Romanian jurisprudence
The debtor was a joint-stock company incorporated in Italy, having a branch registered in Romania. The debtor had commenced restructuring proceedings in Italy. In the meantime, a group of Romanian creditors requested the commencement of insolvency proceedings in Romania before the Bucharest Tribunal. The Romanian representative of the debtor claimed that the procedure did not qualify as an insolvency procedure on the basis that it did not require court confirmation, per se. Even if the restructuring plan was not confirmed by an Italian court, the procedure was still in progress and covered by the EIR Recast.
By civil sentence no. 3516 of June 6, 2019, the Bucharest Tribunal, The Seventh Civil Section held that the applications of Romanian creditors to open the secondary insolvency proceedings of the debtor registered in Italy, with a branch in Romania, are admissible, having opened restructuring proceeding in Italy, requests based on the provisions of Article 3 para 2 of the Regulation (EU) 2015/848. To assert its jurisdiction, the court needed to determine whether the centre of main interests (the “COMI”) of the debtor, pursuant to article 3(1) of the EIR recast, a concept also used in articles 2(b) was in Romania, or at least whether the debtor had an establishment there under article 2(10) of the EIR Recast.
To determine the COMI and the establishment of the debtor, the court summarized case law in the EU regarding the presumption of COMI and factors to be considered to rebut that presumption. The court also looked at the concept of COMI as used in the context of UNCITRAL Model Law on cross-border insolvency (MLCBI). The court referred at the relevant case law, objectives criteria for the application of the COMI test listed in the para. 147 of the Guide to Enactment and Interpretation of the UNCITRAL Model Law on Cross-Border Insolvency. Even where the foreign judgment does not specify whether the proceeding open to the debtor is a main or secondary proceeding, it shall be automatically recognised under the terms of Article 19 and Article 31 of the EIR Recast. It concluded that the COMI of the debtor was in Italy.
To resolve the exception of the inadmissibility of applications for the opening of secondary insolvency proceedings, it was necessary to analyze whether the "concordato preventivo" restructuring proceeding before the Italian court was an insolvency proceeding, respectively a main insolvency proceeding that would allow the opening of a secondary insolvency proceedings in Romania pursuant to art. 3 paragraph (2) of Regulation (EU) 2015/848. Another aspect of the analysis was whether the debtor who opened a branch in Bucharest has a headquarters in Romania, in the sense of art. 2 point 10 of the European Regulation. To qualify as an ‘establishment’, it must be demonstrated that the debtor has a ‘place of business’ in Romania in which it carries out non-transitional economic activity with human resources and goods and services. Evidence of an establishment can include that the debtor has representatives in Romania that pay and conclude contracts with local creditors. Whether or not an economic activity is ‘transitional’ depends on the duration, frequency and nature of the economic activity. Activities such as the accrual and payment of debts in Romania would not be considered transitional if they have the character of a consistent business activity corresponding to the nature and type of activity that a debtor carries on generally. Interaction with third parties is also required to prove an establishment in a jurisdiction under the EIR Recast. Further, the activities of the corporate debtor must have a perceptible effect on the local market and be publicly known with internal administration being insufficient. It must also be verified whether the debtor has regularly managed and conducted business relations with creditors, local and otherwise and finally the establishment must be ascertainable to third parties as being an established business in the jurisdiction. Based on these characteristics, it was clear in the instant case that there was an establishment in Romania and as the procedure in the main proceedings was included in Annex A of the EIR Recast, the creditors in Romania should have been recognised as having the right to open secondary proceedings in Romania.
The debtor was an insurance company registered in New Zealand that had entered insolvency proceedings following a judgement of the High Court of New Zealand. The provisional foreign representative appointed by the High Court sought recognition of the proceedings in Romania as foreign main proceedings and suspension of all legal actions concerning the debtor pending before the court in Romania under chapter II of title III of Law No. 85/2014 enacting MLCBI in Romania. The application had been rejected by the court of first instance on 25 May 2018.
On appeal, the request was opposed by an interested party for three procedural reasons as follows: (a) on the basis that insurance companies were excluded from the scope of the recognition procedure under article 274 para. 2 of Law No. 85/2014 (enacting article 1(2) MLCBI); (b) on the basis that there was not yet a final judgment confirming the commencement of insolvency proceedings in New Zealand; and (c) due to issues of absence of reciprocity between Romania and New Zealand concerning the recognition of proceedings. By civil decision no. 2269/15.11.2018 delivered by the Bucharest Court of Appeal the judgment of the court of first instance became final, by dismissing the appeal as unfounded.
The main issue under consideration concerned the interpretation of national law, as the different legal regime of insurance companies from EU Member States and non-EU Member States was adopted from the perspective of recognition of foreign proceedings. The court found that the Romanian legislator’s intention was to exclude insurance companies from the application of the general rules on the recognition of insolvency proceedings carried out in non-EU third countries. What the court found is that there are currently no regulations allowing the recognition in Romania of insolvency proceedings of insurance companies pending in non-EU countries.
