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THE INSOLVENCY LAW

On the 21st of April 2006, Law no. 85/2006 on the insolvency procedure was published in the
Official Gazette of Romania, Part I, no. 359.

The law comes into force within 90 days after its publication, when Law no. 64/1995
regarding the procedure of juridical restructuring and bankruptcy shall be abrogated. Within 6
months after the coming into force of this law, the Ministry of Justice shall approve under an
order a Manual of good practices in applying the insolvency procedure.

1. General provisions

The general procedure provided for by Law no. 85/2006 shall apply for the following
categories of debtors which are in a state of insolvency or imminent insolvency:
- commercial companies;
- cooperative companies ;
- cooperative organisations;
- agricultural companies;
- economic interest groups;
- any other legal entity under the scope of the private law carrying out economic
business.

The aim of this law is to establish a procedure to cover the liabilities due by the debtors in an
insolvency state.

According to the law, insolvency shall be understood as the state of the debtor characterised
by the lack of ready cash for paying due debts.

Insolvency shall be presumed as obvious when the debtor has failed to pay his debt to one or
more creditors within 30 days after the deadline for the payment. Insolvency shall be
presumed imminent when the debtor is proved unable to pay the due debts using the cash
available to him upon due date.

The law mentions that all the costs related to the insolvency procedure, including those
incurred by the notification, call and communication of the procedure actions carried out by
the judicial administrator and/or the liquidator shall be borne from the debtor’s personal
wealth.

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Payments shall be made into an account opened with a bank office under an order issued by
the debtor or the judicial administrator, as the case might be, or by the liquidator, in case of
bankruptcy.

2. Parties to the insolvency procedure

The bodies concerned with applying the insolvency procedures are: the courts, the syndic
judge, the judicial administrator and the liquidator. These bodies shall display alacrity in
performing the deeds and operations provided for by the law.

a. the courts:

According to the law, all procedures, less the appeal, are incumbent on the court under which
territorial jurisdiction the main office of the debtor is located, as registered in the Commercial
Companies Register, the Agricultural Companies Register or the Register of Associations
and Foundations, as the case might be, and are carried out by a syndic judge.

Any appeal against the decision pronounced by the syndic judge is incumbent on the Court
of Appeals and it shall be drawn up within 10 days after judge’s decision is announced.

Summoning the parties as well as the communication of any procedure deeds, calls and
notifications shall be performed via the Bulletin of Insolvency Procedures. Communicating
the summons, calls and notifications to the parties to the trial which main office, domicile or
residence is located abroad shall be subject to the provisions in the Civil Procedures Code,
as subsequently modified and completed. An important part is thus given to the Bulletin of
Insolvency Procedures.

If the debtor is a company floated on a regulated market, the syndic judge shall inform the
National Securities Commission (CNVM) about the decision to open the procedure.

Specification:
In order to make sure the insolvency procedure is a transparent process, the Bulletin of
Insolvency Procedures shall be made available in an electronic format as well.

b. the syndic judge:

The distribution of files which object is the procedure provided for under the Insolvency Law,
the judges appointed syndic judges under the scope of Law no. 304/2004 regarding the
organisation of the judiciary, as republished, shall be haphazardly performed using a
computer system.

The law regulates the powers of the syndic judge. By means of example, here are some of
them:

- justifiably pronouncing the decision to open the procedure or the coming under a
bankruptcy state, as the case might be, using both the general procedure and the
simplified procedure;
- judging the debtor’s appeal against the introductory request of the creditors
regarding the commencement of the procedure; judging the opposability of the
creditors to the opening of the procedure;
- justifiably appointing, under the sentence regarding the opening of the procedure, of
an interim judicial administrator or a liquidator to manage the procedure until the

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Creditors’ Meeting decides either to keep him in place or to replace him; the
appointment shall be made from among the insolvency practitioners having filed an
offer of services for the file in question. The syndic judge shall also decide on
remuneration against the criteria provided for by the law regarding the organisation
of the insolvency practitioner trade. When appointing a provisional judicial
administrator, the syndic judge shall consider all the bids for services submitted by
the practitioners, as well as the applications submitted by the creditors to this or by
the debtor, when the introductory request has been filed by the debtor himself;
- confirming by conclusion the judicial administrator or the liquidator designated by
the Creditors’ Meeting and the services fees negotiated over with the Creditors’
Meeting;
- judging the actions filed by the judicial administrator or the liquidator for the
cancellation of fraudulent actions, establishments or transfers related to the debtor’s
assets made prior to the opening of the procedure;
- judging the contestations of the measures taken by the judicial administrator or the
liquidator filed by the debtor, the Creditors’ Committee or by any party that might be
concerned;
- approving and confirming the restructuring or the liquidation plan, as the case might
be, after its approval by vote by the creditors;
- pronouncing the decision to close the procedure.

