Issue no. 2, October 2014 - bpv-grigorescu.com · 2 Ion Turcu, Legea Procedurii Insolvenţei, Comentariu pe articole, Editura C.H. Beck, 2009, p. 453 3 Gheorghe Piperea, Insolvenţa:

35 RE: INFRA | Issue no. 2, October 2014 CONTENTS35 RE:INFRA | Issue no. 1, February 2014 CONTENTS

RE: INFRAIssue no. 2, October 2014

1 RE: INFRA | Issue no. 2, October 2014 CONTENTS

CONTENTS

Foreword

Team & Projects

Effects of the contractor’s insolvency on the contractor agreement in view of the new insolvency law

Enforcement of decisions issued by the dispute adjudication board under FIDIC (1999) contracts

What to do when a utilities company enters insolvency

2

3

4

19

27


In all opinions on infrastructure development we constantly and primarily

come across three main ingredients for success: vision, determination and

money. Money, or lack thereof, was not always the problem, nor the only

reason one country or another, a government or another failed to create a

strong infrastructure for its economy and citizens. But rather the vision and

determination have been lacking. With the birth and growth of the European

Union, the issue of the vision has been somewhat solved, as most projects

began to be crafted from a pan-European perspective. However, the issue

of the determination in building such projects still remains unsorted.

Since the release of our first issue of RE: INFRA, in March this year,

the Romanian Ministry of European Funds published the Operational

Programme Large Infrastructure 2014-2020 which includes both the

financing allocation and the objectives for the period 2014-2020. Once

again it seems that money is not a problem, the budget allotted for large

infrastructure projects for the following years being EUR 9.4 billion, out of

which about EUR 2.5 billion coming from the European funds for regional

development and the difference of approximately EUR 7 billion being

covered by the Cohesion Fund.

The priority axes, as listed in the programme, are: in the transport sector – the

Trans European Transport Network (TEN-T), regional accessibility through

TEN-T connection and a safe and environmentally friendly transport system;

in the environment and climate change sector – environment protection

and promoting the efficient use of resources, biodiversity, decontamination

of polluted historical sites and air quality monitoring; in the clean energy and energy efficiency sector – safe and clean energy for an economy based

on low CO2 emissions, intelligent and sustainable systems for the transport

of energy and natural gas. In addition, there is one more priority set, the

development of the urban infrastructure in the area of Bucuresti-Ilfov.

We have listed them all, risking to be too didactical, with the desire to

show the huge amount of work that needs to be done, the fact that we

have funds to sustain it and that, more than before, we have without any

doubt all the necessary categories of expertise and the impatience to start

working. All we need is the determination to put all of this into practice and

take responsibility for the future of Romania.

Daniel ȘtefănicăPartner

NEW HOPES


Urban infrastructure

Acquisitionsof renewable

energy producersHeating plantsrehabilitation

IT infrastructure

Railroad infrastructurerehabilitation

Locomotives and traincars service

Health infrastructurerehabilitation

Waste managementsystems

Road constructionLand expropriation

Utilities systemsconstruction

TEAM & PROJECTS

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FlaviusFlorea

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RalucaMarcu

Dumitrescu

AlinaMelcescu

Alberto

AmaliaLincaru

Cristiana

C t linGrigorescu

AncaAlbulescu

Daniel

Contact: 33 Dionisie Lupu Street, RO-020021 Bucharest, Phone: +40 21 264 16 50,

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EFFECTS OF THE CONTRACTOR’S INSOLVENCY ON THE CONTRACTOR AGREEMENT IN VIEW OF THE NEW INSOLVENCY LAW

The initiation of insolvency proceedings against a contractor performing construction works is likely to cause detriment to the client considering the latter’s limited rights under Romanian law in case of the contractor’s default and the divergent case law on their enforceability. This article focuses on the client’s most important concerns and tries to determine to which extent these concerns are likely to be mitigated by the entrance into force of the new insolvency law.

INTRODUCTION

After multiple failed attempts of renewal and codification of the national legislation on insolvency, Law no. 85/2014 on insolvency and insolvency prevention proceedings (hereinafter the “Insolvency Code”) was published in the Official Gazette, Part I, no. 466 on June 25, 2014 and entered into force on June 28, 2014. The Insolvency Code aims at unifying and adapting the rules governing the procedure stipulated by Law no. 85/2006 on insolvency proceedings (“Law no. 85/2006”) to the juridical everyday reality.

As per its stated purpose, the insolvency proceedings in Romania aim to institute a collective procedure for covering the debts of the companies in a state of insolvency, granting, where possible, a chance of resuscitating the activity of the debtor. Insolvency proceedings are often confused with bankruptcy, still in reality the purpose of such proceedings is to restructure the business of the debtor and only in case such restructuring proceedings may not be applied, the company shall be declared bankrupt and liquidated.

Insolvency proceedings usually consist of a supervision period followed by bankruptcy in case no reorganization plan is proposed or by reorganization

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proceedings succeeded by closing of insolvency proceedings in case the reorganization is successful or reorganization proceedings followed by bankruptcy in case the reorganization is unsuccessful. Further, the bankruptcy proceedings may be entered into directly if particular conditions provided by the Insolvency Code are met. The Insolvency Code maintains basically the guidelines set out by the Insolvency Law no. 85/2006, still it introduces some novelties which will be analysed herein to the extent they shall be relevant.

Among other effects of the initiation of the insolvency proceedings, it should be considered that all court and extra-court actions, as well as all the enforcement procedures, for the achievement of claims over the debtor or over the debtor’s assets initiated before the opening of the insolvency proceedings are automatically suspended by law, and often the debtor has no longer the right to administrate his assets, except for the case it expresses his intention to reorganize the company and the court of law approves its reorganisation plan. These main effects of the insolvency were similarly regulated by Law no. 85/2006 and are maintained by the Insolvency Code, which additionally aims to clarify several situations of no particular relevance for the analysis therein.

In this context, the purpose of this analysis is to determine which are the main specific effects triggered by the initiation of the insolvency proceedings against the contractor with respect to the contractor agreement for construction works and the works performed by the contractor until the aforementioned moment, that might be of interest for the client of the construction works. Firstly, we shall determine to which extent the termination of the contractor agreement by the client is possible in case of insolvency of the contractor, further aiming to envisage the outcomes of the insolvency proceedings with respect to the partially completed construction works.

TERMINATION OF THE CONTRACTOR AGREEMENT IN CASE OF INSOLVENCY

The status of ongoing contracts at the time of the opening of insolvency proceedings and in particular the termination of such contracts were subject to various dissenting doctrine and case-law, based on the imprecise provisions of Law no. 85/2006 on this issue. The Insolvency Code brings some welcomed clarification in this matter, still we believe that it fails to fully address the issue, raising new questions. Depending on the nature of the contract, the consequences of its termination after the opening of the insolvency proceedings involves specific matters deriving also from the correlation of the insolvency regulations with the legal provisions applicable to the contract. This applies also to the contractor agreement in constructions.

Regarding the status of the ongoing contracts, Law no. 85/2006 provided they shall be considered maintained at the insolvency proceedings opening


date. In addition, any contractual clauses providing the termination of ongoing contracts for the reason of the opening of proceedings were deemed void. Thus, according to Law no. 85/2006, the contractor agreement could not have legally stated that the agreement would be terminated de iure or by one of the parties due to the opening of the insolvency proceedings against one of the parties.