Observations:
The main law governing insolvency proceedings in Romania is Law No 85/2014 on pre-insolvency and insolvency proceedings (Insolvency Code), in force since 28 June 2014, which represents the unification of legislation on international insolvency proceedings. Title III, Cross-Border Insolvency, takes over, in an improved form, the provisions of Law No 637/2002 applicable to legal relations with states outside the European Union. Law No 637/2002, in Title I, Relations with foreign states in general, adapted the provisions of the UNCITRAL Model Law on cross-border insolvency developed by UNCITRAL (1997).
Title III of the Law No 85/2014 contains regulations of private international law for insolvency, indicating the rules for determining the applicable law, procedural rules, and norms on the conditions under which national authorities may grant or request assistance in cross-border insolvency. For cases with elements of foreignness in relation to non-EU Member States, Article 276 of the Law 85/2014 regulates the jurisdiction of Romanian court to exercise prerogatives for the recognition of foreign proceedings and the fulfilment of cooperation obligations with foreign courts.
The case raises issues in recognition of foreign insolvency proceedings, at least from following perspectives.
A first question is whether the exclusion of insurance companies from non-EU countries from the benefit of recognition of foreign proceedings, based on the idea of special protection, i.e., a public policy of protection of a relevant field, is or is not in line with the principles of the UNCITRAL Model Law adopted in Romanian law.
Another issue is whether it is possible to analyse in the proceeding for recognition by the Romanian court the effects that foreign representative wishes to undertake and obtain on the Romanian territory, whether they concern the execution of assets, or the suspension of legal actions brought against Romanian subsidiaries/branches, i.e., what are the limits of judicial control.
In the case registered in 2019 before the Bucharest Tribunal, Civil Section VII, an application was made for recognition in Romania of insolvency proceedings, as main proceedings, for a company with its registered office in Switzerland.
The application was rejected by the Bucharest Tribunal on 01.10.2019. The Bucharest Court of Appeal, Civil Section V, dismissed the appeal of the applicant on the decision handed down on 21.05.2020. Both Courts established the non-existence of a legal regulatory framework between Romania and Switzerland for reciprocity in terms of the effects of foreign judgments, condition provided in Article 289 para. 1 lit. e of Law no. 85/2014.
The issue examined by the courts concerned the interpretation of national law, Art. 289 para. (1) of Law no. 85/2014 on pre-insolvency and insolvency proceedings enacting MLCBI - UNCITRAL Model Law on cross-border insolvency (1997) in Romania, regarding the cumulative conditions to be met for the recognition of foreign insolvency proceedings, in particular the existence of reciprocity regarding the effects of foreign judgments between Romania and the state of the court that pronounced the judgment. The case is relevant by analysing the admissibility of "de facto reciprocity" as a basis for recognition of foreign insolvency proceedings when reciprocity of effects has not been recognised or established by law, other treaties, conventions, or any other form of international, bi - or multilateral agreement to which Romania is a party.
The company, having its head office in Romania, insolvency proceedings opened by the Bucharest Tribunal on 19.01.2022, and a branch in the Hashemite Kingdom of Jordan, filed in the Hashemite Kingdom of Jordan an application, through its insolvency practitioners appointed in the Romanian proceedings, for recognition of these proceedings as main insolvency proceedings. The stated purpose was to trigger the steps regulated under local law, based on the company's insolvency in Romania, in order to recover its debts.
The Court of First Instance, Economic Section of Aman, by decision issued on 13.09.2022, admitted the request, ordered the recognition of the decision of Bucharest Tribunal, Romania, which ordered the opening of insolvency proceedings against the company.
The judge held the application of the provisions of Article 116 of the Insolvency Law No. 21/2018 on the competence of Jordanian courts to recognize international insolvency judgments and to cooperate with foreign courts and other competent bodies, subject to reciprocity. The court found that the requirements set out in Article 121 of the local law regarding the evidence that the company's representatives must submit, including a statement of all foreign proceedings, any proceedings under the local law relating to the claim, known to the insolvency practitioner, were met. It has been held that foreign insolvency proceedings take place in the country where the debtor's centre of interests is located. As regards the reciprocity condition, the court found from the documents submitted, legal opinion and court decisions, that "Romania recognises the judgments of the Jordanian courts and treats them in the same way".
The case calls for some observations. The UNCITRAL Model Law on Cross-Border Insolvency (1997) has been adopted into national laws by both Romania (2002) and Jordan, officially the Hashemite Kingdom of Jordan (2018). However, both countries have additionally provided for reciprocity regarding the effects of foreign judgments. The judgement under review did not mention the existence of a bi-multilateral conventional framework between Romania and Jordan applicable to the recognition of the effects of judgments rendered in insolvency matters. The judge found that the condition of reciprocity was met in relation to the judgments submitted by Romanian practitioners, which leads to the incidence of de facto reciprocity as a basis for recognition of the Romanian insolvency proceedings.
