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The Romanian Constitutional Court rejects the new insolvency law

On October 25th, 2013, the Government Emergency Ordinance no. 91/2013 regarding procedures for preventative insolvency procedures and insolvency came into force.  The Ordinance was published in the Official Gazette no. 620, dated October 4th, 2013.

This normative act expressly abolished Law no. 85/2006 regarding the insolvency procedure, Law no. 381/2009 regarding introduction of preventive concordat and ad-hoc mandate, Governmental Ordinance no.10/2004 regarding bankruptcy of credit institutions and Law no.637/2002 regarding regulation of private international law in insolvency matters

Exercising his constitutional prerogative, the Ombudsman submitted a constitutional challenge of article no. 81 paragraph 3 and article no. 348 of the analyzed normative act to the Romanian Constitutional Court.

Article no.81 paragraph 3 refers to debtors that perform their activities under the provisions of Audiovisual Law no. 504/2002, which find themselves in the situation of suspension of their audiovisual license as a consequence of opening the insolvency procedure, until confirmation of the recovery plan.

The second provision that the Ombudsman presented for the Constitutional Court to analyze consists in the transitory norm that determines the application in time of the Emergency Ordinance, establishing immediate application of the new provisions concerning insolvency matters, including to on-going insolvency preventive procedures and insolvency procedures.

The Constitutional Court admitted the constitutional challenge, through Decision no. 447, dated October 30th, 2013. The Decision’s commandment provides that the entire Emergency Ordinance is unconstitutional.

A separate opinion of one of the judges was formulated, stating that the Court had extended its control beyond the limits of the constitutional challenge by pronouncing the unconstitutionality of the entire normative act for an exterior motive, consisting in unfulfilling a condition provided by the Constitution for adopting an emergency ordinance.

The Court also withhold that declaring the Emergency Ordinance unconstitutional does not trigger a void in the active fund of the legislation, yet it determines reintegration of the normative acts that were initially abolished by the mentioned ordinance in this active fund, effect that shall produce only after publishing the Decision of the Constitutional Court in Romania’s Official Gazette, Part I.

Since the decisions of the Constitutional Court are part of the internal legal order, having legal force equal to law, their power is to govern only for the future.

As a consequence, including Insolvency Law no. 85/2006 enters into force once again, starting with this publication date.

This complete outcome settled by the Constitutional Court regarding the fleeting applicability of Government Emergency Ordinance no. 91/2013 is the result of interpretation by exclusion from application of the rules provided by the Constitution, stating that provisions which are declared unconstitutional shall be suspended for 45-day period, until they are accommodated with the infringed rules.

In spite of the Decision of the Constitutional Court, the Government Emergency Ordinance no.91/2013 has produced effects for a short period of time. The interest for acknowledging the provisions of this normative act lies not only in the fact that it has produced some effects, but also because it can be regarded as an official proposal de lege ferenda, formulated at an official level by the Romanian Government.

The Emergency Ordinance unifies the provisions regarding insolvency procedures, by providing a unitary framework for insolvency prevention procedures, ad-hoc mandate and preventative concordat, a special procedure in case of credit institution insolvency and company group insolvency.

Here is a part of the amendments to the rules concerning pre-insolvency and insolvency procedures, provided by the Emergency Ordinance:

  • Inclusion of autonomous administration units in the applicability domain of insolvency procedures;
  • A series of principles are instituted, useful when interpreting legal rules that are incomplete;
  • According to the new provisions, a claim for opening the insolvency procedure can be submitted by a creditor owning a debt outstanding for at least 60 days, thus instituting a shortened term, compared to the 90-day term previously provided; in exchange, the threshold value of the debt is lowered from Lei 45.000 to Lei 40.000.
  • The Emergency Ordinance includes „The Private Investor Test”, which applies in case of budgetary debt diminution, thus implementing European Union norms regarding competition law. The objective of the mentioned test is to acknowledge whether such diminution indirectly produces the effects of a state aid. For achieving correct application of these criteria, European Union Court of Justice case law can be capitalized.
  • An insolvency claim can be submitted against a person that fulfills activity specific to professionals, but without obtaining necessary authorization and without pursuing the required publicity forms;
  • The decision of the insolvency judge can be appealed in a special 7-day term;
  • As for the debtor’s request for opening the general insolvency procedure, but not the simplified form of the insolvency procedure, a decision of the general meeting of the shareholders’ approving the request is unnecessary. Therefore the signature of the persons entitled to represent the legal person, according to the articles of incorporation or to the statute of the legal person, is satisfactory for submitting a valid and opposable request;
  • The creditors submitting claims for opening the insolvency procedure, declaring their intention to participate at the legal persons’ recovery, must present in the introductory claim the manner in which they understand to participate at the said recovery, at least on a level of principle;
  • The Emergency Ordinance provides a threshold in value of Lei 40.000 for the guarantee that the creditor can be obliged to present when submitting a claim for opening the insolvency procedure;
  • Pre-insolvency procedures do not automatically suspend all claims, requests or enforceable procedures against the debtor, but the judge holds the possibility to take action in this regard. In exchange, opening the insolvency procedure determines a legal suspensive effect;
  • Debts established by enforceable titles, other than state court decisions or arbitral court decisions, are object of control for the purpose of joining the table of receivables;
  • The Emergency Ordinance broadens the possibility for sanctioning all persons responsible for the state of insolvency. Establishing liability to cover damages incurred by third parties because of the insolvency state is conditioned by the sole proof of an intentional contribution to achieving the insolvency state;
  • The person against held responsible for causing an insolvency state by means of a final court decision cannot be named as administrator of a legal person for a 10-year period, commencing from the date of the said decision. Establishing liability in such conditions therefore has an infamous character;
  • As for criminal responsibility in insolvency matters, the Ordinance reinstates the provisions of Law no. 85/2006.