Trends in insolvency
Our founding partners, Emeric Domokos and Daniel Barbu were speakers at ”Trends in insolvency” conference, organised by JURIDICE.ro. Emeric Domokos talked about the concept of COMI in insolvency. COMI, short for “Center of Main Interests,” is a crucial concept in international insolvency law. It determines the jurisdiction in which the main insolvency proceedings should take place for a company or an individual with assets and debts in multiple countries. The COMI concept is vital in determining which country’s laws and courts should handle the insolvency proceedings. Some key points related to COMI: Definition: The COMI is the place where a debtor conducts the administration of its interests on a regular basis, reflecting its economic activities and decisions. It is essentially the main hub of a debtor’s business operations. Determining the COMI: The determination of a debtor’s COMI is a factual assessment and varies from case to case. Factors considered in determining the COMI may include the location of the company’s headquarters, the place where management decisions are made, the place of its main assets or trading activities, and the place where it is registered. Rebuttable presumption: The European Union’s Regulation on Insolvency Proceedings (Recast) provides a rebuttable presumption for corporate debtors that their COMI is the place of their registered office, in the absence of proof to the contrary. Importance of COMI: The COMI concept is important because it helps establish a single, main jurisdiction for insolvency proceedings. This avoids fragmentation and conflicting decisions in multiple jurisdictions, provides legal certainty, and facilitates coordination and cooperation between courts and stakeholders. Jurisdiction for insolvency proceedings: Once the COMI is determined, the country where the COMI is located generally has jurisdiction to open main insolvency proceedings. This means that the main proceedings, such as liquidation or reorganization, will be conducted in that jurisdiction, and the laws of that country will govern the process. Secondary proceedings: In situations where a debtor has assets or operations in other countries, secondary insolvency proceedings may be opened in those jurisdictions. The purpose of secondary proceedings is to protect and administer the debtor’s assets located in those countries. Cross-border cooperation: International insolvency laws, such as the UNCITRAL Model Law on Cross-Border Insolvency and the EU Regulation on Insolvency Proceedings, aim to facilitate cooperation and coordination between courts in different jurisdictions. They provide mechanisms for recognizing and enforcing foreign insolvency proceedings and ensuring communication and coordination between the main and secondary proceedings. It’s important to note that the application and interpretation of COMI may vary depending on the legal framework of different jurisdictions, and there may be specific rules or case law that further shape its implementation. Daniel Barbu talked about the status of claims of secured creditors in proceedings initiated against third-party guarantors. In insolvency proceedings, the status of claims held by secured creditors becomes a critical aspect, particularly when such proceedings are initiated against third-party guarantors. This topic focuses on understanding the position and rights of secured creditors in these specific situations. When a debtor defaults on their obligations, secured creditors who hold collateral or security interests have a distinct legal position compared to unsecured creditors. These secured creditors have the right to enforce their claims against the specific assets or property provided as security. However, when a third-party guarantor is involved, complications can arise. In the scenario of insolvency proceedings initiated against a third-party guarantor, the key question is how the claims of secured creditors are affected. Typically, the guarantor has pledged assets or provided a guarantee to secure the debtor’s obligations. The insolvency proceedings against the guarantor could impact the rights and interests of the secured creditors. Understanding the implications involves analyzing several factors. Firstly, it is necessary to determine the validity and enforceability of the guarantees or security interests provided by the third-party guarantor. This examination ensures that the secured creditors can assert their rights and access the collateral despite the guarantor’s insolvency. Secondly, the priority of claims in the insolvency proceedings needs to be considered. Depending on the applicable legal framework, secured creditors may have a higher priority compared to unsecured creditors, which could be advantageous in realizing their claims. However, the claims of secured creditors may be subordinated to certain statutory or contractual priorities, and it is crucial to assess such provisions to understand their impact. Furthermore, the relationship between the debtor, the secured creditors, and the third-party guarantor must be examined. It is necessary to establish whether the guarantor’s insolvency triggers an event of default or acceleration, potentially allowing the secured creditors to enforce their claims immediately. This analysis helps determine the timing and process for realizing the collateral and satisfying the claims of secured creditors. Overall, this subject explores the complex dynamics between secured creditors, third-party guarantors, and insolvency proceedings. It delves into the legal rights, priorities, and implications for secured creditors when pursuing their claims against collateral in the context of insolvency proceedings initiated against third-party guarantors.