The decision in Romanian is available here.
The company with its head office in Romania has been in bankruptcy proceedings before the Constanta Tribunal since 2017. The Romanian creditor, whose claim has been mentioned in the claims table, has applied for recognition in Switzerland of the Romanian bankruptcy proceedings.
The Zürich Tribunal, the Bankruptcy Court, ordered by a decision pronounced on 30.09. 2022, recognition in Switzerland of the decision of the Constanta Tribunal, Romania, opening bankruptcy proceedings against the debtor, a company with its registered office in Romania; the publication of the Romanian bankruptcy decision, together with the request for notification of claims, in the Swiss Official Commercial Gazette and the Cantonal Gazette, the bankruptcy court subsequently deciding on the request for waiver of the ancillary bankruptcy proceedings.
The Swiss Court held the applicability of Article 166 para. 1 "Recognition of foreign bankruptcy and composition agreements in Switzerland" (Swiss Private International Law Act - PILA - IPRG), according to which a foreign bankruptcy judgment is recognised at the request of a creditor in bankruptcy proceedings, if the judgment is enforceable in the State where it was given (lit. a), if there are no grounds for refusal within the meaning of Art. 27 IPRG (lit. b) and if the judgment was given in the State of head office of the debtor (lit. c point 1). The creditor in bankruptcy proceedings may exercise his right without any further authorisation, the foreign insolvency administrator does not have priority. He can only be refused the right to make an application if it is obvious that it has no bankruptcy claim.
The Court found that in the case there were met the requirements laid down in Article 29(2) para. 1, lit. a, b, c, IPRG, concerning the submission of a certified copy of the foreign bankruptcy judgment (letter a), enforceable in the State where the main bankruptcy proceedings were conducted (letter b), as well as a document showing that the debtor in bankruptcy was duly summoned and in time to exercise his rights of defence (letter c). Recognition of a foreign bankruptcy judgment generally, but not necessarily, requires the conduct of an ancillary bankruptcy proceeding in respect of the debtor's assets located in Switzerland (Art. 170 IPRG). The following were found by the Court: the bankrupt debtor has, inter alia, a claim against a company with its registered office in Switzerland; the applicant's status as a creditor is sufficiently credibly proven by the final schedule (table) of claims drawn up in the Romanian bankruptcy proceedings; at the time of the opening of the bankruptcy proceedings, the bankrupt debtor had its registered office in Romania, which means that the Constanta Tribunal had jurisdiction to open the bankruptcy proceedings, and the judgment sought to be recognised is enforceable. The court ordered the publication in Switzerland of the bankruptcy judgment pronounced in Romania, together with the request for notification of claims, before deciding on the proceedings to be followed for the recovery of the claims held by the Romanian company in bankruptcy against its debtor, established in Switzerland.
The case allows for some observations.
The UNCITRAL Model Law on Cross-Border Insolvency - MLCBI (1997) has been adopted into national law only by Romania (2002), not by Switzerland. The regulations of international law applicable in Switzerland in the matter of recognition of foreign bankruptcy proceedings, which have, however, considered international doctrine, including the MLCBI, in their revision, are not fundamentally different from the provisions of Article 287 of the Romanian Law no. 85/2014 on pre-insolvency and insolvency proceedings. The Swiss legislation extends the category of persons entitled to bring such proceedings before Swiss courts, by recognising the standing of creditors of the bankrupt company "without any additional authorisation” and does not regulate the condition of reciprocity regarding the effects of foreign judgments between Switzerland and the State of the court which issued the judgment, as provided for in Article 289(e) of Romanian Law No 85/2014.
The judgment is relevant for practitioners as possible evidence of the fulfilment of the "de facto" reciprocity requirement to obtain recognition in Romania of Swiss insolvency proceedings, an important step to promote and develop cooperation between Swiss / Romanian courts and practitioners in the field of cross- insolvency.
An overview of the Romanian legislation and practice on avoidance actions, some views as regards the solutions recommended in the UNCITRAL Legislative Guide on Insolvency Law (Recommendations 87-99) and the World Bank Principles for Effective Insolvency and Creditor/Debtor Regimes (Principle C11), at the UNCITRAL-World Bank Group Judicial Capacity-Building Initiative on International Best Practices in the Area of Insolvency Law, on 27th and 28th October 2021
For information about the Project, see:
For my PowerPoint presentation and details about Romanian law and practice, see:
Romanian jurisprudence on insolvency law is for the
first time published in the Case
Law on UNCITRAL Texts (CLOUT)
You can find the
Romanian decisions here:
https://www.uncitral.org/clout/clout/data/rou/clout_case_2066.html
https://www.uncitral.org/clout/clout/data/rou/clout_case_2065.html
For the UNCITRAL abstract of the cases, see A/CN.9/SER.C/ABSTRACTS/224.
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