Last updated: 29 March 2023
Further changes were brought to the Insolvency and Insolvency Prevention Law no. 85/2014 with the publication of the Law no. 46/2023 in the Official Gazette No. 183 of March 3, 2023. The new changes cover some legal aspects relating to the conditions for extending the term of the creditors’ voluntary arrangement.
A creditors’ voluntary arrangement is a legal procedure allowing a company in financial distress to avoid insolvency by negotiating an agreement with its creditors, under which the company pays-off its debts and other financial obligations over a longer time span.
Entering this arrangement means that for a period of 4 months all enforcement proceedings directed against the debtor are automatically stayed and all new proceedings are prohibited, regardless of the nature of the claim. Consequently, interests, late payment penalties and all other expenses related to the debts thereunder are stayed until the approval of the restructuring plan.
Once the plan is approved, the regime of ancillary obligations related thereto will follow the provisions of the plan. Therefore, for a debtor company, entering such arrangement is a step forward in recovering from distress, by partially or totally repaying its debts under a restructuring plan to be voted on by the creditors concerned and approved by a syndic judge, if the legal conditions are complied with.
Here follows an overview of the main changes introduced by Law no. 46/2023, and a brief review the key elements of creditors’ voluntary arrangement procedure (concordat preventiv).
New rules
According to the Law No. 46/2023, companies under a creditors’ voluntary arrangement procedure opened before July 17, 2022, are entitled to a 24-month extension of the time frame for payment of the debts set under the creditors’ arrangement.
Such extension may also benefit companies having already been granted extensions, insofar as the overall duration of the creditors’ arrangement, extensions included, is of maximum 60 months from the approval of the restructuring plan.
The request for extension of the term of the creditors’ arrangement, alongside the decision of approval thereof by the meeting of creditors party to the arrangement, may be filed at any time by the administrator of the creditors’ arrangement before the procedure is closed.
Key elements of the creditors'voluntary arrangement procedure
1) Opening of the creditor’s voluntary arrangement procedure
The creditors’ voluntary arrangement procedure can be initiated by the debtor in financial distress by filing a request to the competent court for opening of procedure. The procedure may also be opened upon request of one or more creditors holding an uncontested, liquid, and payable claim against the debtor, provided that the latter's prior agreement is obtained. The creditors’ voluntary arrangement procedure is ruled on under an enforceable decision of the syndic-judge also appointing the administrator of the creditors’ arrangement. The repayment plan must be drafted in 60 days, either by the said administrator or by the debtor with the administrator’s assistance.
2) The restructuring plan
The plan must be approved by both the creditor and the court and shall provide for substantive measures for the debtor's recovery and guarantees for the repayment of the amounts due to creditors. The negotiation and voting on the restructuring plan may not last for more than 60 calendar days from filing date. At any time during this period, a request for approval of the restructuring plan may be filed if the majority required by the law is gathered. A 30-day extension of the negotiation and voting period may be granted by the syndic-judge, upon request of the debtor or the administrator of the creditors’ arrangement if the negotiations among the creditors went far along enough and there are reasonable prospects for the acceptance of the proposed restructuring plan.
3) Approval of the restructuring plan
Voting on the restructuring plan is limited to those creditors holding the affected claims. If the plan is approved by these creditors, the debtor shall file for approval thereof by the syndic-judge as well. The restructuring plan, approved by the creditors and confirmed by the syndic-judge is then sent, by the administrator of the creditors’ arrangement, to both the affected creditors and to the creditors holding unaffected claims, within 48 hours since the decision is rendered. Modifications to the restructuring plan, extension included, can be made at any time during the procedure, but the maximum overall time frame for the implementation thereof may not be exceeded. Modifications to the plan and the vote thereon will be subject to the same conditions as plan drafting and voting, considering debts unpaid on the date of the vote. Modifications are subject to approval by the syndic-judge.
4) Implementation of the restructuring plan
After the approval of the restructuring plan, it is imperative that the debtor meet its obligations and implement the planned measures to maintain its financial viability and avoid bankruptcy. A confirmed restructuring plan is binding upon all creditors, including those who voted against or did not vote on it. Within his function of monitoring the restructuring plan, the administrator of the creditors’ arrangement shall provide the creditors concerned by the plan with a quarterly analysis report on the implementation of the plan, pointing out how it fosters viability of the activity.
The creditors’ arrangement procedure is closed by decision of the syndic-judge in the following cases: (i) either the provisions of the restructuring plan have been implemented and the procedure is successfully closed upon request of any interested party or of the administrator of the creditors’ arrangement, or (ii) the plan has failed, and the debtor is reinstated to its previous state.
In the latter case, any reduced debts revive on the date of the decision to close the procedure, deduction made of the amounts paid during the creditors’ arrangement procedure.
Creditors whose collection of interests, surcharges, penalties of any kind or any ancillary costs had been stayed under the restructuring plan may calculate ancillary costs retroactively over the term of implementation of the plan.
Important! After the approval of the restructuring plan and until the closure of the creditors’ arrangement procedure:
- the debtor cannot benefit from another insolvency prevention procedure
- insolvency proceedings cannot be opened at the request of one of the creditors concerned.
In conclusion, it should be noted that the creditors’ arrangement procedure may vary depending on the circumstances of each specific situation and may involve other elements or additional steps. The hereinabove elements are the main aspects to consider in accordance with Law no. 85/2014 in its amended version.
Last but not least, these latest legislative amendments should be seen as support measures to businesses in distress as they provide for effective tools to pursuing the economic activity, allowing business restructuring and avoiding insolvency.
Notes:
1. For valid cause, upon request of the debtor, of one of the creditors or of the administrator of the creditors’ arrangement, the syndic-judge may extend the stay of the enforcement procedures or grant one /several stays. The stay may span over maximum 12 months, including extensions and renewals, since the commencement date of the creditors’ arrangement procedure.
2. By derogation to this rule, the enforcement of the salary claims is not stayed by operation of the law. It may be stayed by the syndic-judge, upon request of the debtor, conditional upon the latter’s producing proof of the capacity to pay the concerned amounts, in instalments, at least for the amount which would be recovered via enforcement.
3. The concordat creditors who voted against the extension of the preventive concordat, as well as the non-concordat creditors, may submit a request to initiate insolvency proceedings against the debtor.