Moreover, Law no. 85/2006 provided a special procedure to be followed by the client in order to initiate termination of the contractor agreement upon the initiation of insolvency proceedings. In this respect, the client should have notified the judicial trustee1 requesting the termination of the contractor agreement. In case the judicial trustee had not replied within a 30 days period approving or rejecting the termination of the contractor agreement or if the judicial trustee had notified the client about its agreement with respect to the termination of the contractor agreement, the contractor agreement will be deemed terminated. On the contrary, if the judicial trustee had not agreed upon the termination of the contractor agreement, such agreement would have remained in force.

On the other hand, Law no. 85/2006 provided the mentioned restrictive procedure only with respect to termination of the contract initiated by one party, without providing additional conditions and without making any reference to termination of the contract due to the parties’ default – termination for cause, which might lead to the conclusion that such restrictive procedure was applicable only in respect of unilateral termination of the contract without cause. However, some authors considered that termination for cause of contracts was also restricted under Law no. 85/20062, thus enabling the judicial trustee to maintain in force a contract irrespective of the infringement of the contractual obligations by the insolvent debtor prior to or after the opening of the insolvency proceedings3. Likewise, Law no. 85/2006 diminished the effects of the causes for termination for cause of contracts due to parties’ default.

According to other opinion, such restrictive procedure was applicable only with respect to termination for cause of the contract due to debtor’s default which occurred prior to the opening of the insolvency proceedings, and thus the client could have requested termination of the contract only for the

1 Brevitatis causa, references to the judicial trustee shall be deemed also as references to the judicial liquidator, depending on the stage of insolvency proceedings.2 Ion Turcu, Legea Procedurii Insolvenţei, Comentariu pe articole, Editura C.H. Beck, 2009, p. 4533 Gheorghe Piperea, Insolvenţa: legea, regulile, realitatea, Wolters Kluwer, 2008, p. 622, p. 712


debtor’s default occuring after the start of the insolvency proceedings.

As regards the case law in this field, there is no unitary approach either, as certain courts made no difference with respect to the regime under insolvency proceedings of the unilateral termination without cause of contract and the termination for cause of the contract4, while other courts5 stated that only unilateral termination of contracts without cause is restricted under Law no. 85/2006, and such restriction is not applicable to termination for cause of contracts.

According to this second opinion resulting from the case law, the opening of the insolvency proceedings would not have affected in any manner the client’s right to terminate the contractor agreement due to debtor’s default in performing its obligations. Nonetheless, we would like to mention that, under Romanian law, as a general rule, the observance of the case law is not mandatory for the courts of law as it does not represent a source of law as in the common law legal systems.

Therefore, in view of the above mentioned opinions, the client would not have been able effectively to unilaterally terminate the contractor agreement after opening of the insolvency proceedings as the judicial trustee had the prerogative to oppose without offering a justification. However, we deem that the legal provisions should have been interpreted in the sense that such interdiction was not applicable in case the parties had agreed contractually in advance upon their possibility to unilaterally terminate the agreement without cause, with or without a prior notice, due to other reasons than the opening of the insolvency proceedings against one of them. Moreover, the automatic termination for cause of the contractor agreement due to the debtor’s fault based on the contractual special provisions in this respect could have been challenged in court by the judicial trustee, in this situation existing the risk for the court to issue a decision in favour of the judicial trustee and deem the contractor agreement in force, taking into account the contradictory case law and opinions of the scholars in this respect. However, in the latter case, in our opinion as long as the contractor had not performed the works under the contractor agreement, the client would not have to pay such works considering that the payment is conditioned upon such execution. On the other hand, some scholars state that, even when the insolvent debtor does not perform its own obligations, the other party of the agreement, in this case the client, must continue to fulfil its own obligations in accordance with the agreement, without being able to invoke the fact that the insolvent debtor has not performed its own obligations6, i.e. exceptio non adimpleti

4 Decision no. 2016 of September 14th, 2010 of the Cluj - Napoca Court of Appeal5 Decision no. 112 of January 22nd, 2008 of the High Court of Cassation and Justice6 Ion Turcu, Legea Procedurii Insolvenţei, Comentariu pe articole, Editura C.H. Beck, 2009, p. 429 and subsequent.


contractus. Nevertheless, we consider the aforementioned opinion excessive and we embrace the contrary opinion according to which the other party could invoke exceptio non adimpleti contractus towards the insolvent debtor.

Furthermore, we are of the opinion that the provisions of Law no. 85/2006 prohibiting the termination of the contract due to the opening of the insolvency proceedings should have been interpreted in the sense that any contractual clause which deemed the initiation of the insolvency proceedings as grounds for unilateral termination is null and void. However, we believe that, in case other grounds for termination of the agreement exist, such as the contractor’s default in fulfilling its contractual obligations, the client should have been entitled to terminate the contract and hire another contractor. Another argument in this regard is the provision of the Civil Code stating that the client is entitled to obtain the termination for cause of the agreement in case the contractor is in default. There is no reason to state that the provisions of the Civil Code would have been rendered inefficient by the initiation of the insolvency proceedings, given that the Law no. 85/2006 did not contain an express derogation from such provisions, stating only that any contractual provision for termination of the ongoing contracts for the grounds of opening of the proceedings are null and void. Thus, we believe that the law restricted solely the grounds for termination for cause of the agreement that could have been agreed by the parties, and not the termination for cause of the contractor agreement itself.

On the other hand, the Insolvency Code aims to clarify the issue of ongoing contracts. This provides, firstly, at art. 123 paragraph 1, that the ongoing contracts are considered to be maintained at the date of opening of the insolvency proceedings and that any other contractual clauses of termination of the ongoing contracts, of forfeiting the benefit of the payment term or of the


accelerated repayment for the reason of opening the insolvency proceedings are null, except for certain situations.

We notice that the new regulation maintains basically the previous provisions, stipulating that the opening of the insolvency proceedings cannot represent the cause of termination of the ongoing contracts, without expressly forbidding the termination of the contracts for cause of non-fulfillment of its obligations by the insolvent debtor. In addition, the acceleration clauses based upon the opening of the insolvency proceedings are deemed null and void.

As a novelty, the Insolvency Code stipulates that the judicial trustee may terminate any contracts as long as these contracts have not been fully or substantially executed by all parties involved, within a limitation period of 3 months as of the date of the initiation of the insolvency proceedings. Leaving aside any potential discussion with respect to the normative qualification of the 3 months term as being a limitation period, we deem welcome the time limitation of the possibility of termination of the ongoing contracts by the judicial trustee, as this limitation offers an additional predictability to the contractual relations with the insolvent debtor. On the other hand, the other contractual party (in this case the beneficiary) may request the termination of the contract by a notice delivered to the judicial trusteee within the same limitation period of 3 months as of the initiation of the insolvency proceedings (to be approved by the judicial trustee).

