Insolvency & Restructuring

Romania: Termination of
On-Going Contracts

Many questions arise when a contractual partner enters into insolvency. One question is what happens with the debtor’s on-going contracts when the insolvency starts? Are they maintained or terminated?

One of the main prin­ci­ples gov­ern­ing insol­ven­cy pro­ceed­ings states that the debtor’s reor­gan­i­sa­tion should be sought before bank­rupt­cy. To this end the Roman­ian Insol­ven­cy Law (RIL) pro­vides a series arti­cles sup­port­ing the debtor’s poten­tial reor­gan­i­sa­tion.

The first para­graph of arti­cle 86 RIL pro­vides that all of the debtor’s on-going con­tracts are main­tained fol­low­ing the start of the insol­ven­cy pro­ce­dure, where­as all con­trac­tu­al claus­es ter­mi­nat­ing con­tracts due to the start of insol­ven­cy pro­ce­dure are null and void. On the oth­er hand, based on the same arti­cle, the debtor’s judi­cial admin­is­tra­tor may ter­mi­nate on-going con­tracts to max­imise the debtor’s estate.

On-going con­tracts

The qual­i­fi­ca­tion of a con­tract as on-going is of inter­est only when the con­tract is deemed use­ful in con­tin­u­ing the debtor’s activ­i­ty and thus increas­ing its chances of under­go­ing reor­gan­i­sa­tion.

The qual­i­fi­ca­tion as on-going con­tract entails, first, that the con­tract exists at the date the insol­ven­cy pro­ce­dure starts. This means that the con­tract (i) was con­clud­ed before the insol­ven­cy pro­ce­dure start­ed and (ii) was not ter­mi­nat­ed and/or ful­ly exe­cut­ed by such date. Under Roman­ian case law, on-going but unfin­ished nego­ti­a­tions do not qual­i­fy as on-going con­tracts and thus do not qual­i­fy under arti­cle 86 above.

Sec­ond, the con­tract must be on-going, mean­ing its per­for­mance is on-going at the date when the insol­ven­cy pro­ce­dure start­ed. Nev­er­the­less, the judi­cial admin­is­tra­tor will most like­ly not express its option right after the start of the insol­ven­cy pro­ce­dure; usu­al­ly such option is made after the admin­is­tra­tor deter­mines whether the con­tract is use­ful in the debtor’s reor­gan­i­sa­tion. Depend­ing on the com­pa­ny and its activ­i­ty, and upon the administrator’s per­for­mance, this usu­al­ly takes from one up to sev­er­al months. Thus, the con­tract must be also on-going at the date when the judi­cial admin­is­tra­tor calls his option on con­tin­u­a­tion of the con­tract.

Who is enti­tled to call the option?

Under arti­cle 86 the judi­cial admin­is­tra­tor (or the receiv­er if the debtor is in bank­rupt­cy) may call the option to con­tin­ue or ter­mi­nate the on-going con­tract. How­ev­er, the call option ini­tia­tive also lies with the debtor’s con­tract­ing par­ty, who may serve the judi­cial admin­is­tra­tor with a notice request­ing the lat­ter to express his option to con­tin­ue the con­tract. Under arti­cle 86 of the RIL, the judi­cial admin­is­tra­tor must respond with­in 30 days from receipt of notice. Fail­ure to respond with­in this term results in the con­tract being ter­mi­nat­ed.

So the judi­cial admin­is­tra­tor (or the receiv­er if the debtor is in bank­rupt­cy) may call the option in two ways: (i) express­ly, by serv­ing the debtor’s con­trac­tu­al part­ner with a notice to ter­mi­nate or con­tin­ue the con­tract; or (ii) tac­it­ly, by not answer­ing the debtor’s con­trac­tu­al partner’s notice with­in the 30-day term pro­vid­ed by arti­cle 86, in which case the con­tract is deemed ter­mi­nat­ed.