CEE Restructuring & Insolvency Laws and Regulations
1. Overview 1.1. What domestic pieces of legislation and international instruments apply to restructuring and insolvency matters in your jurisdiction? In Romania, restructuring and insolvency proceedings related to companies are both governed by Law no. 85/2014 on insolvency proceedings (tr. Lege nr. 85/2014 privind procedura insolventei) (Insolvency Law). In principle, the following proceedings may be applied to debtors (legal entities and, in some cases, certain categories of natural persons): general proceedings, by way of which, following an observation period, a debtor may undergo (A) judicial reorganization proceedings or (B) bankruptcy proceedings (the later directly or upon failure of judicial reorganization proceedings). Within judicial reorganization proceedings the debtor continues to conduct limited commercial activities under judicial observation, provided that such activities are directed exclusively towards payment of its debts, according to an (approved) payment schedule. Bankruptcy proceedings (also referred to as liquidation proceedings) are aiming at liquidating all of the debtor’s assets in order to settle its debts. Bankruptcy proceedings trigger the dissolution of the debtor and its deletion from the register where it is registered (i.e., trade registry, etc.). The insolvency of natural persons is governed by Law no.151/2015 on the insolvency procedure of individuals. Given that this legislation has entered into force quite recently, namely on January 1, 2018, there is no consistent judicial practice on this issue. Additionally, cross-border insolvency proceedings are governed by Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings. This has seen constant application in most of the cross-border insolvency proceedings, but also the previous EC Regulation 1346 as well. 1.2. Do you have a well-established legal regime governing restructuring and insolvency, or do you have rather frequent legislative changes in the area? Considering the evolution over time of the legislation that has been constantly updated following the 2008 economic downturn, the legal regime related to insolvency matters in Romania is well-established, being substantially amended only twice in the past 20 years (through Law no. 85/2006 on insolvency proceedings and through Law no. 85/2014 on insolvency proceedings) and having minor modifications over time given European directives or according to the evolution of the relevant case law. The latest amendment of the Insolvency law is related to the implementation of the EU Directive on preventive restructuring (2019/1023) through Law no. 216/2022, which entered into force on July 17, 2022. 1.3. Are there any special regimes applying to specific sectors? The 2nd title of the Insolvency Law, entitled ”Insolvency Proceeding” contains special legal provisions for the following practice areas: Chapter II. Special provisions concerning the insolvency of a group of companies; Chapter III. Special rules concerning the bankruptcy of credit institutions; Chapter IV. Provisions concerning insurance/re-insurance undertakings. In addition, according to Section 1.1., the Romanian legislation also provides a special regime for the insolvency of natural persons, governed by Law no. 151/2015 regarding the insolvency procedure of natural persons. 1.4. Were any changes to restructuring or insolvency laws adopted in response to the COVID-19 pandemic? If so, what were they? On March 16, 2020, a state of emergency was decreed in Romania for a period of 30 days, with measures being adopted in all areas with social and economic impact by Presidential Decree no. 195/2020. Among them, temporary measures have also been instituted in the field of justice, so implicitly in the case of settling insolvency matters, these being applied exclusively during the state of emergency. Most of the measures had as objectives the digitization of the justice system and the suspension of civil trials, except for the cases of special urgency established by the list of the Management Colleges of the High Court of Cassation and Justice and of the Courts of Appeal. In insolvency, according to the guidelines of the High Court of Cassation and Justice and of the Courts of Appeal, it was concluded that during the state of emergency in Romania, the trial continues only regarding the claims for the provisional suspension of the procedures for the enforcement of the debtor’s assets until the decision on the opening of the insolvency procedure, the rest of the cases being suspended until the end of the state of emergency. Moreover, as per Decree No. 195/2020, the insolvency procedure is not suspended, but only the trials regarding the main insolvency file and the associated/related files. Basically, as in most European countries, the legislation sought to aid the continuation of the new and/or pending procedures, including therein the insolvency procedures, by allowing more digitalization of the overall process and thus limiting social contact when it was not absolutely necessary. 1.5. Are there any proposed or upcoming changes to the restructuring insolvency regime in your country? Given that the latest amendment to the Insolvency Law entered into force on July 17, 2022, (see Section 1.2.), having an important input on the restructuring proceedings governed by the Romanian legislation, we don’t foresee any other substantial changes soon. 1.6. Has your country adopted or is your country considering the adoption of the UNCITRAL Model Law on Enterprise Group Insolvency? The UNCITRAL Model Law on Enterprise Group Insolvency, issued by the UNCITRAL secretariat on May 30, 1997, has been implemented into the national legislation in 2002, as per the legal provisions established in the 3rd Title of the Insolvency Law. 2. Insolvency 2.1. Is there an insolvency test that triggers certain obligations for directors or officers of the debtor company? If so, what is the test and what are the consequences for failure to meet these obligations? According to the Insolvency Law and other normative acts with impact in the field of insolvency, the debtor’s directors are subject to the following obligations and sanctions A. Failure to file for insolvency or filing too late The directors of an insolvent company are under the obligation to file for insolvency within 30 days of the occurrence of insolvency. In case of failure to file for insolvency, or late filings (i.e., later than six months after the expiry of the above-mentioned