Further on, art. 123 paragraph 3 stipulates that the debtor’s benefit of the payment term is forfeited if, within the first 3 months from the date of the initiation of the proceedings, the other contractual party notifies to the judicial trustee its intention to terminate the contract or to declare the accelerated repayment. Subsequently, in case the contract is maintained, the other contractual party may request its termination for cause because of the debtor’s fault, the syndic judge having the prerogative to solve the request. So, the possibility of termination of the contract due to the debtor’s fault after the opening of the insolvency proceedings is expressly provided by the Insolvency Code, making no distinction with respect to the moment when the debtor’s fault occurs: before or after the opening of the insolvency proceedings.

In view of the above considerations, we notice that there are express legal provisions applicable in the case specifically analyzed therein, based on which the beneficiary of the construction works may request to the syndic judge the termination for cause of the contractor agreement due to the contractor’s fault. Firstly, we notice that the relevant legal text in the Insolvency Code refers to termination for cause of the contract producing effects only for the future (in Romanian “reziliere”), which is specific for the contacts implying gradual


performance as per the Romanian legal provisions. If we admit the assumption that the text is applied only to this situation, the consequence would be that the text is applicable only to contracts implying gradual performance and the relevant contract will cease for the future, with no effects in respect of the already performed obligations.

In this context, it should be mentioned that there are some opinions according to which, in case of a contractor agreement regarding construction works, we are in the situation of a momentary (uno ictu) execution contract7, while other authors generally qualify the contractor agreement as a contract implying gradual performance8. In our opinion, the qualification of the contractor agreement as a momentary (uno ictu) execution contract or as a gradual execution contract, depends on a cumulum of factors, such as the scope of the contract (for example, an indivisibile creation or work or respectively the provisions of services), the way of performance of the contract agreed by the parties (for example, a work delivered entierly upon completion or respectively the performance of several works delivered in multiple stages of execution).

Despite the apparently restrictive legislative text, which expressly reffers only to the termination of a gradual execution contract, we believe that the legislator intended to cover also the termination of the momentary execution contracts. Therefore, we consider that regardless the qualification of the construction contractor agreement as an uno ictu execution contract or a gradual execution contract, according to the Insolvency Code the client is entitled to request the termination of this contract as a result of the faulty or unjustified failure to perform its contractual obligations to the insolvent contractor, irrespective of the fact that such failure occurs before or after the opening of the insolvency proceedings.

In another train of thoughts, in our opinion the fact that the request of termination of the contract is settled by the syndic judge according to the text of the Insolvency Code, actually renders ineffective an eventual commissoria lex clause, namely a clause agreed by the parties in the contractor agreement that would provide the possibility of automatic termination for cause of the contract by the client without the intervention of the courts of law or a clause regarding the unilateral termination for cause of the contract agreed by the

7 For an opinion in this respect, please refer to R. Dincă, Contracte civile speciale în Noul Cod Civil, Editura Universul Juridic, 2013, p. 204 and subsequent.8 Please refer to Fr. Deak, Tratat de drept civil. Contracte Speciale, Ed. IV, Editura Universul Juridic, 2006, p. 194


parties in the contractor agreement. We consider that this limitation is not justified, being contrary to the principle of the real intention of the parties, and therefore the text should be extensively interpreted in the sense that the syndic judge is entitled to solve the request, respectively to ascertain the termination of the contract only if the parties have not provided in the contractor agreement a commissoria lex clause or a clause with respect to the unilateral termination for cause of the contract or, although they provided such clauses in the contract, the application of such clauses is disputed between the parties. De lege ferenda, we deem that it would be necessary to clarify these circumstances.

THE OWNERSHIP OVER THE PARTIALLY COMPLETED CONSTRUCTION WORKS

The issue of ownership of construction works performed by the contractor until their takeover by the client is not undoubtedly regulated by the Civil Code, which expressly refers solely to destruction of the construction works prior to takeover and to the transfer of contractual risks. This is of particular interest for the opening of insolvency proceedings against the contractor as it is essential (among others) to determine whether the construction works are a part of the debtor’s patrimony.

As per the opinions expressed in the specialized literature9 , in the light of the former Civil Code of 1864, the holder of the ownership over the completed construction works until their takeover by the client differs on whether the materials used for performing the construction works belong to the contractor or to the client, as well as on whether they have been paid or not by the client. We believe that, following the same reasoning, the situation would be similar under the current regulation, as we will further demonstrate.

Firstly, in case the contractor performs the construction works using the building materials procured by the client, the partially completed construction works shall belong to the client. In this case, we deem that the contract is in fact a contract with gradual performance, according to some opinions expressed in specialized literature10. This situation does not raise special problems in case of initiation of the insolvency proceedings against the contractor, as the works already performed are the property of the client. Thus, in case of termination of the contract due to the contractor’s failure to fulfill obligations, the termination will only take effect on future works, as demonstrated, and the client will bear the cost of partially executed works and will have the possibility to hire a new contractor to proceed with the work.

9 Please refer to Fr. Deak, Tratat de drept civil. Contracte Speciale, Ed. IV, Editura Universul Juridic, 2006, p. 19510 Please refer to R. Dincă, Contracte civile speciale în Noul Cod Civil, Editura Universul Juridic, 2013, p. 204 and next


On the other hand, the rule provided by the Civil Code is that, in the absence of a contrary contractual provision, the contractor shall perform the construction works using its own building materials. Taking into consideration the aforementioned opinions expressed in the specialized literature, in this situation, the contractor would remain the owner of the materials even though such materials are incorporated within the construction, as well as of the works incorporating the materials. The moment when the ownership over the works would be transferred to the client is the takeover upon completion of the works, referred to as “provisional takeover” in the current Civil Code. Thus, in case the insolvency proceedings are initiated before the completion and the takeover of the construction works by the client, such works might be considered as still owned by the contractor. In this case, these assets should be part of the debtor’s patrimony. Therefore, all the creditors would be entitled to cover their receivables, to the possible extent, out of the amounts obtained following the liquidation of these works.

In order to avoid such consequence, in our opinion, the ownership of the partially completed construction works may be transferred to the client by takeover of the respective works, unless the parties agreed otherwise contractually. The takeover of the partially completed works could take place provisionally, while the contractor agreement is still in force or definitively, when the contractor agreement is terminated by the parties’ agreement or otherwise.

Although the Civil Code expressly refers only to the provisional takeover upon completion of the

works, which in our opinion is equivalent to takeover at works’ completion as stated by the Regulation for takeover of construction works and related facilities approved by Government Decision no. 273/1994, the regulations in the construction field allow that a provisional takeover is agreed upon the completion of any parts of the construction works which may be taken over individually. As per the Regulation for takeover of the construction works and related facilities, in case the client requests the takeover of a part of the works, before the completion of the works, a handover protocol shall be concluded


containing, among others, the state of the works and the conservation measures to be taken with respect to the works. As of the provisional takeover of the works, the ownership of these works, as well as the risks with respect to such works, except for the concealed defects and the defects arising from the improper performance of the works, are transferred to the client. Therefore, we are of the opinion that, if no takeover of the construction works was realised until the initiation of the insolvency proceedings, the partially completed construction works performed using the contractor’s materials, which are owned by the contractor, may be taken over by the client based

on a handover protocol concluded with the approval of the trustee, or under the surveillance of the trustee, as the case may be. Thus, we do not see any reason why the aforementioned provisions of Regulation for takeover of the construction works would not be applicable within the frame of the insolvency proceedings and we believe that the client is entitled, upon the initiation of the insolvency proceedings, to request a partial takeover of the parts of the works already completed. If the contractor agreement is terminated during the insolvency proceedings, in our opinion, the client will be entitled to ask for the takeover of the partially completed works in whatever stage of their execution, as the takeover upon completion of the works cannot be performed anymore in relation with the insolvent contractor since the works will have to be eventually continued by other contractors. Nevertheless, in both cases, the client will be obliged to pay the price for the construction works pro rata with their progress stage at the takeover of the works, unless agreed otherwise contractually. It is important to be mentioned that the contractor holds a legal mortgage over the works until the payment of their price.

