State of Alert Brings About New Insolvency Rules
Among amendments – lack of debtors’ obligation to file for the opening of the insolvency procedure, but also prolongation of certain terms in the case of debtors undergoing pre-insolvency and insolvency procedures.
The turbulence caused by the COVID-19 pandemic have substantially affected the business environment, contamination being a visible effect not only at a social level, but also at a business one.
Hence, it was considered necessary to have implemented mechanisms for the protection of solvable and less solvable companies that, in the exceptional circumstances created by the pandemic, may be facing a sudden lack or even unavailability of liquidities, as presented in the Statement of Reasons for the State of Alert Law.
The solutions are provided by Law no. 55/2020 on Certain Measures for Prevention and Control of the Effects of the COVID-19 Pandemic, published in the Official Gazette no. 396/May 15, 2020, hereinafter referred to as the, “State of Alert Law”, and are meant to create instruments to protect businesses and the economic system, from which we mention the ones applicable to insolvency (art. 46 and the next).
We would like to previously mention that, pursuant to art. 4 of the law, the state of alert will be instituted for a period that may not exceed 30 days, this being possible to be prolonged, for solid reasons, for maximum another 30 days.
New rules regarding the opening of the insolvency procedure
- debtors are entitled to file for the opening of the insolvency procedure, but, temporarily, there is no such obligation on their part in this regard any longer;
- creditors filing for the opening of their debtors’ insolvency procedure will have the obligation to have previously tried amicable settlement (it seems that this condition applies only to debtors that have interrupted their activity fully or partially as an effect of the measures adopted by the public authorities);
- the minimum value of the debt for which, during the state of alert, one may file for the opening of the insolvency procedure (threshold value) increases from lei 40,000 to lei 50,000.
Extension of the terms of the arrangements with creditors, in principle, by 60 days
- any debtor undergoing the procedure of arrangement with its creditors will be granted additional time; these shall benefit from another 60 days for the negotiation and elaboration of the arrangement offer;
- prolongation by 2 months of the terms of payment of the receivables established by arrangements with the creditors.
Relaxing of the terms for the companies wishing to reorganize by extension by 3 months of the term for proposal of the reorganization plan and prolongation of the maximum term of 4 months for the execution of the plan by up to 1 year
This category of amendments refers to the insolvency procedures that are ongoing at the effective date of the State of Alert Law, depending on the stage at which they are (observation/reorganization).
- prolongation by 3 months of the term for submission of the reorganization plan;
- any debtors that have submitted a reorganization plan, not yet confirmed by the court, may adopt it in the next 3 months after the law became effective, by announcing their intention in 15 days from the date when the law became effective;
- the term of execution of a reorganization plan may be extended up to maximum 5 years.