Before an insolvent company, or person, gets involved in insolvency proceedings, it will likely be involved in informal arrangements with creditors such as making alternative payment arrangements.
What does insolvency mean?
The Insolvency is the state of the debtor’s patrimony which is characterized by insufficient funds available for payment of the outstanding debts in accordance with Article 3 of Law 85/2006 updated in 2017.
Insolvency is presumed to be manifest when the debtor, after 30 days from maturity, has not paid his debt to one or more creditors.
Insolvency is imminent when it is proven that the debtor will not be able to pay the due debts incurred at maturity with the available funds at that moment.
Differences between insolvency and bankruptcy
The insolvency procedure is the legal procedure that opens, at the request of the debtor or the creditors, if a company is in a state of insolvency. Under the law, the state of insolvency represents the state of the property of a society characterized by insufficient funds available for the payment of certain, liquid and due debts.
The bankruptcy procedure is the insolvency procedure that applies to the debtor for the purpose of liquidating his property for covering the liability, followed by the debtor’s deletion from the register in which he is registered.
National Proceedings: general and simplified
Briefly, there are two main ways for proceedings: the general procedure through which the stage of reorganization of the company, and then the company enters bankruptcy or the simplified procedure when the respective company goes bankrupt directly.
Cross-border proceedings: main and secondary
The EU Regulation 2015/848 of the European Parliament and of the Council on cross-border insolvency proceedings enables the main insolvency proceedings to be opened in the Member State where the debtor has the centre of its main interests. Those proceedings have universal scope and are aimed at encompassing all the debtor’s assets.
To protect the diversity of interests, this Regulation permits secondary insolvency proceedings to be opened to run in parallel with the main insolvency proceedings. Secondary insolvency proceedings may be opened in the Member State where the debtor has an establishment. The effects of secondary insolvency proceedings are limited to the assets located in that State.
In accordance with the provisions of the EU Regulation, the main insolvency proceedings and the secondary insolvency proceedings can contribute to the efficient administration of the debtor’s insolvency estate or to the effective realisation of the total assets if there is proper cooperation between the actors involved in all the concurrent proceedings.
Proper cooperation implies the various insolvency practitioners and the courts involved cooperating closely, in particular by exchanging a sufficient amount of information. In order to ensure the dominant role of the main insolvency proceedings, the insolvency practitioner in such proceedings should be given several possibilities for intervening in secondary insolvency proceedings which are pending at the same time.
In particular, the insolvency practitioner should be able to propose a restructuring plan or composition or apply for a suspension of the realisation of the assets in the secondary insolvency proceedings.
For further information: Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings / Law 85/2006 updated in 2017