A question to be asked is whether the contractor should be considered the owner of the construction works performed using its own materials even if


the executed works have been already paid by the client, but they have not been taken over by the client. In this case, would the client be entitled to ask the insolvent contractor for the handover of the executed works, in whatever stage of performance of the works or would the client be entitled only to make claims regarding the amounts already paid as price for the performed construction works within the insolvency proceedings, competing with the other creditors of the contractor?

Although there are no specific Romanian legal provisions in this respect, in our opinion, the works already paid by the client shall be deemed as being in the latter’s ownership even if not taken over by the client, while the risks related to such works shall remain with the contractor until their takeover by the client. Thus, we believe that the construction works cannot be deemed assets included in the insolvent contractor’s patrimony at the disposal of its creditors since they have been paid by the client. Our opinion is based on the nature of the contractor agreement whose prevailing purpose is the supply of services as per the client’s instructions corroborated with the fact that the construction works are built on the land over which the client has an ownership right or other real right11 (for example usufructs, superficies) and based on a building permit issued for the client. In this respect, there are also relevant the presumptions of ownership over construction works for the owner of the land plot where they are erected, provided by the Civil Code12 in the matter of artificial accession, in applying the principle of superficies solo cedit. Moreover, the opinion that the contractor is deemed as owner of the executed works is based on the fact that the latter is the owner of the materials (when provided by the contractor) incorporated in the works and since such materials have been paid together with the works incorporating them, there is no ground for the contractor keeping the ownership thereof. Even in case the materials would have been deemed sold to the client, in lack of contrary express contractual provisions, the ownership over the materials would have been transferred to the client, irrespective of the moment of handover of the materials, once the contract has been concluded.

As detailed above, we also deem that even after the opening of the insolvency proceedings against the contractor, the client is entitled to partially take over the construction works while the contractor agreement is still in force and to take over of the partially executed works in whatever stage of their performance after termination of the contractor agreement, since such works are not part of the debtor’s patrimony. At the same time, in our opinion the client who has already paid the executed works will not be forced to compete with the other creditors of the insolvent contractor in order to recover the price paid for the partially executed works, and it will be entitled to take them

11 We believe that when the scope of work of a contract is the execution of construction works on land belonging to the contractor, the contract will stand, in principle, on the legal nature of the contract of sale in relation to art. 1855 of the Civil Code12 Please refer to art. 577 and art. 579 of the Civil Code


over before or after termination of the contractor agreement. An opposing solution would bring unfair consequences for the client, incompatible with the nature of the legal relationship resulting from the contractor agreement, who would be penalized for the insolvency of the contractor and who would incur significant damages, such as those arising from the transfer of ownership over the performed works to a third party, following the enforcement of the contractor insolvency proceedings, while the land on which the works are erected remains the property of the client, from the non-completion of a particular project and / or inability to conduct an economic activitiy and / or from loss of financing for a particular project.

To avoid disputes arising from the interpretation of the legal provisions mentioned above, we recommend that the parties stipulate expressly within the contractor agreement that the construction works become the property of the client as of the moment of their performance without affecting the client’s right to ask remediation on any deficiencies and / or defects thereof by the contractor, while the risks thereof remains with the contractor until the takeover of the works.

RECOVERY OF THE DAMAGES INCURRED BY THE DEFAULT OF THE CONTRACTOR

The damages incurred by the client due to the contractor’s default prior to the opening of the insolvency proceedings may be recovered by the client only within the framework of the insolvency proceedings, being in competition with the other creditors of the contractor. Nevertheless, it should be considered that the creditors holding securities against the contractor, will have priority in recovering their debts, while all the other unsecured creditors will recover their debts on a pro rata basis depending on the value of the contractor’s


assets liquidated during the bankruptcy proceedings.

An aspect worth mentioning is whether the damages incurred to the client after the initiation of the insolvency proceedings in relation to the prior or subsequent receivables may be recovered. In this regard, the Insolvency Code states that, as of the opening of the insolvency proceedings no accessories (e.g. interest, damage payment, expenses) may be added to a receivable born prior to the start of insolvency proceedings13 (e.g. mortgage, pledge) and only exceptionally (i.e. when a reorganisation plan is approved) such accessories may be added to the receivables arising after the opening of the insolvency proceedings, as per the Insolvency Law. Therefore, as a rule, the client will not be entitled to apply and claim delay penalties with respect to its receivables against the debtor arisen before the opening of the insolvency proceedings as of the opening of such insolvency proceedings. In our opinion, such accessories do not refer to the penalties for delay in performance of the works by the contractor, if provided in the contractor agreement, which represent damages for failure to perform its contractual obligations and not accessories to a receivable. The damages themselves will be receivables of the client against the debtor and shall be recovered, if possible, within the framework of the insolvency proceedings, as well as the receivables against the insolvent contractor arisen after the opening of the insolvency proceedings. Although the opinions stated by various scholars vary, we believe that admitting the contrary opinion, meaning that the client would not be entitled to recover any damages incurred after the initiation of the insolvency proceedings, would be rather unfair towards the client and contrary to the spirit of law.

THE CONTRACTOR’S ABANDONED ASSETS AND MATERIALS

In the situation when the contractor agreement is terminated and consequently the activity of the debtor on the building site ceases, it is possible for certain assets or building materials belonging to the contractor to remain on the building site, namely on the plots of land belonging to the client and for the contractor to refuse to take them over despite the client’s request in this respect. Under these circumstances, the client could suffer serious damages, given that, as long as the land plots are occupied by various materials, these land plots may not be used totally or partially and therefore, the construction works might not be continued. Moreover, the client is not entitled to use these materials, if not already paid to the contractor, given that they belong to the contractor. In this situation, on one hand, the client has the option to deposit such materials to other premises, on the expense of the contractor. This might not be an efficient solution, given that, in most of the cases, it is unlikely to recover such expenses within the insolvency proceedings and it is not convenient for the client to incur expenditures, which might be even

13 Art. 80, paragraph 1 of the Insolvency Code


higher than the value of the contractor’s assets, without any assurance that he can recover these amounts. On the other hand, another solution available for the client in order to free the land plots is to submit a claim to the court in order to oblige the contractor to pick up the abandoned assets. The admissibility of such claim is arguable, given that, as of the initiation of the insolvency proceedings, all the judicial or extrajudicial claims, as well as all of the enforcement measures in order to recover the receivables from the debtor shall be suspended13. Nevertheless, we believe that these proceedings are not pursued in order to recover the receivables from the debtor, as they are related to a situation arisen after the opening of the insolvency proceedings and therefore they shall not be subject to suspension during the insolvency proceedings. Further, such claim should be admissible, since a successful outcome thereof would increase the wealth of the debtor and it would not be likely to diminish its patrimony.

