Romania’s Constitutional Court (CCR) ruled last week that the new insolvency code adopted by the government through emergency ordinance no.91/2013 was unconstitutional, sparking confusion within the business community.
The Constitutional Court was set to publish its motivation for the decision in the Official Gazette as BR went to press. Specialists want to know if the court rejected certain provisions in the emergency ordinance on insolvency or the whole bill. The ruling came after the Ombudsman filed a complaint against certain provision in the new code on October 9. They involved the insolvency of broadcasters and the retroactivity principle in the new code for all ongoing insolvency procedures.
Under the new code, broadcasters going into administration would be stripped of their audiovisual license until a reorganization plan is approved by creditors. In addition, the reorganization program would contain measures forcing broadcasters to show certain programs, pending approval from the audiovisual watchdog, the CNA.
However, insolvency specialists recently told a Business Review event that the new legislation would hamper a company’s ability to implement a reorganization plan, cutting its regulated duration from three years to one.
“It’s obvious that in order to be applied in its full understanding, the bill has to be precise, predictable and at the same time ensure the legal security of those it affects,” said the Ombudsman in a statement.
Vasile Godinca-Herlea, managing partner of Casa de Insolventa Transilvania (CITR), an insolvency manager, warned that Romania is facing a “legislation void” because the former insolvency law was repealed, while the new one has been declared unconstitutional. The new code 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 expert and by Ana-Irina Sarcane, partner at the insolvency company Five Advisory Group, as project leader.
Romania reports shortfall in tax revenues
PM Victor Ponta angrily responded to the failure of the new insolvency code, accusing the CCR of supporting tax evaders. “The current law (e.n of insolvency) encourages companies not to pay their taxes,” said the PM last week. The government claimed the new code, which was backed by a EUR 336,000 World Bank loan, would help the fight against tax evasion.
At present, the government is facing an estimated shortfall of EUR 1.8 billion in tax revenues this year. A negative budget revision was announced, with the authorities aiming to transfer funds from certain ministries. The biggest cuts will be made at the Ministries of Labor, Development and Environment. The last two are forbidden from continuing or starting new investments under the national plan for infrastructure development, according to media reports. More funds will be allotted to the Ministries of Foreign Affairs, Justice, Internal Affairs, and the Chamber of Deputies.
Romania is set to see its budget deficit rise this year from 2.3 percent to 2.5 percent, to co-finance EU grants, in a move that has been approved by the IMF. The country remains under the watch of international financial groups, having recently signed a new EUR 4 billion precautionary deal with the IMF and the European Commission, the executive arm of the EU.