Opening Insolvency Proceedings in Romania. Conditions, Required Documents and Legal Effects under Romanian Law No. 85/2014

Insolvency proceedings are governed by Romanian Law No. 85/2014 on Insolvency Prevention and Insolvency Proceedings and apply to companies that are no longer able to pay their due debts using the available funds. Although insolvency is frequently associated with the termination of a company's business, it is not synonymous with bankruptcy and does not automatically result in the dissolution or deregistration of the company.

Depending on the debtor's financial situation and its realistic prospects of recovery, the proceedings may lead either to judicial reorganisation or, where reorganisation is no longer possible or the statutory requirements so provide, to bankruptcy proceedings. The applicable procedure is determined by the legal and financial circumstances of the debtor and cannot be established solely on the basis of the existence of outstanding debts.

The opening of insolvency proceedings is one of the most significant legal decisions that may be taken either by a financially distressed company or by a creditor seeking to recover its claim. Before filing the insolvency petition, it is essential to verify that the statutory requirements are met, review the supporting documentation and determine the legal strategy best suited to the specific circumstances of the case.

The Concept of Insolvency under Law No. 85/2014

Insolvency is defined as the state of a debtor's assets characterised by the insufficiency of available funds to pay due, certain and liquidated debts. Pursuant to Article 5(29) of Law No. 85/2014 on Insolvency Prevention and Insolvency Proceedings, a debtor is presumed to be insolvent if it has failed to pay a due, certain and liquidated debt for more than 60 days after its due date. This presumption is rebuttable and may be overturned by evidence to the contrary.

The mere existence of outstanding debts is not, in itself, sufficient to conclude that a company is insolvent. Such an assessment must be based on the debtor's actual financial position, the available funds and the company's effective ability to meet its payment obligations as they become due.

Furthermore, insolvency should not be confused either with temporary financial difficulties or with a lack of profitability. An occasional delay in payment caused by a temporary liquidity shortage does not automatically mean that a company is insolvent. Likewise, a company may operate profitably while still lacking the available funds necessary to satisfy its due payment obligations. Similarly, the mere existence of valuable assets does not exclude a state of insolvency if those assets cannot be realised within a reasonable period of time in order to cover due debts.

Determining whether a company is insolvent requires both a legal and a financial assessment that goes beyond reviewing its accounting records. Such an assessment involves analysing the supporting documentation, cash flow, the maturity of outstanding obligations, the structure of the company's assets and its actual ability to meet its payment obligations.

In practice, one of the most common mistakes is to assess insolvency solely by reference to the value of a company's assets. In reality, the decisive criterion is the availability of funds to satisfy due payment obligations rather than the accounting value of the company's assets. Consequently, a company may own assets of significant economic value and nevertheless be insolvent if it lacks the liquidity necessary to pay its debts as they fall due.

Types of Insolvency Proceedings

Insolvency proceedings do not necessarily result in the termination of a company's business activities. Depending on the debtor's specific circumstances and the conditions set out in Law No. 85/2014, the proceedings may follow either the general procedure (judicial reorganisation) or the simplified procedure (bankruptcy).

The choice of the applicable procedure has significant implications for the conduct of the proceedings, the company's ability to continue its business activities and the manner in which its assets are administered and realised.

The general procedure applies to debtors that meet the statutory requirements and includes an observation period, followed, where appropriate, by judicial reorganisation or bankruptcy. Judicial reorganisation aims to restore the debtor's financial viability through the implementation of a reorganisation plan and the settlement of its liabilities in accordance with the law.

The simplified procedure applies in the cases expressly provided for by Law No. 85/2014 and, as a general rule, leads directly to bankruptcy without the reorganisation stage.

The applicable procedure is not determined at the discretion of either the debtor or the creditor. Rather, it results from the application of the relevant legal provisions to the debtor's specific circumstances. For this reason, before an insolvency petition is filed, it is essential to assess whether the statutory requirements are met and whether there is a realistic prospect of the company continuing its business activities.

