The preventive concordat is a hybrid mechanism for preventing insolvency, essentially – a contract concluded between the financially distressed debtor, on one hand, and creditors, on the other hand, with the specificity of being approved by a syndic judge.

The procedure presents numerous advantages, and we consider it to be underutilized in practice. Under the “minimally invasive” guidance of the syndic judge, the procedure benefits both the debtor – who does not lose control of their business, obtaining the suspension of enforcement measures and the restructuring of the business with the help of an insolvency practitioner – and the creditors – who have a better chance of recovering the debts established through the concordat project than in the unfortunate scenario of bankruptcy.

When successful, the recovery plan also means avoiding the stigma that follows an administrator in the market and the steps that are so financially and humanly consuming to establish a new company: obtaining permits, authorizations, concluding employment contracts, tax procedures, etc.

Who exactly is this procedure addressed to?

The preventive concordat is addressed to any debtor in a state of difficulty. For clarity, Law 85/2014 provides that this represents the condition generated by any circumstance that causes a temporary impairment of the debtor’s activity, giving rise to a real and serious threat to the debtor’s future ability to pay its debts when due if appropriate measures are not taken.

What is important to note is that the debtor in a state of difficulty is still able to fulfill its obligations as they become due, and this aspect differentiates it from the insolvent debtor.

Debtors who have already benefited from the procedure in the previous 3 years before filing the application, those who have been convicted of intentional offenses against property, corruption, official offenses, forgery, for offenses provided by Law no. 31/1990, Law no. 129/2019, Law no. 227/2015, Law no. 241/2005, Law no. 21/1996, as well as for offenses provided in Art. 240 and 241 of Law no. 286/2009 and, logically, those who are already in a state of insolvency, are exempted from the benefits of the procedure.

Who can file the application to open the procedure?

Any debtor in difficulty, with the exceptions mentioned above, can submit to the competent court an application to open the preventive concordat procedure.

The application shall include:

a) the concordat administrator’s report, analyzing the state of difficulty;

b) indication of the contracted concordat administrator, the documents attesting to their quality as an active insolvency practitioner and valid professional insurance;

c) the debtor’s declaration stating that they are not in any of the situations provided for in lit. a) and b) of Art. 16 of Law 85/2014.

The preventive concordat procedure may also be opened at the request of one or more creditors holding a certain and liquid debt, provided that the prior agreement of the debtor in difficulty is obtained.

Brief procedural overview. Effects of the pronouncement of the decision to open the procedure

Applications made under this title are heard in the council chamber, urgently and as a priority, the parties being summoned within 48 hours of receiving the application.

Within 60 days from the opening of the procedure, the concordat administrator shall prepare or, as the case may be, assist the debtor in preparing the restructuring plan. The restructuring plan must contain at least the following information:

a) identification data of the debtor and the concordat administrator;

b) composition of the debtor’s assets and liabilities at the time of drafting the restructuring plan, their value at the date of drafting the plan;

c) analysis of the debtor’s economic situation, employee situation, as well as a description of the causes and level of the debtor’s difficulties at the time of proposing the plan;

d) list of debts, identifying creditors, grouped by categories of debts and divided into:

• debts whose realization will be affected by the restructuring plan, indicating their degree of satisfaction;
• unaffected debts, together with a description of the reasons why the debtor proposes that they not be affected by the restructuring plan;

e) disputed debts and their treatment;

f) a statement explaining why the restructuring plan has reasonable prospects of preventing the debtor’s insolvency and ensuring the viability of the business;

g) proposed restructuring measures, such as:

• operational restructuring of the debtor’s activities;

• changing the composition, terms, or structure of the debtor’s assets or liabilities;

• disposal of debtor’s assets;

• disposal of the enterprise as an independent whole;

• merger or division of the debtor, under the law;

• modification of the debtor’s share capital structure by increasing the share capital by bringing in new shareholders or associates or by converting debts into shares, with a corresponding increase in share capital;

h) methods of informing and consulting employee representatives and the ways in which the plan will affect the debtor’s workforce (individual dismissal procedures, collective dismissal procedures, possible cases of suspension of employment contracts initiated by the employer, reduction of working hours corresponding to the temporary reduction of activity);

i) budget of revenues and expenses and estimated financial flows of the debtor for the duration of the restructuring plan, with the distribution of creditors between holders of affected debts and holders of unaffected debts;

j) new financings, interim financings, as well as the reasons why they are necessary for the implementation of the plan;

k) simulation of distributions that would benefit affected creditors in the case of the next optimal alternative scenario;

l) debt repayment schedule, based on financial flows and the duration of the plan.