Note that the powers of the syndic judge are limited to judiciary control of the activities of the
judicial administrator and/or the liquidator. The syndic judge is thus relieved of the duties
exceeding the scope of the litigation or the checking of the legal character of the procedure.

c. The Creditors’ Meeting and Creditors’ Committee:

The Creditors’ Meeting shall be convened and chaired by the judicial administrator or the
liquidator, as the case might be, unless otherwise specified by the law or ordered by the
syndic judge. The secretarial job during the sessions of the Creditors’ Meeting shall be
incumbent on the judicial administrator or the liquidator, as the case might be.

For the purpose of this law, when the Creditors’ Meeting is convened, the agenda of the
session has to be made known. Creditors may be deputised for under a special,
authenticated proxy or, in the case of state-paid creditors and other legal entities, under a
stand-in document signed by the manager of such creditors. Likewise, creditors are allowed
to vote by mail.

The sessions of the Creditors’ Meeting shall be held in the presence of the holders to whom
at least 30 % of the total value of the liabilities due by the debtor against his personal wealth
as well as a number of the members on the Creditors’ Committee together making up a
simple majority thereof. The Meeting shall adopt decision by the vote of the holders of a
majority of the value of the debt under question.

The syndic judge may appoint a committee of 3 - 7 creditors from those to whom secured,
state-backed or registered liabilities are owed by order of the highest value, and the
appointment shall be made by conclusion after a preliminary table of the liabilities due has
been drawn up.

If the procedure so requires, the syndic judge may designate a chair for the Creditors’
Committee upon the recommendation of the creditors. The summons to the Creditors’
Committee shall be addressed to the chair or any other member of the Committee when the
chair is not available.

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This way the part of the Creditors’ Meeting and the Creditors’ Committee is being multiplied
and a necessary balance is achieved between the interests of the debtor, who is thus
provided central decision-making bodies, and the interests of the creditors.

d. the judicial administrator and the liquidator:

In conformity with the legal provisions, the insolvency practitioners concerned shall submit for
the file bids to take over the judicial administrator position, to which they shall attach
evidence of their practice qualifications and a copy of their professional insurance policies. In
their bids, the insolvency practitioners concerned shall be able to mention their time and
human resources availability as well as their general or specific experience requested for
taking over the file and properly manage the case. When no such bid has been lodged, the
syndic judge shall provisionally appoint an insolvency practitioner haphazardly picked from
the Table of the National Union of Insolvency Practitioners.

At the first session of the Creditors’ Meeting, the creditors holding at least 50 % of the total
value of the liabilities due may decide to appoint a judicial administrator/liquidator.

At each stage of the procedure, the judicial administrator shell submit to the syndic judge a
report regarding the performance of his duties as well as a reasoned presentation of the
spending related to the management of the procedure or any other spending involving funds
from the debtor’s wealth. The basic unit of the reporting shall be one month, but a report may
include more months.

The right of the syndic judge is granted to penalise the judicial administrator by a judicial fine
starting at 1,000 RON when the latter fails to perform his duties through his own fault or
because of ill faith, or is performing his duties provided for by the law or established by the
syndic judge in a delayed manner.

The duties of the judicial administrator shall end when the duties of the liquidator have been
established by the syndic judge. A formerly appointed judicial administrator may also be
appointed liquidator.

3. The procedure

a. the request of the debtor and the requests of the creditors:

According to the law, the debtor in an insolvency state shall submit a request to the court to
be included under the scope of the law and he shall do so within 30 days after the
emergence of the insolvency state. The debtor may also submit the request to be included
under the scope of the law when the insolvency state is imminent.

Any creditor entitled to request the opening of the insolvency procedure against a debtor
presumably in an insolvency state may submit an introductory request in which he will
mention:
- the amount and the grounds of the debt;
- the existence of a collateral put up or requested by the law;
- the existence of a lien on the debtor’s assets;
- a statement about the intention, if any, to attend the debtor’s restructuring, in which
case mention shall be made, at least in principle, about the way in which he intends
to attend the restructuring.

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b. the opening of the procedure and first measures:

The law establishes a deadline of 48 hours counted from the registering of the creditor’s
request entitled to request the opening of the insolvency procedure, within which the syndic
judge will provide the debtor with a copy of the request. Within 10 days after the copy has
been received, the debtor will have either to refute or to acknowledge the existence of the
insolvency state. Upon the request of the debtor, the syndic judge may compel the creditors
having lodged the request to put up a bail with a bank to the amount of at most 10 % of the
debts’ value, within 15 days.

Specification:
Following the opening of the procedure and until the date when the restructuring plan is
confirmed, the shares in the issuing companies under the scope of Law no. 297/2004 on the
capital market shall be banned from trade beginning with the date when the National
Securities Commission receives the communication about the procedure.