Conditions for Opening Insolvency Proceedings

The opening of insolvency proceedings is subject to the fulfilment of the conditions established by Law No. 85/2014. The mere existence of financial difficulties or outstanding debts is not, in itself, sufficient to initiate insolvency proceedings. All statutory requirements must be satisfied before the court may order the opening of the proceedings.

The first requirement is the existence of a state of insolvency. Pursuant to Article 5(29) of Law No. 85/2014, a debtor is presumed to be insolvent if it has failed to pay a due, certain and liquidated claim for more than 60 days after its due date. This presumption is rebuttable and may be overturned by evidence to the contrary.

In addition to the existence of a state of insolvency, the law also establishes a statutory threshold for opening insolvency proceedings. Under Article 5(72) of Law No. 85/2014, the threshold is RON 50,000, regardless of whether the insolvency petition is filed by the debtor or by a creditor.

The assessment of the conditions for opening insolvency proceedings should not be limited to verifying the existence of outstanding claims or the expiry of the 60-day period following the due date. Depending on the circumstances of each case, the nature of the claims, the supporting documentation, the debtor's financial position and the realistic prospects of reorganisation may all be relevant factors influencing the legal strategy adopted before filing the insolvency petition.

Compliance with the statutory requirements constitutes the legal basis for opening insolvency proceedings. Accordingly, these conditions should be carefully verified before filing the petition, both by the debtor and by the creditor, in order to avoid initiating proceedings that do not satisfy the legal requirements.

Persons Entitled to File an Insolvency Petition

Insolvency proceedings may be opened either upon the petition of the debtor or upon the petition of a creditor, subject to the conditions laid down by Law No. 85/2014. Although both categories of parties are entitled to request the opening of insolvency proceedings, their legal position, the interests they pursue and the statutory requirements applicable to each differ significantly.

Where the petition is filed by the debtor, it is submitted by the company through its legal representatives, provided that the statutory conditions are met. In such cases, the insolvency petition must be accompanied by the documentation required under Article 67 of Law No. 85/2014, enabling the court and the insolvency practitioner to assess the company's financial position and to conduct the proceedings in accordance with the law.

Where the petition is filed by a creditor, its purpose is to enforce a claim against a debtor that is in a state of insolvency. The creditor must prove that all statutory requirements are satisfied, including the existence of a due, certain and liquidated claim, as well as compliance with the applicable statutory threshold.

The distinction between these two situations extends beyond the identity of the party filing the petition. The legal assessment, the supporting documentation and the procedural strategy vary depending on the client's procedural position and the objective pursued by initiating insolvency proceedings.

The Debtor's Obligation to File an Insolvency Petition

For a debtor, filing an insolvency petition is not always a matter of choice but may constitute a statutory obligation. Pursuant to Article 66(1) of Law No. 85/2014, a debtor that is in a state of insolvency is required to file a petition with the competent tribunal within no more than 30 days from the occurrence of the state of insolvency.

The purpose of this obligation is to protect the interests of creditors and to ensure that the proceedings commence at a stage when the debtor's assets can still be administered in accordance with the law. An unjustified delay in filing the petition may lead to a deterioration of the debtor's financial position and may adversely affect the subsequent conduct of the proceedings.

Compliance with the statutory time limit involves more than merely submitting the insolvency petition. Before applying to the court, it is necessary to verify that all legal requirements are satisfied, determine the applicable procedure and prepare the documentation required under Article 67 of Law No. 85/2014 so that the petition accurately reflects the company's legal and financial position.

Accordingly, determining the moment at which the obligation to file an insolvency petition arises requires a thorough legal and financial assessment of the company's circumstances rather than a simple reference to temporary financial difficulties or occasional delays in payment.

Documents Required for Opening Insolvency Proceedings

Where the insolvency petition is filed by the debtor, it must be accompanied by the documents required under Article 67 of Law No. 85/2014. These documents enable the competent tribunal and the insolvency practitioner to assess the company's legal and financial position and to determine how the proceedings should be conducted.