The restructuring plan is voted only by creditors holding affected debts, creditors whose debts are not affected having no voting rights on it.

After the creditors approve the restructuring plan, the debtor requests the syndic judge, within a maximum of 3 days from the conclusion of the approval process of the restructuring plan, to approve the restructuring plan.

The syndic judge, in non-contentious procedure, approves the restructuring plan by decision pronounced in the council chamber, within a maximum of 10 days from the date of registration of the application. The request for approval of the restructuring plan can be rejected exclusively for reasons of legality.

After approval, the debtor conducts its activity within the limits of its usual business, under the conditions of the restructuring plan, under the supervision of the concordat administrator.

The maximum term for implementing the measures established by the restructuring plan is 48 months from the date of its approval by enforceable decision, with the possibility of extension for 12 months. In the first year, the payment of at least 10% of the value of the affected debts by the concordat is mandatory.

An approved restructuring plan is opposable to all creditors, including those creditors who voted against it or did not express their vote on it. The approved restructuring plan will not produce any effect with respect to creditors unaffected by its provisions.

From the date of the opening of the concordat procedure, all enforcement measures directed against the debtor are automatically suspended or do not commence, regardless of the nature of the debt, for a period of 4 months. During the suspension period, the prescription period for the right to enforce is also suspended.

By exception, the enforcement of salary debts is not automatically suspended. This can be suspended by the syndic judge at the request of the debtor, if the debtor provides evidence of the ability to pay the amounts for which the suspension is ordered, even staggered, at least to the extent that would be covered in the enforcement procedure.

The automatic suspension of enforcement measures is maintained for a maximum period of 4 months, but no later than the date of pronouncement of a decision to approve the restructuring plan or to close the procedure due to non-fulfillment of its confirmation conditions.

During the suspension of enforcement measures, the accrual of interest, late penalties, and any other expenses related to the affected debts are automatically suspended until the plan is approved. After the approval of the restructuring plan, their regime will be as provided by the plan.

Until the approval of the restructuring plan, creditors cannot refuse the execution of ongoing essential contracts, terminate, execute prematurely, or modify these contracts to the detriment of the debtor, for debts arising prior to the intervention of the suspension of enforcement, exclusively for non-payment of debts, provided that the debtor fulfills the obligations under these contracts that become due during the suspension of enforcement.

Closure of the preventive concordat procedure

The preventive concordat procedure is closed by decision of the syndic judge in the following situations:

a) fulfillment of the provisions of the restructuring plan

b) failure to fulfill the provisions of the restructuring plan

c) failure to fulfill the obligation to modify the restructuring plan ordered by the syndic judge or the court of appeal

d) if the restructuring plan is not voted by creditors within the negotiation period, not approved by the syndic judge, or if the debtor considers that the negotiations cannot lead to the approval of a restructuring plan.

As a result of the failure of the restructuring plan:

a) any reduced debts are revived on the date of the decision to close the procedure, reduced as a result of payments made during the preventive concordat procedure;

b) creditors entitled to receive interest, increases, penalties of any kind, or expenses, generally called accessories, suspended by the restructuring plan, can calculate their accessories retroactively during the implementation of the restructuring plan.

We were pleased to learn that after the amendment of Law 85/2014, there have been several requests to open the preventive concordat procedure, which can only support the business environment.

We support the knowledge of this procedure and the appeal to the regulations that govern it as a method of preventing insolvency with much more unpleasant consequences for all parties involved.

Author: Atty. Lavinia Rusu