The insolvency legislation in Romania has undergone considerable improvements in recent years, with the introduction of pre-insolvency legislation, which, in turn, regulates the framework and mechanisms that, when analyzed comprehensively and implemented appropriately, can form the basis for restoring the economic viability of a business in distress.
The business environment in Romania seems to have learned to function in uncertainty and moved forward even when there was no clarity, as could be observed during the past years. In 2024, there was an increase in the number of insolvency preventive procedures accessed by companies in difficulty. Therefore, the status of the insolvency and preventive proceedings in Romania in the last year has shown us that the business environment is undergoing a transformation.
However, in approximately three years since the new regulations were implemented, certain vulnerabilities have already been identified, and an assessment of these vulnerabilities and a phased legislative adjustment appear to be all the more necessary in order to strengthen creditor protection and create the conditions for a higher level of debt recovery, including budgetary debts.
The insolvency legislation is essential for the functioning of the business environment, given that the objective of streamlining insolvency and insolvency prevention procedures has been a constant focus of national authorities and, more recently, of action strategies promoted at the level of the European Union.
The Council of the European Union and the European Parliament are currently engaged in negotiations on the proposal for a joint directive of these two institutions in order to harmonize certain aspects of the insolvency legislation. This instrument extensively addresses issues, including the functionality and the efficiency of insolvency and preventive proceedings, which are also considered in the budgetary policy adopted in Romania starting with 2025.
For this purpose, a draft law has been proposed to amend and supplement Law no. 85/2014 on insolvency prevention and insolvency procedures and Government Emergency Ordinance no. 86/2006 on the organization of the activity of the insolvency practitioners in recent days. The draft law was initiated for public debate by the Ministry of Justice on their website and will be sent to the government for approval.
The objectives set out in the National Structural Budget Plan are: (1) reducing the duration of the insolvency proceedings through concrete measures with immediate effect; (2) strengthening the liability regime of administrators for bringing the company into insolvency; (3) increasing the recovery rate of receivables, including budgetary taxes and fees in insolvency procedures, by ensuring a higher level of transparency of the procedures in relation to creditors, with the aim of facilitating the exercise of procedural remedies against vote manipulation practices and tendencies to delay the procedure; and (4) preventing practices whereby the debtor diverts the insolvency proceedings from the purposes and principles established by law.
Some of the relevant proposals for amending the Insolvency Law no. 85/2014 will include: (1) the sale of assets by public auction in accordance with the Romanian Civil Procedure Code, if the sale in accordance with the sales regulations established by the creditors does not result in the sale of the assets within 12 months; (2) developing and operationalizing, as a matter of priority, an IT platform for the random appointment of the administrator/judicial liquidator by syndic judges; (3) the fact that liability action will no longer target only formal administrators but also de facto administrators (who impose the company’s financial and operational decisions); (4) the prohibition on establishing companies for a period of five years, as a result of the decision to hold them liable – prohibition which shall be mentioned in the official trade registry, the information thus being accessible to the public; (5) amending the remuneration regime for insolvency practitioners by linking success fees to the success of the reorganization plan and/or a high level of debt recovery; (6) defining the concept of closely related parties (affiliated persons) in accordance with the proposal for a Directive on insolvency and considering the definitions existing in tax legislation and in anti-money-laundering legislation; and (7) strict requirements for the sale of assets as an independent whole to people closely related to the debtor and authorization by the syndic judge.
The proposed amendments are aimed at streamlining the procedures regulated by Insolvency Law no. 85/2014, which will have a favorable impact on the collection of state receivables, with a positive effect on reducing the budget deficit.
By Mihai Popa, Deputy Managing Partner, and Roxana Diaconescu, Senior Associate, Musat & Asociatii
This article was originally published in Issue 12.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
