Early warning defined by the provisions of Art. 5 pt. 51 of the current form of Law nr. 85/2014 on insolvency prevention and insolvency procedures (hereinafter referred to as “Law no. 85/2014“) as representing “alerting on the existence of circumstances that could give rise to the debtor’s state of difficulty or insolvency and which may signal to him the need to act without delay and/or providing, free of charge, information on recovery solutions” was introduced by Law no. 216/2022 amending and supplementing Law no. 85/2014 and other normative acts (hereinafter referred to as “Law no. 216/2022“).
Basically, the legislator aimed to prevent debtors in financial difficulty from going bankrupt by drawing up a system of rules capable of generating a preventive program that would allow the restructuring of the activities of enterprises and entrepreneurs in the European Union.
The proposed new rules were transposed into Romanian law following their regulation by Directive (EU) 2019/1023 on preventive restructuring frameworks, discharge of debt and disqualifications, as well as measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive (EU) 2017/1132 (‘the Directive‘).
The current form of Law nr. 85/2014 details the means of early warning, referring to (i) alerting the tax body in case of non-fulfillment by professionals of obligations to the state budget, to the state social insurance budget or to the unemployment insurance budget, (ii) information and guidance through the websites of certain ministries, (iii) guidance and assistance provided through telephone lines made available to professionals interested in accessing recovery solutions, etc.
Thus, professionals, with the exceptions expressly provided by the special rule, are:
- alerted by the tax body about the non-fulfillment of certain obligations and they are provided free of charge with information on the recovery solutions provided by law through a website;
- are alerted by means of an alert notification automatically transmitted through the electronic communication system by electronic means of remote transmission developed by the Ministry of Finance / National Agency for Fiscal Administration about non-fulfillment of obligations to the state budget, to the state social insurance budget or to the unemployment insurance budget.
In addition, the legislator also established that the Ministry of Entrepreneurship and Tourism
- makes available to the public on its website, in a section dedicated to information and guidance in the field of early warning:
- detailed information on early warning and its role in signalling to the debtor the need to act without delay;
- indicators for a general assessment of the financial situation, with a view to diagnosing failure or insolvency, using available diagnostic programs;
- systematised and user-friendly information on recovery solutions, including insolvency prevention and insolvency procedures, also resulting in discharge of obligations;
- the list of insolvency practitioners and the authorities and bodies exercising their supervision;
- information on programmes and other support facilities.
- Starting with 17.07.2023, it will provide a guidance and assistance hotline in the field of early warning, for an overall assessment of the business in order to access recovery solutions;
- can set up a network of consultants, who may also be from the private sector and/or initiate, with the involvement of representative associations of the business environment, the formation of a network of mentors in the field of early warning.
Obviously, early warning tools can also be developed by private entities, the legislator not limiting the scope of senders of this absolutely vital information for professionals.
Early warning system and online information that could highlight any likelihood of insolvency through alerts when certain payments are not made, public and private advisory services, incentives for third parties such as accountants and tax and social security authorities to flag potential problems, etc. It is likely to support a preventive program that allows professionals, with the exceptions provided for by law, to restructure their finances in order to avoid bankruptcy, on the one hand, but also to maintain jobs and continue business activity, on the other.
The mechanism of early warning together with the prevention procedures regulated by the current form of Law nr. Regulation (EC) No 85/2014 is intended to help give professionals in financial difficulty a chance, including reminding them of the possibility of accessing mediation. Thus, alerted individuals or legal entities can notify the tax body about their intention to mediate, attaching to the notification documents and information to support their economic and financial situation or can access the tax incentives in force.
So far, from the information we have in relation to publicly available data, alerting to the existence of circumstances that could give rise to the failure or insolvency of a professional and which may signal to him the need to act without delay or the provision, free of charge, of information on various recovery solutions has not been implemented, even if the amendments to the Law no. 85/2014 brought by Law no. 216/2022 entered into force as early as July 2022.
The procedure for communicating alert notifications, including the amount of outstanding obligations entailing the issuance of the alert message, by categories of debtors established under tax legislation, the date of issuing the first alert message and, if applicable, the frequency of the alert message and its format, shall be regulated by the rules of the Fiscal Procedure Code.
Warning the debtor through one or more clear and transparent early warning tools to detect circumstances that could give rise to the likelihood of insolvency and signal to debtors the need to act without delay will play a particularly important role when the mechanism becomes operational.
Even if, so far, this mechanism has not been put into operation, the Romanian authorities benefit from technical assistance provided by the European Commission through the project entitled “Early warning tools and preventive restructuring frameworks in Romania” carried out within the Structural Reform Support Programme.
As is the case in other countries of the European Union, for example, in Latvia where the European Bank for Reconstruction and Development (EBRD) in cooperation with the European Commission (Directorate-General for Structural Reform Support) and a consortium of financial, legal and communication experts have completed a project to assess the information resources on financial difficulties to which interested parties can access.
The project, funded by the European Union, aims to support the financial well-being of the Latvian population in the context of current inflationary pressures in the country.
It has been found that a significant number of interested persons have sought information on managing financial difficulties in the past, but the range of this information is small.
In this context, it aims to implement a new action plan issued by the Ministry of Justice, through which stakeholders will have access to a government information website to identify opportunities and information available to manage financial difficulties.
The project under discussion touches on two closely related topics, namely financial education and early warning and proposes the following:
- strengthening cooperation between government institutions to implement communication activities in a homogeneous, coordinated manner;
- development of content accessible to the target audience;
- use of both digital and non-digital communication channels;
- presentation of projects to be implemented at local level, but also in state institutions, etc.;
- carrying out an awareness-raising campaign to ensure that information about available materials reaches the general public.
As can be easily seen both in Romania and in other member countries, the new approach of the European Union is to encourage companies/professionals to act early to prevent or cope with any financial difficulties, but also to improve their prospects for successful recovery in the market in which they operate.
Under these circumstances, all that remains is to regulate the communication procedure and implement it at the level of public institutions in the country so that, by July 2023, we benefit from these adequate means of early warning provided by the current special insolvency rules.
Authors:
Mihai Popa – Deputy Managing Partner, Muşat & Asociaţii
Roxana Diaconescu – Senior Associate, Muşat & Asociaţii