Par­tial ter­mi­na­tion” of the on-going con­tract

The judi­cial administrator’s option may refer exclu­sive­ly to the ter­mi­na­tion or con­tin­u­a­tion of the con­tract. As an excep­tion to the manda­to­ry force of con­tracts, the judi­cial administrator’s option must be restric­tive­ly inter­pret­ed. Giv­en the above, par­tial ter­mi­na­tion of the on-going con­tract in not pos­si­ble.

Nev­er­the­less, it is not uncom­mon for the judi­cial admin­is­tra­tor to try to rene­go­ti­ate con­tracts deemed use­ful for the debtor’s reor­gan­i­sa­tion, and ter­mi­nate the con­tract only if the nego­ti­a­tions fail, always observ­ing the prin­ci­ple of max­imi­sa­tion of the debtor’s estate.

Max­imi­sa­tion of the debtor’s estate

When decid­ing whether to ter­mi­nate, the judi­cial admin­is­tra­tor must make a thor­ough analy­sis of the ben­e­fits of main­tain­ing against the ben­e­fits of ter­mi­nat­ing the con­tracts. Such analysis/calculation must always weigh the dam­ages the debtor might have to pay for ear­ly ter­mi­na­tion of the con­tract.

Effects of the call option

When decid­ing whether to con­tin­ue the con­tract, the judi­cial admin­is­tra­tor must ensure that the debtor has all the nec­es­sary resources, includ­ing the nec­es­sary funds, to exe­cute its oblig­a­tions under the con­tract. The con­tract will be main­tained under the terms and con­di­tions ini­tial­ly agreed by the con­trac­tu­al par­ties; the judi­cial admin­is­tra­tor may not uni­lat­er­al­ly amend the con­tract.

A ques­tion aris­es when the judi­cial admin­is­tra­tor calls his option: whether such man­i­fes­ta­tion is bind­ing and irrev­o­ca­ble, or revo­ca­ble. Some of the legal doc­trine states that once the judi­cial admin­is­tra­tor has called his option, he can­not change, even if con­tin­u­ing the con­tracts becomes more cost­ly, qual­i­fy­ing such man­i­fes­ta­tion as irrev­o­ca­ble.

But such a restric­tive opin­ion should be test­ed case by case. For instance, if the judi­cial admin­is­tra­tor called his option with a view to sup­port the debtor’s reor­gan­i­sa­tion, and if the reor­gan­i­sa­tion is no longer pos­si­ble and the debtor enters into bank­rupt­cy, we deem such essen­tial event to suf­fi­cient­ly sup­port the judi­cial administrator’s deci­sion to reverse course.

On the oth­er hand, if the con­tract entails reg­u­lar pay­ments, even if the admin­is­tra­tor called his option, we deem he may change his ini­tial option if the debtor no longer has the nec­es­sary funds to pay under the con­tract.

Claim for dam­ages

If the judi­cial admin­is­tra­tor decides to ter­mi­nate the on-going con­tract, the debtor’s con­trac­tu­al par­ty may file a claim for dam­ages against the debtor based on the pro­vi­sion of arti­cle 86 para­graph (2) RIL. In such case the syn­dic judge will be exclu­sive­ly com­pe­tent to rule upon such claim and con­trac­tu­al claus­es on dis­pute set­tle­ment and arbi­tra­tion remain with­out effect.

The Roman­ian doc­trine is not uni­form in the treat­ment of such dam­ages. One opin­ion is that they are sub­ject to reg­is­tra­tion with the cred­i­tors’ table with­out the pos­si­bil­i­ty of their reg­is­tra­tion being denied as late. Oth­er opin­ions qual­i­fy such dam­ages as cur­rent (ie, born after the com­mence­ment of the insol­ven­cy pro­ce­dure) and thus sub­ject to pay­ment with­in the pro­ce­dure when becom­ing due (ie, once the court deci­sion grant­i­ng such dam­ages becomes enforce­able).

