Preventive agreement - a strategy for insolvency prevention

Law regarding the introduction of preventive agreement and ad-hoc arrangement aims at safeguarding the firm in difficulty, in order to continue its work, to preserve jobs and to cover claims against the debtor through friendly procedures for renegotiating the debt or the terms thereof or by concluding a preventive agreement.

Preventive agreement procedure is conducted in closed session and remains confidential throughout its duration. Confidentiality of procedure is obligatory for all persons and institutions that participate or are involved in it.

The company is an organized economic activity taking place constantly and systematically by combining financial, workforce drawn, materials, logistics and information resources, at the entrepreneur’s risk in cases and under conditions stipulated by law.

Firm in difficulty is the enterprise of which potential of management and economic viability is in a downward dynamic, but whose holder performs or is capable of performing the due obligations.

Ad-hoc mandate is a confidential procedure initiated at the request of the debtor, in which an ad-hoc representative, appointed by the court, negotiates with creditors in order to achieve an agreement between one or more of them and the debtor to overcome a state of difficulty the company of the latter is in.

Preventive agreement is a contract between the debtor, on the one hand, and creditors holding at least two thirds of the value of claims accepted and uncontested, on the other hand, by which the debtor proposes a recovery plan of its business and to cover such claims against its creditors and the debtor's creditors agree to support the debtor’s efforts to overcome the difficulties the debtor’s company is in.

Safeguarding is a procedure that can be opened at the request of the Head of the company, without the company being unable to pay, and only by the fact that the known difficulties that may not exceed one, without the justice.

Object of the ad – hoc mandate will be to achieve, within 90 days, an agreement between a debtor and one or more of its creditors in order to overcome the difficulty the debtor’s company is in, to safeguard the company, to preserve the jobs and to recover the claims from the debtor.

To achieve the mandate object, ad-hoc representative may propose deletions, rescheduling or partial reduction of debt, continuation or termination of contracts in progress, staff reductions and other necessary measures.

The strongest effect of this procedure is the opportunity given to the debtor to preserve liquidity in money, in that they would be used to continue the work, thereby generating revenues needed to cover claims accepted by arrangement.

Expected percentage of satisfaction of claims that can not be less than 50%, following the implementation of recovery measures proposed. The measures that the debtor proposes for this purpose are: delays or rescheduling the payment of claims against it, deletion in all or part of some claims or only the interest or penalties for delay,  compensation, innovation by changing the debtor; delay proposals for the obligation of paying tax, deletions, scheduling, rescheduling and partial reductions can be made only in  compliance with legal stipulations concerning state aid, this situation requiring the express consent of the National Revenue Agency, which is to be expressed in terms of 30 days, otherwise consent is presumed.

The deadline for satisfaction of claims established by agreement may not exceed 18 months from completion of preventive arrangement. Under the provisions of Art. 22 of Law no. 381/2009 on the introduction of preventive arrangement and ad hoc mandate, the debtor may ask the judge in the supply arrangement with creditors a temporary suspension of forced proceedings. Temporary suspension of forced individual prosecutions remains until the publication of preventive arrangement approved or, if necessary, until the rejection of the offer of the debtor by most creditors.

From the date of the decision of finding the arrangement as precautionary, they shall suspend the individual prosecution of signatories on the debtor's creditors and the flow of the prescription right of enforcement of their claims against the debtor. From the same date they shall suspend, as to creditors’ signatories, the flow of interest, penalties and any other expenses related to claims.

With approval, the syndic judge may suspend all enforcement procedures. At the conciliator’s request, subject to guarantees granted by the debtor's creditors, the syndic judge may impose the non-signatory creditors of preventive arrangement 18 months of deferment of the due them, during which they will not run interest, penalties and any other expenses regarding claims.

Agreement will be enforceable against budget creditors, subject to the laws on state aid and approval by the ministerial committee.

During the running of approved preventive arrangement the insolvency proceedings against the debtor cannot be opened. In proceedings, the debtor operates within its normal business, under the conditions of preventive arrangement and the supervision of conciliator.