Over 34,000 Romanian firms were in insolvency last year; less than 4 percent made reorganization plans

Around 34,400 firms were in insolvency last year, up 10 percent since the start of the year, according to data from the National Union of Insolvency Practitioners in Romania (UNPIR). Real estate, constructions and retail were the worst hit. However, reorganization plans are gaining ground according to specialists at Zamfirescu Racoti Predoiu Insolvency.

The insolvency services market stood at EUR 25 million last year, rather similar to the previous one.

UNPIR data show that over 20,000 insolvency procedures were started last year. In the 44 percent of the cases, the procedure was demanded by creditors while for 56 percent by debtors.

“The trend is that insolvency procedures where we have a reorganization plan is to grow as it currently stands at 4 percent, while in France this figure stands at 20 percent,” said Stan Tirnoveanu, coordinating partner at Zamfirescu Racoti Predoiu (ZRP) Insolvency.

The judicial reorganization plan is a procedure applied to the debtor in order to recover its activity and start paying its debts.

This plan is based on an economical and financial analysis of the debtor, the analysis of the cause which led to insolvency and a market analysis, of the competition and the financing sources for sustaining it, according to the ZRP specialists.

Processing insolvency files by courts differentiates creditors and debtors. If a creditor ask for insolvency, the court terms range between 6 months and 12 months to start the procedure, while the procedure can be started in 5 days if demanded by the debtor.

The ZRP partner said the insolvency causes are the economic environment, and the reduction of financing possibilities, as there are no alternative financing sources to bank loans in Romania such as investment funds or stock exchange listings.

Among the root causes of insolvency Tirnoveanu mentioned legal changes that impact companies with a low profit margin and extensive exposure on a single client.

Banks starting to support reorganization plans

Elena Cosma, executive director of ZRP insolvency, says around 90 percent of reorganization plans are set up by debtors, and there are few the cases when creditors do this.

“Recent trends show that banks are starting to support a reorganization plan,” said Cosma. This happens in a context where the real estate market is frozen and the asset value dropped.

The reorganization procedure last for 3 years, rather similar to bankruptcy, but it can be extended by 1 year.

Specialists timing is crucial in the reorganization plan and it shouldn’t be started when the debtor doesn’t have activity or the debt exceed the possibility of the debtor.

According to updated provisions in the insolvency law, the debt built up during this procedure guarantees creditors priority in funds from asset sales during this procedure.

Cosma said that for banks a reorganization plan works because it can collect commissions and interest rate, and during the reorganization it can sell a functional asset, whilst in bankruptcy, assets are sold at liquidation prices. However, she warns that in small firms banks are against a faulty management and an unviable restructuring plan.

Tironoveanu said from experience he saw the sophisticated creditors (banks) that are doing their own analysis of debtors and the rest of creditors that are either aggressive or frustrated.

Ovidiu Posirca

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