New criminal code set to have ‘limited’ impact on insolvency law

With the country’s new criminal code and criminal procedure code coming into force on February 1, experts say the impact on the insolvency law should be limited, despite the roll out of changes impacting debtors and the sale of assets.

[restrict]

Vasile Godinca-Herlea, managing partner at Casa de Insolventa Transilvania (CITR), an insolvency administrator, says the changes brought by the criminal code are intended to expand the criteria by which debtors can be barred from proposing a reorganization plan in insolvency procedures.

Changes in the insolvency law

“In cases where (e.n. the debtors) have been previously convicted of corruption offenses, tax evasion or money laundering, among other crimes, they will not have the right to propose a reorganization plan. In his way, it is not necessary for a debtor to be sentenced for the ban to apply,” the CITR partner told BR.

Another change in the insolvency law clearly differentiates the legal treatment of an individual and the individuals representing him or her, who are administrators or associates.

Antoniu Obancia, partner at law firm Zamfirescu Racoti & Partners, says matters of criminal liability from insolvency law no. 85/2006 are fully included in the new criminal code.

“Aside from the legal procedure, the main change is that simple bankruptcy, fraudulent bankruptcy, abuse of trust by defrauding creditors, and mismanagement (the compounded version) by the judicial administrator/liquidator, are all conditioned by the plaintiff making and sustaining the initial complaint,” Obancia told BR.

Under the new criminal procedure code, the deadline for making the initial complaint has been extended from two to three months from the date the plaintiff discovers the crime.

The Zamfirescu Racoti & Partners representative does not think the application of the new codes will impede insolvency procedures. In addition, withdrawal of the prior complaint opens the door for mediation, which can help the insolvent party avoid criminal liability.

“Creditors may see an additional chance to recover their receivables, the mediation of the civil side of the criminal trial, while debtors against whom, for instance, a criminal complaint has been made for fraudulent bankruptcy will have the guarantee that criminal proceedings will be stopped if the plaintiff is compensated,” explained Obancia.

The sale of assets belonging to a company under administration has also been changed.
“These goods had hitherto been sold condition free, and were a very strong instrument in the procedure, which ensured valuable assets reentered the normal economic circuit,” said the CITR representative.

He adds that now a buyer of goods that are under criminal seizure in a liquidation tender will receive the goods with the seizure noted in the land registry or electronic archive of real guarantees.

“The direct effect of this change is that, if the plaintiff’s civil action in the criminal trial is successful, and the special seizure in enforced, we believe that few buyers will be tempted to buy goods that will at some point be lost in the eventual seizure procedure started following the completion of the criminal trial,” explained Godinca-Herlea.

He says this may block the sale procedure or prolong it indefinitely, which may limit the creditor’s chances of recovering more from a receivable.

New insolvency code under debate in Senate

The government attempted last year to push through a new insolvency code, claiming this would have helped its efforts to combat tax evasion. Officials lamented that numerous companies had filed for insolvency to avoid paying taxes, although specialists argued that only a small share of companies had attempted this.

However, that code was thrown out by the Constitutional Court on the grounds that it would have applied to all ongoing procedures. In addition, broadcasters going insolvent would have been stripped of their licenses until a reorganization plan was passed.

“The draft bill proposed by the government contains changes from the version of the code approved though the emergency government ordinance regarding the unconstitutional aspects pointed out by the Constitutional Court,” Stan Tirnoveanu, senior partner at Zamfirescu Racoti & Partners, told BR.

He says the Senate has the final say on the new code, after the Chamber of Deputies failed to analyze it in time.

The new insolvency code was designed to deter companies from going into administration, but experts say the code also makes it harder for a company to save itself through a reorganization plan.

Under the new insolvency code, the timeframe for implementing the reorganization plan has been shortened from three years to one. The US and UK do not have such deadlines, while France’s stands at ten years.

The new code, which has been backed by a EUR 336,000 loan from the World Bank was drawn up by a consortium comprising the professional services firm PwC Romania, law firms Stanescu, Milos, Dumitru & Asociatii (SMDA) and, D&B David & Baias and the West University in Timisoara.

They were assisted by Arin Octav Stanescu, president of the UNPIR (the National Union of Insolvency Practitioners in Romania) as key experts and by Ana-Irina Sarcane, partner at the insolvency company Five SPRL, as project leader.

Ovidiu Posirca

[/restrict]

DMCA

PROTECTED