• Stakeholders may send comments on the content of the draft law by April 9, 2021

CITR, expert consultant in the consortium selected by the European Commission for implementing EU Directive 2019/1023 on preventive restructuring frameworks, , announces the launch of public consultation by the Ministry of Justice of a new draft law on the improvement of recovery solutions for companies. The measure is part of the technical assistance project "Early warning instruments and restructuring frameworks in Romania", financed through the Reform Support Program.

According to the explanatory statement of the Directive, in absence of adequate preventive measures for the business environment, over 200,000 companies go bankrupt every year at European level, which leads to the loss of 1.7 million jobs. As regards the situation in Romania, half of the approximately 30,000 companies with impact in the economy were already in difficulty before the pandemic, and a quarter thereof have reached the threshold of insolvency, without trying to access a restructuring procedure. In absence of a business prevention culture, last year 5,694 companies have gone into insolvency at a national level, of which 80 impact companies in 2020.

Through the new regulations, the EU aims to stimulate the resumption of economic activity of companies that face financial difficulties, facilitate access for restructuring measures at the first signs of difficulty and avoid the exit from the economic circuit of viable companies. Especially in the current context, when many companies experience punctual or sector-specific difficulties amid the pandemic, transposing the Directive into the national law is an opportunity aimed to support the Romanian business environment.

"Transposition of the Directive into the national laws of EU Member States has the role of creating a culture of rescue and prevention at European level, which brings, in addition to benefits for the business environment, positive social effects, such as saving jobs. Only through common measures of uniformization of business restructuring practices at European level will we manage to provide a new positive meaning to the word -restructuring- truly giving companies that face difficulties a new chance", said Vasile Godîncă-Herlea, Managing Partner CITR and President of UNPIR Cluj Subsidiary, one of the key players in reforming the legislative framework in the field of insolvency and restructuring in Romania. Vasile has contributed to the evolution of relevant legislation during the over 18 years of experience, both from the position of insolvency practitioner and lawyer, as well as from the role of crisis manager and reorganization expert.

Once the legislation is approved, Romanian entrepreneurs will enjoy clearer, more flexible procedures, freedom of negotiation with creditors, the suspension of enforcement, and the creditors of companies will benefit from a higher rate of recovery of receivables by resorting to restructuring mechanisms since the first signs of difficulty. Moreover, the new legislation will encourage financing in the procedure and include provisions that try to remove bottlenecks that delay the approval of a reorganization plan.

The main directions and chapters on which the new legislation is focused:

1. Changing the pre-insolvency procedures so that they are first accessed, as the current legislative framework has not encouraged this aspect, so that they are efficient, easier to implement and useful:

1. Introducing a new restructuring procedure, inspired from foreign laws - the restructuring agreement, which focuses on out-of-court negotiation for a faster restructuring and giving up the ad-hoc mandate, an inefficient tool, which hasn't been put into practice;
2. Substantial change of arrangements with creditors - in the sense of introducing clearer regulations, with the possibility of suspending enforcement for a certain period and encouraging that this procedure be accessed in an earlier stage of the difficulty;
3. Encouraging and protecting financing granted in pre-insolvency procedures, both from potential actions for annulment in a potential subsequent insolvency procedure, as well as by granting super-priorities for restitution

2. Changing the provisions on the procedure of judicial reorganization, so that it is faster and more efficient:

1. Provisions aiming at limiting the period of observation;
2. Provisions aiming at faster confirmation of the reorganization plan;
3. Extending the reorganization period from 3 to 4 years.

3. Digitalization of actions within the procedures, with effect on the entire legislation, which will allow holding creditors' meetings, committees and public auctions online. This approach brings the procedures closer to the current context in which online communication and digitization are the new reality.

What does the process of transposition of the EU Directive 2019/1023 into national law involve

Transporting the European Directive, starting in mid-2020, involves activities of research and comparative study of European laws in the field of restructuring, consultations with stakeholders at national level, drawing up the draft law for transposition, which would subsequently be approved by Government and adopted by the Parliament of Romania. Moreover, the draft also provides for a public information campaign on the new legislative measures, which will support the receipt of these recovery instruments by the business environment.

In the process of transposition, CITR, as consultant in the consortium selected by the European Commission within the Project, has carried out discussions with national authorities, including the fiscal ones, with UNPIR (National Union of Insolvency Practitioners), INPPI (professional training body for insolvency practitioners), professionals of insolvency law (insolvency practitioners, syndic judges, lawyers), the banking environment and the business environment, so that the provisions already existing in the legislation be improved, and the newly created mechanisms be adapted to the market needs and in line with the binding provisions of the Directive.

As consultant, CITR will channel its expertise and mobilize its know-how as part of the Impetum Group business hub, in order to contribute to reforming the pre-insolvency procedures and to creating a community of professionals among professional associations, chambers of commerce and business associations, operating as a support system for companies in difficulty.

The draft law amending Law No. 85/2014 on insolvency prevention procedures and insolvency procedures is in public debate on the website of the Ministry of Justice here, and stakeholders may sent their comments on the content of the draft law by April 9, 2021 at the e-mail addresses: dean@just.ro, crosianu@just.ro, hdumitrescu@just.ro.

Answers to some of the questions generated by the process of transposition of the Directive can be found here: https://www.citr.ro/ce-este-directiva-europeana.

After the completion of this stage, the draft law, in the amended form as a result of the public debate, will be submitted to the relevant ministries, in the procedure of consultation and inter-ministerial endorsement. Then the draft law, in the endorsed form and approved by the Government, will be sent to the Parliament.