We con­sid­er the sec­ond opin­ion to cor­re­spond with real­i­ty. Since the judi­cial admin­is­tra­tor is the one who has the right to call the option, and he is appoint­ed after the insol­ven­cy pro­ce­dure starts, it would be illog­ic to qual­i­fy the dam­ages as being born before the start of the insol­ven­cy pro­ce­dure and thus sub­ject to reg­is­tra­tion with the cred­i­tors’ table.

When deciding whether to continue the contract, the judicial administrator must ensure that the debtor has all the necessary resources, including the necessary funds, to execute its obligations under the contract.

România: Încetarea contractelor în curs

Mai multe întrebări se pot ridica atunci când unul dintre partenerii contractuali intră în insolvență. Una dintre acestea este ce se întâmplă cu contractele în curs de derulare ale debitorului în momentul în care întră în insolvență. Se mențin aceste contracte, ori încetează?

Unul din­tre prin­cipi­ile care guvernează pro­ce­du­ra insol­venței stat­uează că reor­ga­ni­zarea primează fal­i­men­tu­lui deb­itoru­lui. În acest scop, Leg­ea Insol­venței (LI) prevede o serie se arti­cole care susțin potențialul de reor­ga­ni­zare al deb­itoru­lui.

Primul para­graf al arti­colu­lui 86 LI prevede că toate con­tractele în curs de deru­lare ale deb­itoru­lui se mențin după deschiderea pro­ce­durii insol­venței, și că toate clauzele de înc­etare a con­tractelor pe motivul deschiderii pro­ce­durii insol­venței sunt nule. Pe de altă parte, în baza aceluiași arti­col, admin­is­tra­torul judi­ciar al deb­itoru­lui poate denunța con­tractele în curs de deru­lare ale aces­tu­ia în ved­erea max­i­mizării averii deb­itoru­lui.

Contractele în curs.

Cal­i­fi­carea unui con­tract ca fiind în curs prez­in­tă interes numai când este con­sid­er­at util în con­tin­uarea activ­ității deb­itoru­lui și implic­it la sporirea șanselor de reor­ga­ni­zare ale aces­tu­ia.

Cal­i­fi­carea drept con­tract în curs de deru­lare nece­sită, în primul rând, exis­tența con­trac­tu­lui la data deschiderii pro­ce­durii insol­venței. Ast­fel, con­trac­tul tre­buie să (i) fi fost încheiat ante­ri­or deschiderii pro­ce­durii insol­venței (ii) nu fi fost denunțat ori exe­cu­tat în întregime până la această dată. În jurispru­dența românească negocier­ile în curs, dar încă nefi­nal­izate, nu sunt con­sid­er­ate ca fiind con­tracte, și ast­fel nu pot fi supuse preved­er­ilor arti­colu­lui 86.

În al doilea rând, con­trac­tul tre­buie să fie în curs, adică exe­cutarea sa să fie în curs de realizare la data deschiderii pro­ce­durii. În orice caz, cel mai prob­a­bil, admin­is­tra­torul judi­ciar nu își va expri­ma opți­unea ime­di­at după deschiderea pro­ce­durii insol­venței; de obi­cei, această opți­une este expri­mată după ce admin­is­tra­torul judi­ciar deter­mină dacă un con­tract este util reor­ga­nizării deb­itoru­lui. În funcție de soci­etate și dome­ni­ul de activ­i­tate al aces­teia, pre­cum și în funcție de efi­ciența cu care admin­is­tra­torul își îndeplinește sarcinile, deter­minarea util­ității unui con­tract poate dura între una și câte­va luni. Ast­fel, con­trac­tul tre­buie să fie în curs și la data la care admin­is­tra­torul judi­ciar își exprimă opți­unea de a con­tin­ua con­trac­tul.

Cine este îndreptățit să exprime opțiunea?

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schoenherr attorneys at law /