Law, Justice and Development Week, World Bank Group, October Paper for panel discussion:

Transcription

1 Law, Justice and Development Week, World Bank Group, October 2014 Paper for panel discussion: Developments in Cross-Border Insolvency: Europe and Beyond Romania s Experience Ioan CHIPER, Esq., Attorney at law 1 1 OVERVIEW International insolvencies associated with Romania remain an area insufficiently developed and reported in Romania, despite the existence of modern legislation that governs the relevant aspects and the massive globalisation of business, with significant impact in Romania especially during the first decade of the 2000 s and thereafter. Over the last 12 years, not less than four (4) sets of rules have governed various potential insolvency scenarios involving both Romania and other foreign jurisdictions, i.e.: (i) The EU Insolvency Regulation (in effect since January 1, 2007); (ii) The 2002 International Insolvency Act (in effect between July 1, 2003 and June 27, 2014); (iii) The 2004 Insurance Insolvency Act (in effect between January 13, 2005 and June 27, 2014); and (iv) The 2004 Credit Institutions Insolvency Act (in effect between July 1, 2003 and June 27, 2014) On June 27, 2014, the last three set of rules were codified as separate chapters of the new 2014 Romanian Insolvency Act. 2 2 HISTORY AND STATUS OF INTERNATIONAL INSOLVENCIES IN ROMANIA Despite specific legislation in place, knowledge and familiarity of judiciary, insolvency trustees and lawyers generally with international insolvency principles and rules still barely nascent Absence of a Government or judiciary long-term calendar for improving the expertise of the main stakeholders in this area; also, lack of a program focused on developing both domestic and international cooperation guidelines for judiciary and insolvency trustees; Absence of training programs with curriculum focused on basic and advanced information about international insolvency Vast majority of judiciary, trustee, or bar professional education programs related to insolvency mainly focused on procedural aspects, with almost inexistent curriculum to address substantive issues, and no cross-border insolvency coverage 1 The views expressed in this paper are those of the author and may not necessarily reflect the views of the World Bank Group. 2 Act No.85/2014 on Insolvency Prevention and Insolvency Proceedings, Title II Insolvency Proceedings, Chapter 3 Special rules concerning credit institution insolvencies, and Chapter 4 Special rules concerning insurance and reinsurance undertaking insolvencies; and Title III Cross-border insolvencies. A brief description of the scope of each of such sets of rules is enclosed in Schedule 1 to this paper.

2 Complete absence of official statistics about international insolvency cases before Romanian courts makes difficult any assessment of judiciary experience and progress in this area; An almost inexistent database of reported international insolvency case law in Romania (empirical research only shows abstracts for two (2) cases posted on the European Insolvency Regulation Case Register maintained by Insol Europe) Lack of significant court practice in term of dealing with cross-border individual enforcement cases and other debtor-creditor remedies Familiarity of Romanian courts with domestic and international principles and business practices (i.e., in finance and banking) relatively low 3 INFLUENCE OF EU INSOLVENCY REGULATION OR UNCITRAL MODEL LAW ON PRACTICE Effectively little known with respect to court cases (if any) Most international insolvency issued are addressed in a transaction structuring context (mainly finance and financial restructuring scenarios), particularly as regards security interests or corporate cross or upstream guarantees created by Romanian affiliates of international enterprise groups for the benefit of their related group members. No official records of Romanian courts raising or resolving on issues concerning their jurisdiction to sit on insolvency cases with international implications (e.g., no known case law discussing the concept of COMI and whether a company incorporated in Romania possesses its COMI in Romania or elsewhere) Private discussions with court and IP practitioners reveals that courts most likely would disregard the COMI provisions in the EU Insolvency Regulation as long as a Romanian insolvent company s official headoffice is registered in Romania; Clients extremely conservative about considering a consolidated court group restructuring to include Romanian subsidiaries, even where such subsidiaries COMI clearly lies outside Romania 4 FORUM SHOPPING Domestic insolvency cases plagued by allegations of corruption and asset plundering, with secured creditors the most affected stakeholders => secured creditors very dissatisfied with Romanian insolvency practice 5 PROSPECTS FOR AN INTERNATIONAL CONVENTION International Conventions not a strong point on Romania s past court experience Adoption/ratification less a problem than subsequent implementation SCHEDULE 1 LEGAL FRAMEWORK

