Moldova: A New Insolvency Act

07 January 2013 | newsletters

The Moldovan Parliament adopted a new insolvency law on 29 June 2012. The Insolvency Act No. 149 (Act No. 149), which will enter into force on 14 March 2013, is evolutionary rather than revolutionary, as its main goal appears to be the optimization of the existing insolvency procedures. Following the new act’s entry into force, insolvency cases shall fall under the competence of the court of appeal where the seat of the debtor is located. Also each such court of appeal shall hold a public register of insolvency cases.

Timing

The main issue of the insolvency procedures under the former insolvency legislation was their duration. In certain cases, such procedures could have lasted up to 15 years, thus inevitably causing higher costs and lower recovery rates (RO rata de recuperare) for creditors.

By comparison, Act No. 149 introduces more detailed and rigid rules on timing for fulfilling one or another insolvency procedure.

Generally, the new law implements the following terms:

  • term for examining whether to initiate the insolvency process - up to 75 business days as of acceptance for examination of the insolvency request;
  • duration of the general insolvency procedure – up to 160 days as of the initiation of the insolvency process;
  • duration of the bankruptcy procedure (RO procedura falimentului), including sale of debtor’s assets – generally up to two years as of the initiation of the bankruptcy procedure;
  • duration of the restructuring procedure (RO procedura de restructurare), including execution of the restructuring plan – generally up to three years as of confirmation of the restructuring plan by court. Such duration can be prolonged only once by the assembly of creditors, by an additional two-year term.

The shortened timeframe for fulfilling the formal steps shall likely have a positive effect on the recovery rate.

New Possibilities

Simplified Bankruptcy Procedure

Simplified bankruptcy was not possible under the previous legislation and therefore is a novelty for Moldova.

Under Act No.149, the simplified bankruptcy procedure may be applied exclusively with respect to the following categories of debtors:

  • individual entrepreneurs, farmers (RO gospodarii taranesti) and holders of entrepreneurship patents (RO titular ai patentei de intreprinzator);
  • legal entities with no assets or whose assets cannot cover the costs of the insolvency process and with no creditor(s) available to support or guarantee such costs;
  • companies and non-commercial entities dissolved before the filing of the request to initiate an insolvency process;
  • debtors who cannot benefit from the restructuring procedure (Art. 134 of the Act No. 149).

Generally, the simplified bankruptcy procedure lasts up to 150 days as of initiation of such a procedure and is administered by a liquidator (Art. 134, 135 of the Act No. 149).

Expedited Restructuring Procedure

Pursuant to Act No. 149, a request for the initiation of the expedited restructuring procedure (RO procedura accelerata de restructurare) may be filed by a debtor in financial difficulty (RO debitor aflat in dificultate financiara), with the insolvency court obliged to accept such request (Art. 219, 220 of the Act No. 149).

Expedited restructuring procedures allow debtors and creditors to progress from the initial observation procedure (phase) directly into restructuring procedure (i.e. directly to actions relating to the adoption and approval of the restructuring plan).

As a result of introduction of this institute, the duration of formalities preceding the debtor’s restructuring plan was decreased to approximately 60 days (in total).

Settlement

Act No. 149 also allows for the possibility of participants entering into a settlement agreement in connection with the insolvency process.

Under the new legislation, a settlement can be concluded at any phase of the insolvency process. The decision on concluding a settlement is taken by the assembly of creditors (on behalf of creditors) and by the debtor’s managing body / insolvency administrator / liquidator (on behalf of the debtor).

In any event, the settlement has to be in writing and must be approved by the insolvency court by means of a decision, such decision being final for all involved participants. Also, the approved settlement triggers the finalization of the insolvency process (Art. 162 of the Act No. 149).

Liability of Debtor’s Founders / Managing Bodies / Other Responsible Persons

Similar to the former insolvency legislation, the Act No. 149 provides for the liability of the founders / members of the managing bodies / other decision-making officials of the debtor jointly with debtor in the event that the debtor’s insolvency was caused intentionally or the insolvency was fictive (Art.15 of the Act No. 149).

Furthermore, the new law lists cases in which the debtor’s founders / members of its managing bodies / other responsible persons can be jointly liable with the debtor towards creditors for failure to file for insolvency in due time (e.g., Art.138(5) of the Act No.149).

In addition, the court has been granted the right to decide on passing part of the liability on to responsible officials from the debtor, should such a partial attribution be appropriate. Such decisions may be taken only in case of actions / omissions by members of the managing bodies of the debtor that led to damages caused to debtor (Art. 248 of the Act No. 149). Furthermore, the court has been given the right to apply interim measures on persons to share liability with the debtor (Art. 249 of the Act No. 149).

Finally, with minor exceptions (as regulated), all insolvency processes in place at the date of entrance into force of the Act No. 149 will have to be continued on basis of the new law.

Conclusion

Compared to the previously existing insolvency legislation, Act No. 149 is more diversified when it comes to the procedures that may be applied in one or another situation. Such diversification aims to allow participants to fit the concrete circumstances to their needs. As for now, it is not clear whether implementation of the new insolvency law will be a practical success, as such success will also require improvements in the institutional capacities applying such law.