Reorganization - alternative to the crisis

By entering into insolvency proceedings, the debtor is under legal protection to creditors (Law no. 85/2006, as amended). During its struggle with problems (many of them caused by the crisis and insufficient funds required), it is helped by insolvency professionals to find viable solutions according to the aim pursued.

Insolvency is the condition of the debtor's assets characterized by insufficient cash funds available to clear debts, liquid and payable:

a) The insolvency is presumed to be obvious when the debtor, after 30 days in arrears, has not paid its debt to one or more creditors;
b) Insolvency is imminent when it appears that the debtor can not pay on due time the debts incurred with the funds available at the due time.

The syndic judge shall name, at the request of the debtor, a receiver.

Advantages:

What is the protection of law or” tribunal umbrella”.

Opening procedure has the following effects:

1. From the date of opening legal proceedings, they suspend all legal actions or enforcement measures in order to achieve the claims against the debtor or his property (i.e. blocking the company accounts), except appeals brought by the debtor.
    - Protection against enforcement by banks.
    - Postponement of recovery forced, at extremely low prices, through the execution of some actives of company’s assets until market conditions are suitable (One is that a third person sells fortuitous assets and other is to sell whenever you want or you consider it appropriate at the prices you establish).
   
   
2. No interest, increase or penalty for expense, generically called accessories, will be added to claims arising before the opening of the simplified and general proceeding, in case no reorganization plan is confirmed (Art. 41 , 1, 4).
   
   
3. All actions brought by the judicial administrator or liquidator pursuant to this Act, including debt recovery, are exempt from stamp duty.
   
   Transactions made by insolvency practitioners in the Bulletin of insolvency proceedings or the Trade Registry Office are exempted (Art. 77, 1, 2).
   
   
4. From the date of opening the proceedings, the simplification methods will be used (reverse charge), which are stipulated in Law 571/2003, art. 160. 2 points. b – VAT is not collected and not paid VAT on invoices received and issued (valid until 31.12.2009).
   
   
5. Any provider of services - electricity, gas, water, telephone service or the like - is not entitled, during observation and during the reorganization, to change, refuse or temporarily discontinue such service to the debtor or the debtor's assets, if it has the status of captive consumer, according to the law.
   
   
6. During the observation, in agreement with the contractors, the judicial administrator will be able to amend the terms of credit agreements so as to ensure equivalence of future benefits (Art. 86. 3).
   
   In a contract providing for periodic payments by the debtor, maintenance of the contract does not oblige the judicial administrator / liquidator to make payments due for periods prior to the opening of proceedings. For such payments a statement of claim against the debtor may be made (art. 86. 6, 7).
   
   
7. Notwithstanding the provisions of Law no. 53/2003 - Labor Code, with amendments and additions, after the opening of proceedings, termination of individual employment contracts of staff of the debtor will be made on emergency by the judicial administrator / liquidator, without having to browse collective redundancy procedure. Judicial administrator / liquidator will provide personnel fired only 15 working days notice.
   
   
8. Debt are rescheduled within a term of 3 years counted from the date of confirmation and may be extended by 1 year (Art. 95. 4).
   
   
9. The plan of reorganization may provide partial or complete sale of company assets.
   
   The plan of reorganization may require keeping all or part of the debtor’s business.
   
   The plan of reorganization may provide for conversion of debt into securities, except the budget.
   
   Contracts in progress are considered maintained on the opening date of proceedings. Any contractual clause abolishing the current contracts for the opening ground is invalid (Art. 86. 1).
   
   Through negotiations with creditors there can be obtained reductions in receivables (debts and accessories), according to Art. 3, point. 21.
   
   Opening the insolvency does not affect the right of creditors to claim compensation for its claim with that the debtor’s, if the conditions stipulated by legal regulations on compensation are achieved on the opening of proceedings (Article 52).
   
   Unless the notification procedure has been opened in contravention of Art. 7, the holder of the opening of the previous claims, not applying for the admission of claims to the period provided in Art. 62. (1). b) will be revoked as of the respective claims of right to be included in the table of creditors and will not acquire the quality of a creditor entitled to participate in the proceedings (art. 76. 1). Claims by creditors whose claim documents for registration does not comply with laws, will become the company's revenue.
   
   It is possible, by negotiation, amendment or extinction of the collateral, with the mandatory grant, to the secured creditors’ benefit, of a guarantee or equivalent protection, as laid down in Art.39 (2) letter c) as well as due date extension, as well as interest or penalty rate changes, or any other clause of the contents of the contract or other sources of obligations.
   
   
10. Special administrator is appointed representative of the general meeting of shareholders/ associates of the debtor, legal entity, empowered to carry out on its behalf, acts of administration necessary during the procedure when the debtor is allowed to manage its activity (...).
    
    
11. The shareholders or associates may dispose of their shares / social shares in a company in reorganization. It was repealed the article stating that, after initiation of proceeding ordered according to art. 33, debtors’ managers, legal entities are prohibited, under the sanction of nullity, to alienate, without the syndic judge’s approval, to dispose of their shares or part of their social or interest held by the debtor that is subject of this procedure.
    
    
12. Under the condition of confirmation from the judge-syndic, judicial administrator has the power of closing the transaction, discharge of duties and waiver of real guarantees.

Disadvantages:

1. The reluctance of banks in terms of future funding: new loans, new credit lines, credit extension.
2. The conditions under which due debts are not paid under the plan of reorganization, bankruptcy is possible.
3. Activity supervised by a judicial administrator;
4. Possibility for business partners to misunderstand the term to restructure the company.
5. Stiffness
6. Dependence on the final decision of the Cour
7. Lengthy procedure
8. High cost
9. Subject of legislative fluctuations
10. Reputation risk for the debtor
11. Costs for provisions (in terms of creditor banks).

The reasons why companies come to a deadlock are not always generated by the economic crisis. These can be grouped into:

• Protector Management: autocracy, limited capabilities, the owner is the manager, no plan of succession,
• Business strategy: rapid growth, several acquisitions, diversification into new and unrelated sectors, dependence on a single customer or supplier;
• Liquidity: no handling space, excessive use of short-term credit,
• Financial Profile: superficiality in control, high indebtedness.

To prevent these situations requires good Management and cooperating Providers are required.

• Time and Plan B should be borne in mind.