However, in this latter case, during the court proceedings taking place prior to the acceptance of the claim or in case the claim is accepted by the court and the contractor does not comply with the ruling of the court, despite the criminal sanctions it may incur, the aforementioned problems will still subsist for the client, who will be only entitled to deposit the abandoned assets at the expense of the contractor. As previously mentioned, this is a rather inconvenient situation, given that the client should incur the deposit expenses and recover them form the insolvent contractor, within the framework of the insolvency proceedings. For these reasons, we believe that a solution to be legally implemented for the future would be for the law to expressly provide the client’s option to sell the abandoned assets, at least in case the estimated deposit expenses are expected to exceed the value of the assets.

CONCLUSIONS

The initiation of the insolvency proceedings against the contractor is likely to prejudice significantly the client since under such circumstances the latter’s rights in case of failure of the contractor to fulfil its obligations are limited under the Romanian legal provisions and case law and there are divergent opinions concerning the extent to which the client is able to enforce such rights. In our opinion the intention of the parties existing at the moment of conclusion of the contractor agreement and the nature of the contractor agreement itself shall prevail in assessing the client’s rights during the insolvency proceedings against the contractor in order to avoid an abusive application of the relevant legal provisions in force in the detriment of the client. According to our analysis under this article, the Romanian legal provisions shall be interpreted, in particular, as entitling the client, even after the initiation of the insolvency proceedings against the contractor, to request

13 Art. 75 paragraph 1 of the Insolvency Code


the termination of the contractor agreement for cause in case of default of the contractor and to claim the takeover of the construction works executed by the contractor in whatever stage of execution, as their owner, while the client will have the obligation to pay such works, unless they have been already paid by the client or otherwise agreed contractually. De lege ferenda, we deem it necessary to amend the law in order to clarify the specific issues raised above, and to harmonize the legal provisions in the field both in terms of content and in terms of terminology.


ENFORCEMENT OF DECISIONS ISSUED BY THE DISPUTE ADJUDICATION BOARD UNDER FIDIC (1999) CONTRACTS

Certainly, parties entering into a contract will seek for the most cost and time effective method for solving any disputes arising between them. In Romania regular proceedings conducted in front of ordinary court of law are known to last for a considerable amount of time, especially in the case of infrastructure related litigation. Such particularly specialised litigation may be challenging due to its complexity and is expected to involve experts and considerable documentary evidence to be analysed by both the parties and the court. As an alternative, the FIDIC standard forms provide a time effective procedure for solving claims and disputes between the parties and allow experts in the field to be involved and acquainted with the project since the very beginning. Nevertheless, such alternative to solving disputes does have certain drawbacks. In case of disputes resulting from FIDIC based contracts, the path from starting a dispute to the point of obtaining an enforceable title against the opponent has sometimes proven difficult. On this subject, the article tries to briefly identify some of the problems that may occur during a dispute settled according to the FIDIC provisions and propose some of the solutions available under the Romanian legislation.

FIDIC IN ROMANIA

FIDIC is the acronym for the French name Fédération Internationale Des Ingénieurs-Conseils of the International Federation of Consulting Engineers, which promotes the interests of consulting engineering firms. FIDIC created a range of standard conditions of contract for the construction, plant and design industries, used on a large scale around the world.

In Romania, the FIDIC standard forms of contract1 are used both by private entities and public authorities – by the latter in their tender procedures related to infrastructure. The conditions of contract are used in infrastructure projects of national interest, financed by public funds as established by the Government Decision no. 1405/ 2010. Also, a series of secondary legislation provides that the standard contracts can be used for specific infrastructure sectors, such as railways, highways and national roads. The legislation regarding public procurement contracts relevant for infrastructure also makes reference to

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1 Reference is further made to FIDIC 1999 edition.

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various FIDIC contracts. For instance, the Order no. 774/2013 of the Ministry of Transportation approved the use of the standard FIDIC contracts on railway projects financed by public funds. The same is used for road infrastructure.

On a similar note, the National Authority for Monitoring Public Procurements approved by Order no. 138/2012 the documentation for award of public procurement contracts by using the contract forms designed by FIDIC - the Red Book and Yellow Book, in the form previously approved by the Government Decision no. 1405/2010.

As such, the standard forms are used on a wide range of contracts concluded by the public authorities that are responsible for developing infrastructure projects in Romania. This would require that, in case of a dispute, the parties revert to the remedies set forth in the FIDIC standard forms, once the FIDIC is incorporated.

WHAT IS A DAB DECISION?

According to the standard FIDIC clauses, in case of a dispute between the parties entering into such contract, this will be settled following the procedure in the contract. Traditionally, this is found under Clause 20 [Claims, Disputes and Arbitration] in the FIDIC contracts. This provides the steps the parties take before entering into a more formal dispute, such as arbitration and establishes a special board called the Dispute Adjudication Board or DAB.

This DAB is usually comprised of three members assigned by the parties as specified in the contract. The parties will appoint one member each, and further, the members appoint the chairman of the board. When the contract is concluded, a list of potential DAB members may be agreed by the parties. As such, the parties will choose the members from the list established, if any dispute arises.

The DAB acts similar to an arbitral tribunal but with less formal requirements when it comes to the procedure it follows. Although it is entitled to settle any dispute arising during the performance of the contract, the parties are free to agree upon a full-term board or an ad-hoc board. The ”full-term” board is appointed before the commencement of the works and assist the parties, if needed, in all disputes that may arise during the performance of the contract, whilst an ”ad-hoc” board is appointed when and if a particular dispute arises. It is important to mention that the parties have the responsibility of paying the fees of the board.

As for the precise scope of the dispute, the DAB will solve any dispute between the parties in connection with or arising from the contract or the execution of


works, including any dispute as to any certificate, determination, instruction, opinion or valuation of the Engineer. The procedure in front of the DAB is mainly in writing, as the party requesting a DAB decision will submit a claim drafted similarly to a court claim.

The board will issue a decision within a term of 84 days after receiving a reference and once the decision is issued, the parties are required to give

effect to it, unless they decide differently together by amicable settlement. It is important to mention that the DAB decision is not enforceable in itself, and therefore the successful party must follow the next steps provided by the contract in order to finally obtain an enforceable decision against its opponent. Notice should be taken to the fact that the provisions of Clause 20 which provides the mechanism for solving disputes presented above may be amended by the parties wishing to use the FIDIC standards conditions so that a DAB decision may not be necessary. This does not mean that the remaining FIDIC provisions are any less binding.

As mentioned in the introductory part of this article, the Romanian legislation incorporates FIDIC in various infrastructure related contracts – highways, roads, railways. As such, the already standardised provisions are once more adapted to fit the requirements of the public authorities. For example, the Order no. 774/2013 issued by the Ministry of Transportation in relation to the FIDIC contract applying to railway infrastructure investments financed by public funds, expressly provides that the DAB and arbitration provisions do not apply.

The amended contract stipulates that the disputes between the parties shall be settled by an ordinary civil court at the headquarters of the beneficiary and does not allow the parties to resort to arbitration. Regardless on the validity of such a jurisdiction clause, it is important to stress that the DAB procedure and all the shortcomings of enforcement of a DAB decision may be avoided


by simply amending the standard contract clauses and referring the dispute to the regular courts of law. However, in case the parties do not decide in this respect, the provisions of clause 20 providing the procedure in front of a dispute board above will apply.