The debtor shall be placed under the obligation to make available to the judicial administrator
r the liquidator, as the case might be, all the information requested by the latter as well as all
information deemed necessary. The opening of the procedure shall waive the administration
rights of the debtor that is to run his business, administer his personal assets or freely enjoy
the assets.

Thus, in the sentence or the conclusion to the effect that the administration rights have been
waived, the syndic judge shall order all banks in which the debtor is holding cash to not use
the cash without prior order of the judicial administrator/liquidator; violation of these
provisions shall be punishable by judicial fine.

It should be underscored that the opening of the insolvency procedure does not affect the
right of the creditor to ask for the liabilities due to him by the debtor to be set off against the
liabilities owed to the debtor, when the conditions for legal compensations have been met at
the date the procedure is opened and the assets given away by the judicial administrator or
the liquidator will be gained free of any encumbrances.

According to the law, the judicial administrator shall draw up and submit to the syndic judge
within a deadline agreed upon, which may not exceed 30 days after his appointment, a report
suggesting either the commencement of the simplified procedure, or the continuation of the
surveillance time provided for in the general procedure.

The judicial administrator or the liquidator, as the case might be, shall draw up and submit to
the syndic judge within a deadline agreed upon, which may not exceed 60 days after his
appointment, a report about the reasons and circumstances having led to the emergence of
the debtor’s insolvency that will also include a mention of the entities to which the insolvency
state is attributable.

The judicial administrator shall notify all the creditors mentioned in the list lodged by the
debtor, as well as the debtor, the Commercial Companies Registry, the Agricultural
Companies Registry or any other registry, as the case might be, where the debtor is
registered.

The notification shall include, inter alia:

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- a deadline for the registration of the request for the acceptance of the debt against
the debtor’s wealth that will be at most 60 days after the opening of the procedure,
as well as the conditions to be met for the registered debt to be deemed valid;
- a deadline for the checking of the liabilities, the drawing up, posting and
communication of the preliminary table of debts that shall not exceed 30 days, in the
case of the general procedure, or 15 days, in the case of the simplified procedure,
after the expiration of the deadline mentioned above;
- the place, date and hour of the first session of the General Creditors’ Meeting,
which shall take place 5 days, at the latest, after the expiration of the deadline
mentioned above.

The law also comprises provisions for the checking and acceptance of debts. To this end, all
debts shall be subject to checking, with the exception of debts acknowledged by executory
deeds. Exemption from the checking shall be extended to state-backed debts acknowledged
by an executory deed that has not been challenged within the deadlines established under
special laws.
Note that a liability due by more debtors jointly acting shall be recorded in all the tables with
the debtor’s liabilities due at its nominal value, until fully covered. There shall be no reduction
of the debts in any of the tables of debts before the creditor has been fully satisfied with cash
or goods.

If the total amounts disbursed to the creditor in all his actions against the debtors exceed the
amount owed to him, the creditor will have to pay back the exceeding amounts, which will be
recorded as funds with the debtors’ wealth, proportional to the amounts each have paid in
excess of what they owed.

Following the checking, the judicial administrator/liquidator shall draw up and register with the
court a preliminary table comprising all the debts claimed against the debtor’s wealth. For
secured debts, the document from which the guarantee arises shall also be recorded, as well
as its rank and the reasons why the debts have been partially included in the table or have
been deleted.

The debtor, creditors and any other persons concerned shall be allowed to challenge the
debts and the preferred rights included by the judicial administrator/liquidator in the
preliminary table of debts.

c. fraudulent juridical deeds:

Specification:
The law extends an exemption from the stamp fee to the judicial administrator of liquidator for
all their actions, including for the recouping of debts.

The judicial administrator or the liquidator, as the case might be, may take action with the
syndic judge to have the fraudulent deeds done by the debtor to the detriment of the creditors
tree years prior to the opening of the procedure nullified.

Likewise, the judicial administrator or the liquidator, as the case might be, may take action
with the syndic judge to nullify the establishment or transfer of property-related rights to third
parties as well as to have them return the assets so received and the value of other services
provided to them.

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An important element relates to the receiving third party, who will have to return to the
debtor’s wealth the asset transferred to him or, when the asset no longer exists, to pay the
value of the assets as recorded at the date of the transfer performed by the debtor.

d. the plan:

According to the law, the following categories of people shall be allowed to suggest
restructuring plans:
- the debtor, with the approval of the General Shareholders’/Associates’ Meeting,
within 30 days after the final table of debts has been posted, provided an intention
for restructuring has been stated and the procedure has been started by the debtor;
- the judicial administrator, beginning with the date of his appointment and until 30
days have been lapsed after the posting of the final table of debts, provided that he
has stated an intention to this end before the report requested by law has been
voted on;
- one or more creditors who have stated an intention to this end before the report
requested by law has been voted on, provided the creditors in question are jointly
entitled to at least 20 % of the total debts included in the final table of debts, and do
so within 30 days after the posting of the final table of debts.

