The Romanian Government & the Insolvency Proceedings „DELEANU VASILE – Attorneys at Law”

A Macroeconomic Overview Year 2007 2008 GDP – billion EURO 136.8 121.2 The Romanian GDP decreased in the first trimester of 2009 with 2.6% compared with the fourth trimester of 2008 & with 6.4% compared to the first trimester of 2008. In the fourth trimester of 2008, the GDP decreased with 3.4% compared to the first trimester of the same year. Out of a total active population number of 4.5 million, in September 2008, 3.9% representing 175500 people, were unemployed. Just one year later, the prognosis for the end of 2009 is an unemployment rate of 18%, namely 800000 people.   Romania found itself in a position to apply for loans from the international financial institutions rising up to an amount of Euro 19,95 billion (Euro 12,95 billion from the IMF, Euro 5 billion from the European Commission, Euro 1 billion from the World Bank, Euro 1 billion from the EBRD). Inflation 2007 2008 Jan 09 Feb 09 Mar 09 Apr 09 6.57 6.3 6.7 6.89 6.71 6.45

Recession Reflected in Insolvency The consequence of the credit crunch affecting the Romanian economy lead to an increase in the number of insolvency cases. The most affected areas of activity are trade, construction, real estate and agriculture. In 2008, 56% from a total of 14483 insolvent companies represented the trade & construction fields. The most impressive insolvency rate evolution is the one of the real estate companies: from 1% in 2008 to 6% in the first trimester of 2009. The Romanian fiscal authority, ANAF- correspondent to the IRS, became a majority creditor in numerous insolvency cases. In 2008, all the non-budgetary creditors recovered a total amount representing half of ANAF’s recovered claims. 2007 2008 1st trimester of 2009 Estimate for 2009 Number of insolvent companies 8297 14483 5000 Over 20000

Abusive Tendencies Manifested by the Fiscal Authorities Given the majority creditor position the fiscal authorities frequently find themselves in, ANAF has a natural abusive tendency to bureaucratically harass the debtor. For this purpose, ANAF promoted a Government’s Ordinance (nr. 19/2008) which modified the Fiscal Procedural Code allowing only the budgetary majority creditor to appoint the administrator by itself, hereby avoiding the Creditors’ Assembly & the judge’s supervision, at the same time and managing to infringe the checks & balances principle. The lobby the Romanian National Union of Insolvency Practitioners made lead to thwarting this measure by adopting the changes to the 85/2006 law which allowed any creditor owning over 50% from the total claimed amount to appoint the administrator.

The Cession of the Fiscal Debts The fiscal authority my cede the tax debts it has in administration. Legal framework: 19/2008 Government’s Ordinance modifying the 92/2003 Government’s Ordinance (The Fiscal Procedural Code) Terms of the agreement: The fiscal debts may be ceded by means of an auction, offers’ selection or direct atributing. The price of the tax debt sale may not be lower than its nominal value. The buyer of the tax debt takes over all the rights of the seller, including the guarantees. The fiscal debts cession contract represents an enforceable title. After the cession takes place, the fiscal debts become commercial.

The effect this measure causes to happen is a nationalization. Datio in solutum Datio in solutum, an old Roman law institution which can be found in civil law jurisdictions -without being expressly stated in the Romanian Civil Code- is applied by developing the rule stated in article 1100 (“the creditor may not be forced to receive another asset than the one owed to him, even when the value of the offered item proves to be equal or larger”). Based on the provisions of the Fiscal Procedural Code which allow datio in solutum, the budgetary creditor which encountered difficulties in the debt recovery process started to apply this method in the individual forced execution procedure. Is datio in solutum admissible in the collective insolvency proceedings ? (the insolvent debtor cedes real estate property in exchange for its due tax debts, the asset being transferred from the debtor’s private property to the state’s public estate) The effect this measure causes to happen is a nationalization.

Datio in solutum – Premiss for Estate Nationalization The premiss for the admitting datio in solutum represents the Creditors’ Assembly’s decision. According to art. 175 from the Fiscal Procedural Code, after the property is transferred to the state, ANAF needs to pass the administration rights to the public authorities upon the latter’s request by means of a Government’s Decision after no longer than 1 year’s time. Therefore, ANAF starts behaving like a real estate trader in this crisis time. CASE EXAMPLES: 1. Rulmentul Brasov- ANAF takes over the real estate & attempts to pass the administration rights to the local administrative authorities for the purpose of developing an industrial park. 2. Fartec Brasov, insolvent company, transferred real estate property to the state’s public estate. 3. FORTUS Iasi, insolvent company, currently negotiates with the county’s fiscal authority applying the datio in solutum measure. In fact, through the interventionist policy the state applies by means of this mechanism a disguised estate nationalization is taking place.

Is Romania an Interventionist Country? The interventionist policy promoted by the Romanian state, although not direct & straight forward, is in fact much stronger than in other cases, a state to which the pressures put by international financial institutions contribute, too ( e.g.: monitoring the past debts in the economy). To answer the question an insolvency law must address -which is the optimal level of the state’s involvement in the insolvency proceedings- we may very well say that the level of state intervention during the financial crisis is at its maximum.

Vasile Deleanu Managing Partner “DELEANU VASILE-Attorneys at Law” E-mail: vasile.deleanu@deleanu.ro Website: www.deleanu.ro