HOW TO ENFORCE A DAB DECISION IN ROMANIA

Once a DAB decision is issued granting the party additional sums resulted from the performance of a contract, the successful party would be interested in enforcing such a decision. However, this decision is not an enforceable title under the Romanian legislation.

The FIDIC standard forms provide the possibility of enforcing the DAB decision by arbitration, but the request for arbitration will be drafted differently in case the DAB decision is final or not.

In order to move forward to arbitration the following must be considered:• has the other party expressed dissatisfaction with this DAB decision?• has a notice of dissatisfaction been given in the 28-day-term provided in

the contract in this respect?• has the party requested the review of the DAB arbitration?

Knowing these key issues is important, as the way of enforcing a DAB decision is different, depending on the answers above.

ENFORCING A FINAL AND BINDING DAB DECISION

The standard FIDIC provisions stipulate that the DAB decision is final and binding unless either party has given notice of dissatisfaction within 28 days after receiving it.

In case none of the parties notifies its opponent, the DAB decision is enforceable by means of arbitration. This implies that the successful party refers to arbitration the failure of its opponent to abide by the DAB decision. This may be done under FIDIC provisions without any other DAB decision being required in order to request an arbitral award compelling the party to abide by the initial DAB decision.

According to the Romanian legislation, the arbitral award is enforceable just like a regular final court decision, with the help of a public enforcement officer. In the situation explained above, the party commences the arbitration proceedings under sub-clause 20.7 [Failure to comply with Dispute Adjudication Board’s Decision] and refers to arbitration the failure of the other party to comply


with the DAB decision.

We must mention that the wording of the contractual clause on arbitration is relevant at this point. Under Romanian law, it is required that the jurisdiction clause inserted in a contract mentions expressly the scope of the arbitration and no arbitration request may be submitted unless it falls under the scope agreed by the parties. The parties are also free to decide on the rules of the procedure for the arbitral tribunal.

It is important to stress that if a request for arbitration was submitted, the arbitral tribunal must observe all the mandatory provisions of the Romanian law when settling such request. To this end, the Romanian authors2 highlighted a key issue regarding the arbitration under sub-clause 20.7 [Failure to comply with Dispute Adjudication Board’s Decision], namely that the arbitrators would still review the merits of the case in this stage of arbitration. In other words, even if the parties are diligent and insert a clause in the contract allowing for arbitration in case of failure to comply with the DAB decision, the arbitral tribunal may

still reanalyse and revise the merits of the decision.

This might be justified as necessary in order to ensure the parties’ right to fair legal proceedings (defence), the right to present to a tribunal any evidence that may be deemed necessary, which are mandatory requirements of the law. In other words, the successful party may address the tribunal a request to enforce the final and binding DAB decision, but the opposing party may question, in defence, the merits of the DAB decision and, in this case, request the court to analyse all the available evidence.

As the arbitral tribunal is required by law and its own rules to conduct the arbitration by complying with all legal mandatory provisions, it must consider all the arguments and evidence raised in defence by the other party. Therefore it is possible, under this circumstance, that a DAB decision may be indirectly reviewed, in the sense that the arbitral tribunal rejects the claim for enforcement on the account that the DAB decision is incorrect. In case the arbitral tribunal

2 V.M: Ciobanu, C. Vasile, Consideraţii privind posibilitatea de a pune în executare o decizie DAB obligatorie dar nedefinitivă, prin intermediul unei hotărâri arbitrale provizorii sau parţiale analizată din persectiva dreptului procedural roman, published by www.juridice.ro


rules in favour of the claimant, the arbitral award issued is final and represents an enforceable title under article 615 of the Romanian Civil Procedure Code.

ENFORCING A BINDING (BUT NOT FINAL) DAB DECISION

The enforcement of a binding DAB decision that is not final has raised a lot of debate, mainly because it offers no guarantees to the successful party that at the end of a costly arbitration there are any goods left to enforce.

According to the procedure established by the FIDIC standard clauses, a DAB decision is not final (and enforceable as explained above) if a notice of dissatisfaction was given in relation to it, by either party. A party giving notice of dissatisfaction with regard to a DAB decision in the 28-day-term under sub-clause 20.4 [Obtaining Dispute Adjudication Board’s decision] is entitled to refer to arbitration and request that the DAB decision be reviewed. Also, the other (successful) party may refer the dispute to the arbitral tribunal3, once the notice of dissatisfaction is received. The notice itself makes the DAB decision, albeit binding, not enforceable by arbitration.

Unless otherwise agreed by the parties, the dispute shall be finally settled by an arbitral tribunal under the rules of arbitration of the International Chamber of Commerce, by three arbitrators as agreed under clause 20.6 [Arbitration]. The arbitral tribunal shall have full power to open up, review and revise the DAB decision.

However, the arbitral tribunal may take a considerable time to reach a final decision, because at this stage the parties are free to enter any evidence and question any and all the issues in the DAB decision. In this situation, the party having a favourable decision seems to have no means of securing its (temporary) win in the DAB procedure as the FIDIC standard provisions do not mention any possibility to request provisional or interim measures at this stage.

The solution in this case lies in the provisions of the Romanian procedural law. Under article 585 of the Civil Procedure Code of Romania, provisional measures may be taken either by the arbitral tribunal, in case of an ongoing (internal) arbitration, or by the court of law, in case no request for arbitration was submitted.

The provisional measures may refer to garnishment or freezing of assets and/ or accounts of the opposing party until the case is settled. Surely, this type

3 V.M. Nicolae, Prescripţia extinctivă și procedurile FIDIC (1999) de soluţionare a litigiilor în dreptul privat român, RRDP nr. 5/2011, p. 122;


of measures may be taken if some (restrictive) requirements are met, but it is important to mention that these are available to the party having a favourable DAB decision.

The last issue that may cause a debate as regards the interim measures is whether the competent court of law / the arbitral tribunal may order the payment of sums mentioned in the DAB decision by interim award, under the Romanian legislation. In foreign jurisdictions, such measures are possible. For instance, a party is entitled to request an interim award ordering provisional enforcement of the DAB decision. This is allowed on the basis that the parties agreed by contract that the DAB decision is binding, although it may still be challenged and even reversed at the end of the arbitral proceedings. The reasoning behind such an award may be that the DAB decision is binding for both parties and have effect as soon as they are made, notwithstanding any notice of dissatisfaction or any request for arbitration.

This is not uncommon when it comes to ICC arbitration. Such an interim award was rendered by an arbitral tribunal4, enforcing the decision of the Engineer under clause 675 of FIDIC conditions by interim award. The arbitral tribunal ordered the party to pay the amounts in such decision and continued the proceedings in the arbitration brought on by the parties.

As such, whether this is possible under the Romanian legal provisions is questionable, as the law allows for provisional measures if, among other requirements, such measures are temporary and reversible. Or, in this case, the consequences of enforcing a DAB decision are final and cannot be removed easily. Our opinion is that, in spite of decisions obtained in other jurisdictions, the enforcement of a DAB decision – ordering payment of certain amounts – by interim award would not be possible under the Romanian law as such a measure is irreversible and may lead to further disputes. The party requesting arbitration should, nevertheless, consider applying for provisional measures, such as freezing of assets or accounts of the other party.