Note that the restructuring plan shall mention the prospects for a recovery commensurate
with the possibilities and the specifics of the debtor’s business, the available financial means
and the market demand for the debtor’s offering.

The plan shall necessarily include a schedule for the payment of the debts and it shall also
mention adequate measures for its implementation. The debtor is hereby compelled to
consult with the creditors when his participation in the making of the plan is foreseen.

After the plan has been accepted, the syndic judge shall request the judicial administrator to
convene the General Creditors’ Meeting and the debtor within 20 to 25 days, but not before
the final table of debts has been posted. Within 5 days after the acceptance, the judicial
administrator shall order the publication of the plan in the Bulletin of Insolvency Procedures.

The debtor’s business shall be deemed reorganised when the coming into force of a
restructuring plan has been confirmed in a court sentence, and when there is no such plan
confirmed, the syndic judge shall immediately order a stay on the bankruptcy proceedings.

e. restructuring and bankruptcy:

Under the provisions of the new insolvency law, when a restructuring plan has been
approved, the debtor will conduct his business under the surveillance of the judicial
administrator and in conformity with the approved plan, until the syndic judge justifiably
orders either the conclusion of the insolvency procedure and the reinsertion of the debtor in
the business flow, or the a stay on the restructuring procedure and the commencement of
bankruptcy proceedings.

The debtor is hereby compelled to submit quarterly reports to the Creditors’ Committee
regarding the financial state of the debtor’s wealth.

The syndic judge shall decide in a sentence or conclusion on the commencement of the
bankruptcy state. The syndic judge’s decision regarding the commencement of the
bankruptcy state equals the pronouncement of the indebted company.

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The shops, storerooms, warehouses, offices, business correspondence and archives, data
storage and processing devices, contract, goods and all goods and chattels from the debtor’s
wealth shall be placed under seal.

The liquidation of the assets from the debtor’s wealth shall be performed by the liquidator
under the control of the syndic judge.

The law establishes the order of precedence for the distribution of funds realised from the
selling of the assets from the debtor’s wealth encumbered in favour of the creditor by
mortgages, pawns, or any other collaterals as well as by retention right of all sorts.

f. the conclusion of the procedure:

The law allows the syndic judge, at any stage of the proceedings, to pass a sentence
pronouncing the conclusion of the proceedings and the erasure of the debtor from the
registry in which he is recorded, when it has been established that there are no assets in the
debtor’s wealth or the existing assets are insufficient to cover the administrative costs and no
creditor offers to provide the amounts required.

When the debts are fully recovered by the disbursements performed, the syndic judge shall
pass a sentence pronouncing the conclusion of the bankruptcy proceedings and the erasure
of the debtor from the registry in which he is recorded.

4. The responsibility of members on the leading boards

The law extends to the syndic judge the possibility, upon the request of the judicial
administrator or liquidator, of ordering that part of the liabilities due by the indebted legal
entity in an insolvency state be borne by the members on the surveillance or the leading
boards of the company, as well as by any entity having generated the debtor’s insolvency
state as a result of one of the following actions:
- the use to personal ends or to the benefit of another person of the assets or the
credit extended to the legal entity;
- the carrying out of trade to personal ends under the guise of the legal entity;
- the ordering, to personal ends, of a continuation in the conduct of a trade that was
obviously leading the legal entity to defaulting;
- the conduct of fictitious bookkeeping, the concealment of accounting documents or
the failure to conduct bookkeeping operations as required by law;
- the embezzlement or concealment of a part of the legal entity’s assets or
unjustifiably increasing the entity’s liabilities due.

5. Offences and penalties

It is worth mentioning as a general aspect that the offences punishable under the insolvency
law are judged by the court in the first instance, with a mention that alacrity is urged in such
trials.

The judicial administrator or the liquidator of the debtor’s wealth or any or any of their agents
taking possession of, making use of or trading of cash, valuables or any other assets under
their management or administration shall be deemed embezzlement and shall be punishable
with one to 15 years’ imprisonment and the abridgment of certain rights.

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According to the law, the failure of the indebted individuals or the legal agent of an indebted
legal entity to submit a request for the opening of the procedure within the established
deadlines as well as their delayed submission of the request – more than 6 months over the
deadline provided for by Article 27, that is 30 days – shall be considered fraudulent
bankruptcy in a simple form and shall be punished with three months’ to one year’s
imprisonment or a fine. On the other hand, the more serious offence of aggravated fraudulent
bankruptcy is punishable by 6 months’ to 5 years’ imprisonment.

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