3 Until June 27, 2014, four sets of rules used to govern various aspects of international insolvency cases involving Romania and other jurisdictions. Since June 27, 2014, Romania has a new insolvency law (Act No.85/2014 on Insolvency Prevention and Insolvency Proceedings), which codified under separate chapters the international insolvency-related rules from the sets of rules referred to B. D. below. Since the substance of such rules has remained largely unchanged after their incorporation into the new law, the brief introduction under B. D. below refers to the sets of rules and their designation as known prior to their codification. A. EC INSOLVENCY REGULATION Since 1 January 2007, the date of Romania s accession to the EU, the 2000 EC Regulation on Insolvency Cases (the EU Insolvency Regulation ) is directly applicable in Romania. The Romanian insolvency courts only have jurisdiction to open main proceedings (which are automatically recognised across the EU (less Denmark)) if a company has its COMI in Romania. If a company has an establishment (a permanent place of business) in Romania, the Romanian courts have jurisdiction to open territorial proceedings, which will only be in respect of the company s assets located in Romania. The EC Insolvency Regulation does not apply to credit institutions, insurers, reinsurers, or those entities which are subject to special insolvency regimes. The rules referred to B. D. below were codified on June 2 B. INTERNATIONAL INSOLVENCY ACT Act No.637/2002 (the International Insolvency Act ), in effect between July 1, 2003 and June 27, 2014), was adopted with a view to transport the rules developed under the 1997 UNCITRAL Model Law on Cross-Border Insolvency into the Romanian legal framework. It purports to govern any aspects concerning international insolvencies that do not fall within the scope of EC Insolvency Regulation. International Insolvency Act contains rules that are aimed at determining the law applicable to the international private law relations on insolvency and establishes conditions for the competent authorities in Romania to request/give assistance in respect of insolvency case opened on the Romanian territory / foreign territory. Usually, the law applicable to international private law relations for insolvency is the law applicable to the place where the debtor has its central headquarters, namely the law applicable in the area of the main headquarters of a legal entity or the law of the professional domicile of an individual performing an economic activity or an independent profession. There are several situations to which the International Insolvency Act specifically refers, as follows: (a) cases when legal assistance is required in Romania by a foreign court or by a foreign representative, in respect of a foreign insolvency case Such cases may occur when the insolvency case started abroad and its recognition in Romania is required (for example, because the debtor has assets located in Romania). In such cases, the foreign representative has the right to petition directly the Romanian courts and bring before them a recognition petition for the foreign procedure, by also submitting several documents in order to prove the commencement of the procedure abroad. If the Romanian courts recognize the foreign procedure, no other further petitions and appeals, judicial or extrajudicial, may be brought before the court, and if they have already been started, such proceedings shall be suspended. Furthermore, the right to

4 charge or dispose in any way of the debtor s assets will be suspended. Any subsequent agreement failing to comply with these rules will be null and void. (b) cases where legal assistance is required in a foreign state, in respect of an insolvency case started in Romania This situation occurs when the insolvency case starts in Romania and its recognition abroad is required (for example, because the debtor has assets located abroad). The Romanian representative (the individual or legal person appointed as insolvency trustee within a Romanian insolvency procedure) is authorized to act in a foreign jurisdiction, as delegate of the insolvency case opened in Romania, and must comply with the provisions of the foreign applicable law. (c) cases where a Romanian insolvency case and a foreign insolvency case against the same debtor are carried out simultaneously In this particular case, recognition of the foreign procedure cannot prevent the filing of a local action under Romanian Insolvency Act, or the registration of a proof of claim thereunder. After recognition of a foreign procedure, the procedure governed by Romanian Insolvency Act may be opened against the same debtor only if the debtor is headquartered in Romania. The effects of the procedure provided by Romanian Insolvency Act are limited only to the debtor s assets located in Romania. The recognition of a foreign procedure represents, unless proven otherwise, an assumption of the debtor s state of insolvency, which may, in turn, prompt the commencement of insolvency case under the Romanian Insolvency Act. C. INSURANCE INSOLVENCY ACT Act. No. 503/2004 on Financial Recovery and Insolvency of Insurance Undertakings (the Insurance Insolvency Act ), in effect between January 13, 2005 and June 27, 2014, implements the provisions of Directive 2001/17/EC of the European Parliament and of the Council of 19 March 2001 on the reorganisation and winding-up of insurance undertakings. Insurance Insolvency Act is not applicable to reinsurance companies. Insurance Insolvency Act governs the cross-border insolvency of insurers with their head offices within the EEA (i.e., the EU, Iceland, Liechtenstein and Norway). Under Insurance Insolvency Act, Romanian courts only have jurisdiction to commence insolvency case against insurers with their head office in Romania, with such proceedings being automatically recognised across the EEA. Territorial proceedings are only available in Romania where the insurer s head office is located outside the EEA. D. CREDIT INSTITUTIONS INSOLVENCY ACT Government Ordinance No. 10/2004 on Insolvency Cases Concerning Credit Institutions (the Credit Institutions Insolvency Act ), in effect between July 1, 2003 and June 27, 2014, implements inter alia Directive 2001/24/EC of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding up of credit institutions. The law governs the cross-border insolvency of credit institutions with their head offices within the EEA (the EU and Iceland, Liechtenstein and Norway). The Romanian courts only have jurisdiction to commence insolvency case against credit institutions that have their head office in Romania, with such proceedings being automatically recognised across the EEA. Territorial proceedings are only available in Romania where the credit institution s head office is located outside the EEA.

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