CONCLUSIONS

The mechanism for settling disputes under FIDIC may have its shortcomings, but it offers many advantages for the parties, by saving time and considerable amounts of money with costly court litigation.

The Romanian legislation may bring some challenges when it comes to

4 ICC case no. 10619 / 2001 published in ICC International Court of Arbitration Bulletin, Volume 19, 2008, commented by Mr. C. Seppala, White & Case5 Ar”[…] the contractor and the employer shall give effect forthwith to every such decision of the Engineer unless and until the same shall be revised as hereinafter provided in an amicable settlement or an arbitral award […]”


enforcing a DAB decision, in the sense that such a decision is not deemed to be an enforceable title and additional steps must always be taken, regardless if the decision is binding and final. However difficult, the legal provisions ensure that the fundamentals of the civil trial and the mandatory provisions of the Romanian Civil Procedure Code are also respected in the case of disputes under FIDIC provisions.


WHAT TO DO WHEN A UTILITIES COMPANY ENTERS INSOLVENCY

“Insolvency” is a word dreaded by any company. But what happens when a utilities company enters insolvency? The last two years marked a significant increase in the number of utilities companies that went insolvent, especially electric and thermal power producers. The best-known and most controversial example is that of Hidroelectrica, the state-owned biggest hydro-power producer in the country, followed by other companies such as Electrocentrale Galati, Termica Suceava, RAAN. The media has recently started to signal that other energy producers are on the brink of insolvency.

The collateral effects of the insolvency of a utilities company are complex and impact multiple stakeholders: the large consumers, that will have to migrate to another producer; the distribution companies that might face financial difficulties while migrating to another producer; the raw materials/primary utilities suppliers, as well as the equipment and services suppliers of such company, that will in their turn face financial difficulties because the utilities company is unable to pay them, which could even subsequently lead to the insolvency of such suppliers.

In short, the insolvency of the utilities producer has a significant impact on all the entities with which it has contractual relations. This article aims to analyse, from the perspective of the distribution companies’ and suppliers’ necessities, several measures that must be adopted in view of minimising the negative effects that the insolvency of a utilities producer has on its contractual partners. We shall analyse, on the one hand, the measures to be taken before the utilities producer goes insolvent, and on the other hand, the measures to be taken after such company enters insolvency. Our analysis is based on the new legislation in insolvency matters, namely Law no. 85/2014 regarding insolvency prevention and insolvency proceedings, hereinafter referred to as the “Insolvency Law”.

PRE-INSOLVENCY MEASURES

Once a utilities producer enters insolvency, most of the problems incurred by its contractual partner derive from the latter’s capacity as creditor, more precisely from the recovery of its receivables against the insolvent company.

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There are a couple of legal instruments that, once comprised in the contract concluded between the utilities producer and its distributor/supplier, will allow the latter to improve its status within the insolvency proceedings and increase its chances for recovery of the receivable. Such instruments are the securities in rem and the retention of title.

The “retention of title clause” is a contractual clause whereby the purchaser, while having possession of the supplied good, does not acquire the property of the supplied good until the full purchase price is paid to the seller. When talking about a utilities company, such clause is especially applicable in the case of the contracts concluded with its suppliers, such as equipment or raw material suppliers.

A retention of title clause need not be complex; in fact, most retention of title clauses have simple wordings, such as: “Ownership of the Equipment shall be transferred to the Beneficiary subject to full payment of the supplied Equipment”.

In the context of insolvency, retention of title gives the supplier an advantage as to the recovery of receivables against the insolvent company. Thus, as of the date of opening of the insolvency proceedings, the supplier’s obligation to transfer ownership shall be considered executed, and the supplied good shall become part of the debtor’s patrimony. Nevertheless, if publicity formalities have been performed with respect to the retention of title, i.e. registration in the Electronic Archive of Movable Securities, then the supplier-creditor becomes the holder of a preference clause, assimilated to a mortgage right upon the respective good. Similarly, within the meaning given to this notion by the Insolvency Law, the creditors holding a preference clause are those creditors holding a receivable that is secured by a privilege, a mortgage right, or a pledge upon the assets


in the debtor’s patrimony, regardless of whether the insolvent company is the main debtor or a third guarantor towards the respective creditors.

This leads us to the point of this section. The general rule within the insolvency proceedings is that, as of the opening of such proceedings, all judicial/extrajudicial actions or enforcement measures for obtaining the receivables against the debtor are suspended. Nevertheless, the Insolvency Law institutes an exception to this rule as regards the creditors holding a preference cause. Thus, in certain conditions, such creditors may request the syndic judge to lift the above-mentioned suspension as regards their receivable, and to order the immediate liquidation of the asset that is the object of such preference cause. The syndic judge may reject such request only if the judicial administrator/debtor proposes, in exchange, other measures for protecting the creditor, e.g. performing periodic payments in favour of the creditor, or supplementing/replacing the object of the security. The creditor holding a preference cause will not only be paid with priority following the liquidation of the insolvent company’s assets; such creditor will also participate, with priority, to any distribution of sums even before the asset affected by the preference cause is sold.

To sum up, when being a supplier of a utilities company, it is highly recommended that the contracts concluded with this company be secured by a mortgage, pledge or retention of title, as in case of insolvency of the utilities company. Such securities give the supplier an advantaged status with respect to the prospects of recovery of its receivables. Of course, generally speaking, it is always preferable for a secured supplier to proceed to the enforcement of its security as soon as the conditions with respect thereto are met, in order to avoid the complications generated by an eventual insolvency of its debtor.

MEASURES DURING THE INSOLVENCY PROCEEDINGS

Additionally to the “prevention” measures mentioned above, there are several aspects of the insolvency proceedings and specific actions that the contracting party of a utilities company must take into consideration, in view of assuring an optimum protection of its rights.

THE REQUEST FOR RECEIVABLES. CURRENT RECEIVABLES.

Once the utilities company enters insolvency, i.e. when the syndic judge rules the opening of the insolvency proceedings, the first thing that the contracting party must do is make sure it submits its request for receivables within the deadline established by the syndic judge in this respect.


The request for receivables must comprise the grounds of the receivable, any preference causes (see above), and all justifying documents with respect thereto, such as: the supply contract, the invoices afferent to the receivable, the mortgage/pledge deed, or, if the case may be, any court ruling by which the insolvent company had been ordered to pay an amount of money to the creditor.

When preparing a request for receivables, the creditor must pay particular attention to when its receivables against the insolvent company were born. Thus, the receivables born prior to the opening of the insolvency proceedings must be comprised in the request for receivables and shall be registered in the preliminary receivables table, regardless of whether they are subject to a condition or whether their due date is subsequent to the opening of the proceedings. Consequently, such receivables shall be entitled to participate to the collective distribution of amounts.

On the other hand, the receivables born after the opening of the insolvency proceedings are not subject to the request for receivables and will not be registered in the preliminary receivables table. As per the Insolvency Law, such receivables born after the opening of the insolvency proceedings make up the special category of “current receivables”, which must be paid as such, with priority, according to the documents out of which they result.

