively extending the emergency state expressly provide that all litigation are suspended, save for matters that are deemed urgent.
In view of having an unitary practice, the Superior Council of Magistracy issued Decision 417/2020 listed the matters to be considered urgent and further reviewed by the court of laws during the state of emergency ( “Decision 417/2020”), which was later supplemented with additional matters through Decision 707/2020 (“Decision 707/2020”).
Initially, in Decision 417/2020, the Superior Council of Magistracy appreciated that only requests filed pursuant to Art. 66 para. (11) of the Insolvency Law are considered as being urgent, i.e., requests for a temporary stay of enforcement proceedings against the debtor’s asset after the file for insolvency has been submitted with the court. However, on the 30th of April 2020, the Superior Council of Magistracy issued Decision 707/2020, thus acknowledging the urgency of requests filed by the debtor for commencing the insolvency procedures.
In respect of requests relating to the preventive measures provided by the Insolvency Law, although not expressly mentioned by either decision of the Superior Council of Magistracy, we note that Decision 417/2020 provides that each court may resolve any other claims addressing exceptional situations that can be considered as being urgent,. Consequently, a court of law is allowed to determine on a case-by-case basis if the claim submitted by a debtor can be considered urgent pursuant to the Decrees and the decision mentioned above, i.e., if request relating to ad-hoc mandates or out-of-court creditor arrangement is urgent and can be addressed by the competent courts.
Director’s / shareholder’s liability in case of insolvency
The Insolvency Law also provides for specific cases in which an entity/ person (e.g. directors, shareholders) could be held liable for the debts of the debtor subject to insolvency proceedings, in case they have contributed to the insolvency state through one of the following acts/facts:
a) have used the assets or credit of the debtor for their own benefit or for the benefit of another person;
b) have engaged in production, trade or provision of services for their own benefit, under the “cover” of the legal person (Romanian “sub acoperirea persoanei juridice”);
c) have decided, for their own benefit, the perpetuation of an activity which manifestly led the debtor into an impossibility of payment;
d) have kept fictitious accounting books, have made accounting documents to disappear or have not kept the accounting books according to law.
In this case, if accounting documents are not handed over to the judicial administrator or judicial liquidator, both the fault and the causality connection between the act/fact and the damage are presumed (the presumption could be rebutted).
e) have embezzled or have concealed part of the assets of the legal person or have fictitiously increased its liabilities;
f) have used damaging means to procure funds for the legal person for the purpose of delaying the impossibility of payment;
g) in the month before ceasing payments, have paid or decided the payment with a preference of a creditor, to the detriment of the other creditors;
h) have intentionally committed any other act, which has contributed to the insolvency status of the debtor, determined according to the provisions of Insolvency Law no. 85/2014.
These actions fall under a statute of limitation of three years as of the date at which the identity of the person who contributed to the occurrence of the state of insolvency is or should have been known, but not later than the date when the report of the judicial administrator/ judicial liquidator is published in the Insolvency Procedures Bulletin.
Aside from the insolvency liability cases mentioned above, the joint liability with the debtor could also be triggered in certain circumstances based on specific cases set under the Civil Code, Fiscal Code, or the Companies Law.