The required documentation may generally be grouped into several categories according to its purpose. The first category consists of the company's financial and accounting records, which allow an assessment of its financial position. The second category comprises documents relating to the debtor's assets, including information concerning the property and rights forming part of its estate. In addition, the petition must be accompanied by information regarding creditors and outstanding claims, together with the declarations and supporting documents expressly required by Law No. 85/2014.

Preparing the required documentation is not merely a procedural formality. The information submitted must be complete, accurate and reflect the company's actual legal and financial situation, as it forms the basis upon which the court and the insolvency practitioner adopt the first procedural measures following the opening of the proceedings.

Preparing the documentation is one of the most important stages preceding the filing of an insolvency petition. A thorough review of the company's financial records, accounting documents, asset registers and information concerning creditors contributes to avoiding inconsistencies and facilitates the efficient conduct of the proceedings in accordance with the applicable legal provisions.

Summary

The documentation accompanying an insolvency petition generally includes:

• financial and accounting records concerning the company's financial position;
• documents relating to the debtor's assets;
• information regarding creditors and outstanding claims;
• the declarations and supporting documents required under Article 67 of Law No. 85/2014;
• any other documents required in light of the specific circumstances of the case.

The exact documentation will vary depending on the legal and financial circumstances of each company.

Immediate Effects of Opening Insolvency Proceedings

The court's decision opening insolvency proceedings gives rise to a number of immediate legal effects affecting both the debtor and its creditors. From that moment onwards, the legal relationships between the parties are no longer governed exclusively by the general rules of civil and commercial law, but also by the special provisions of Law No. 85/2014.

Stay of Enforcement Proceedings

One of the principal effects of opening insolvency proceedings is the stay of judicial and extrajudicial actions, as well as enforcement proceedings initiated for the recovery of claims against the debtor or its assets, subject to the conditions laid down by law. From that moment onwards, creditors may pursue recovery of their claims only within the insolvency proceedings, in accordance with the applicable statutory rules.

The stay of enforcement reflects the collective nature of insolvency proceedings and is intended to ensure equal treatment of creditors by preventing individual enforcement actions that could place certain creditors in a more favourable position than others.

Appointment of the Insolvency Practitioner

Upon opening the proceedings, the supervising judge appoints either a judicial administrator or, where appropriate, a liquidator. The insolvency practitioner performs the duties assigned by Law No. 85/2014 and plays a central role in administering the proceedings, verifying claims and supervising the debtor's assets.

The insolvency practitioner exercises these powers under the supervision of the supervising judge and in accordance with the statutory framework governing insolvency proceedings.

Registration of Creditors' Claims

Creditors seeking to recover their claims against the debtor must comply with the statutory deadlines for filing their proofs of claim. The claims are examined by the insolvency practitioner and, where appropriate, included in the preliminary list of claims and subsequently in the final list of claims, in accordance with the applicable legal provisions.

Compliance with these procedural deadlines is of particular importance, as the exercise of creditors' rights within the insolvency proceedings is subject to the statutory procedural requirements established by law.

Administration of the Debtor's Assets

Following the opening of insolvency proceedings, the debtor's assets are administered in accordance with the special rules laid down by Law No. 85/2014. Depending on the measures ordered during the proceedings, the powers of the company's management bodies may be exercised within the limits established by law and under the supervision of, or where applicable by, the insolvency practitioner.

The manner in which the debtor's assets are administered depends on the specific circumstances of each case and on the measures ordered by the supervising judge, with the objective of preserving the assets and ensuring the efficient conduct of the proceedings.

Obligations of the Company's Management Bodies

The directors or managers of the company are required to cooperate with the insolvency practitioner and to provide all documents and information necessary for the proper conduct of the proceedings. Compliance with these obligations contributes to the efficient administration of the proceedings, facilitates the verification of claims and protects the interests of all participants involved.