In order to determine whether a receivable against the insolvent company is a “current” receivable, the creditor must analyse when the actual delivery of equipment/materials/services generating the receivable took place. If such delivery was performed prior to the opening of the insolvency proceedings, then the corresponding receivable must be subject to the request for receivables and will be included in the receivables table. If, on the other hand, the delivery was performed after the opening of the insolvency proceedings, the corresponding receivable is a “current receivable”, and the creditor may


submit a request to the debtor’s judicial administrator, demanding that the receivable be paid as such. An eventual rejection from the judicial administrator may be challenged by the creditor before the syndic judge.

When holding a current receivable that has been recognized by the judicial administrator/syndic judge, the creditor may request the opening of the bankruptcy proceedings against the insolvent company, if such current receivable is higher that RON 40,000 and is due for more than 60 days from such recognition from the judicial administrator/syndic judge. While bankruptcy may not be the best or the most profitable option as to a utilities company, the Insolvency Law nevertheless grants such option to the unpaid creditor of current receivables.

Last but not least, similarly to the situation presented in the previous section “Pre-insolvency measures”, a creditor holding a preference cause born during the insolvency proceedings shall participate with priority to any distribution of sums.

COMPUTATION OF PENALTIES. RIGHT OF SET-OFF.

Another aspect that must be taken into consideration by the supplier when filing a request for receivables is the fact that, as a rule, any interest or penalty of any kind (e.g. delay penalties) may only be calculated up to the date of opening of the insolvency proceedings.

Further, it also very important for the creditor to bear in mind that the opening of the insolvency proceedings against the utilities company does not affect the former’s right to invoke set-off of its receivable with any receivable the insolvent company has against it, provided that the conditions for legal set-off are met as of the date of opening of the insolvency proceedings. For example, if the equipment supplier holds a receivable against the utilities company (deriving from the delivery of equipment), and the utilities company holds against its supplier a receivable consisting in penalties for delayed delivery, the supplier may invoke set-off if both receivables are certain, liquid and due on the date of opening of the insolvency proceedings. The same is applicable for the mutual receivables born after the opening of the proceedings. Being able to invoke set-off relieves the creditor, at least in part, from the uncertainty as to which extent it will be able to recover its receivable within the proceedings.

TERMINATION OF ONGOING CONTRACTS

The general rule set forth by the Insolvency Law is that the contracts to which the insolvent company is part, in course of performance upon the date of


opening the procedure, are deemed maintained in full force. Any contractual clauses providing the termination of such contracts for reason of opening of the procedure are null and void.

Notwithstanding this general rule, in view of maximizing the debtor’s estate, the judicial administrator may terminate any contract, as long as such contract has not been completely or substantially executed by the parties thereof. Thus, this particular prerogative of the judicial administrator may affect any contract concluded by the utilities company, i.e. either of its suppliers, distributors or direct consumers. For example, if the judicial administrator of a power generation company considers that the prices stipulated in the contract with this company’s distributor are too high, it may terminate such contract under the above-mentioned conditions. The judicial administrator’s decision to terminate the contract may nevertheless be challenged by the contracting party before the syndic judge. The contracting party is also entitled to file a claim for damages against the insolvent company, which will also be settled by the syndic judge.

If a contract is maintained by the judicial administrator (i.e. it is not terminated), the contracting party is entitled to request before the syndic judge the termination of the contract for default of the insolvent company, if the case.The insolvent company’s contracting party is also entitled to ask for termination of a contract, for any reason, e.g. if it considers that such contract is no longer profitable for it. In this case, the contracting party must submit a written notification to the judicial administrator in this respect, within three months from the opening of the insolvency proceedings. The contract shall be deemed terminated if the judicial administrator gives a positive response to this notification within 30 days, or if the judicial administrator does not issue


any response within the 30 days term.

VOTING RIGHTS. PROPOSAL OF REORGANIZATION PLAN. INDISPENSABLE CREDITORS.

Once registered in the receivables table, a creditor has the right to vote in the creditors’ assembly, to the extent granted by the amount and type of its receivable. The creditors’ assembly is a body specific to the insolvency proceedings, which may decide on various issues regarding the insolvent company. One of the important votes a creditor may express within such assembly is the one concerning the designation of the judicial administrator and the designation of the creditors’ committee. A provisional judicial administrator for the insolvent company is always appointed by the syndic judge, via the ruling of opening the insolvency proceedings. However, the confirmation of this judicial administrator is subject to the creditors’ vote during the first creditors’ assembly. The creditors may confirm or may reject the provisional judicial administrator, case in which they may make new propositions with respect to who the judicial administrator should be. The decisions of the creditors’ assembly are taken by the creditors holding together the majority of the present receivables, based on a quorum of 30% from the total value of registered receivables entitled to vote. If one creditor holds more than 50% of the total receivables against the insolvent company, then such creditor alone may designate a new judicial administrator. Similarly, the first creditors’ assembly may elect the creditors’ committee, composed of three or five creditors among the top 20 creditors holding the highest receivables which volunteer to be elected. The benefits of being elected in the creditors’ committee is that this specific body (distinct from the creditors’ assembly) has a number of prerogatives, such as: analysing the insolvent company’s situation and making recommendations to the creditors’ assembly with respect to the proposed reorganization plans; challenging the judicial administrator’s reports; proposing measures regarding the insolvent company to the creditors’ assembly; requesting that the debtor’s self-management right be lifted; filing actions for annulment of the fraudulent acts concluded by the insolvent company, when such actions have not been filed by the judicial administrator/liquidator.

Another important vote that a creditor may express within the insolvency proceedings is that regarding the insolvent company’s reorganization plan. The reorganization plan is usually proposed by the insolvent company or by its judicial administrator. Nevertheless, one or more creditors holding together at least 20% of the receivables registered in the final receivables table (i.e. the table that is published after all challenges against the preliminary receivables table have been settled) may also propose a reorganization plan.


This is important because the reorganization plan provides the treatment of the receivables, the receivables payment schedule, and the measures for implementation thereof, such as the obtaining of financing, the merger or the spin-off of the debtor, liquidation of part of its assets, modification of guarantees, etc.

Further, in order to be implemented, a reorganization plan must first be voted by the creditors, and then confirmed by the syndic judge. For the voting of the reorganization plan, the Insolvency Law establishes five distinct categories of creditors: secured creditors; employees; the state budget; indispensable creditors; all other unsecured creditors. The “indispensable creditors” are an optional category of creditors, defined by the Insolvency Law as being “the unsecured creditors that supply services, raw materials, materials or utilities without which the activity of the debtor cannot take place, and which cannot be replaced by any other supplier of services, raw materials, materials or utilities of the same type, in the same financial conditions”. In order to be able to be constituted in this distinct category voting the reorganization plan, such indispensable creditors must be comprised in a list submitted by the insolvent company before the syndic judge in the incipient stages of the proceedings, and subsequently confirmed by the judicial administrator. Given that the syndic judge confirms a reorganization plan if, among others, such plan had been voted by the majority of categories of creditors, it can be advantageous for a supplier to endeavour in being acknowledged as an indispensable creditor.


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Documents

Issue no. 2, October 2014 - bpv-grigorescu.com · 2 Ion Turcu, Legea Procedurii Insolvenţei, Comentariu pe articole, Editura C.H. Beck, 2009, p. 453 3 Gheorghe Piperea, Insolvenţa: