Comment: The new Insolvency Code in Romania - a new record, only seven days after enforcement

The Romanian Government has recently adopted an Emergency Ordinance regarding a new Insolvency Code. The new piece of legislation was meant to unify insolvency legislation and to facilitate the enforcement procedure of creditors’ claims against insolvent Romanian companies. This Emergency Ordinance was published in the Official Gazette of Romania on 4 October 2013 and entered into force on 25 October 2013. However, the act was challenged at the Constitutional Court of Romania, which arrived at the conclusion that the means by which the new legislation was enacted – i.e. a Government Emergency Ordinance – were not in line with the Romanian Constitution, since there was no real emergency to justify the Government’s legislative zeal. The application of the new Insolvency Code was suspended immediately after the publication of the Constitutional Court’s decision, on 1 November 2013. Therefore, the new Insolvency Code was in force for only seven days. However, it should not surprise anyone if the political coalition currently running Romania will soon pass a law in the Parliament which will mirror to a significant extent the text of the (now defunct) Insolvency Code. Therefore, the amendments brought by the new piece of legislation remain relevant. The new provisions allowed the tax authorities to enforce debts accumulated after the date on which insolvency proceedings were opened, thus creating a significant dent in the protection offered by the court to insolvent companies. The duration of the restructuring plan was reduced to one year (from 3-4 years), thus making court restructurings practically impossible. In addition, the restructuring plan had to be approved by creditors holding at least 50 percent of the claims against the insolvent company (which, as odd as it may seem, is considered a novelty for the Romanian insolvency system). Finally, the provisional insolvency practitioner could have been appointed by the insolvency judge, based on the offers submitted by interested practitioners. This was meant to eliminate the practice by which a company filing for insolvency had the right to appoint the provisional insolvency practitioner of its choosing (which significantly favored the insolvent company’s management). A reform of the Romanian insolvency system has been requested by international financial institutions for some time now. Therefore, it is only a matter of time before the procedural mistake of using a Government Emergency Ordinance will be corrected and a law having similar provisions with the insolvency code will be issued by the Romanian Parliament. One will then have to wait and see whether the new legislation will indeed bring the much needed reform of the Romanian insolvency system. By Radu Diaconu, guest writer Radu Diaconu is a manager and lawyer with EY Romania.