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The insolvency procedure – a re-launch of the company on the market?

The concept of insolvency according to the Romanian Law

Over the years, most of the companies considered the insolvency procedure as the beginning of the end. As the time went by and the insolvency provisions were adapted to the needs of the debtors and creditors, they stared to understand the necessity of insolvency and also began to take an interest in the options available in order to recover their companies.  

Even though most of the people consider that the insolvency procedure and the bankruptcy procedure are the same thing, the two notions are very different from the definition to the conditions, applicability and effects. 

Pursuant to Law no. 85/2014, one company can enter into insolvency in case it does not have any cash availability, but wants to pay its creditors. Anyone who has interest can initiate the insolvency procedure – the creditors or even the debtor. 

In comparison to the insolvency procedure, the bankruptcy procedure consists in capitalization of the assets of the company. By way of exception, in the insolvency procedure the assets of the company can be sold in case they are not necessary in order to carry out the reorganization plan. In case the debts are very big and the debtor does not have any possibility to attract investment, the company can request to enter directly into the bankruptcy procedure. 

Basically, it is not necessary to enter into bankruptcy. The company can appeal to several options in order to avoid entering in the bankruptcy procedure and to manage to save the company by paying only some of the claims and continue its activity. 

The stages of the insolvency procedure

The insolvency procedure has 2 stages: 

  1. The observation stage – which lasts until the period of 30 days – after the final table of creditors is issued – ends. After this moment, the company goes into reorganization or bankruptcy; 
  1. The reorganization stage which consists in devising a plan in order to come out successfully from the insolvency procedure; the most important thing is that in this stage, the debtor chooses to pay just some of the creditors (maybe the most important ones); in case the debtor fulfills all its obligations stated in the reorganization plan, the company gets out successfully from the insolvency procedure without any kind of debts; in case the debtor does not fulfill its obligations, the company enters into bankruptcy. 

The advantages of the reorganization procedure

The advantages that the company has once it enters into the insolvency procedure and it fulfills the obligations stated in the reorganization plan are: 

  1. Once the insolvency procedure is opened, all the enforcement procedures started against the debtor are suspended; all creditors have to register their claims to the creditor`s table issued in the insolvency procedure;  
  1. Once the insolvency procedure is opened, the employees of the company are registered automatically by the judicial administrator (approved by the creditors) to the table of creditors and claims; 
  1. Through the reorganization plan, the debtor has the possibility to choose to pay just a part of the creditors; this means that some of the claims will suffer a haircut; in case the company does not fulfill its obligations stated in the reorganization plan, the haircut of the claims is no longer valid, but in case they are fulfilled, the company is not held responsible for the rest of the debt;  
  1. Once the debtor manages to fulfill its obligations stated in the reorganization plan, all its debts are being wiped out; 
  1. The employees are always protected through the reorganization plan; even in case of bankruptcy, the employees have priority in relation to other creditors; 
  1. The debtor continues its activity and manages to keep all/some of the employees; 
  1. In the reorganization procedure, the administrator of the company can manage the activity of the debtor under the supervision of the judicial administrator approved by the creditors; once the debtor enters into bankruptcy, the right of the administrator of the company is lifted; 
  1. The administrator of the company has the right to propose an action plan considered appropriate for the recovery of the firm (for egg, based on attracting an investor or on the signing of different contracts). 

In conclusion, through the reorganization procedure, the company can get rid of the “broken” part of it. Therefore, in case this stage is carried out correctly and according to the law, the company has all the reasons to continue its activity.