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Amendment of the Insolvency Law of the Republic of Moldova

 

The Parliament of the Republic of Moldova approved the Law No. 141 dated 16.07.2020 amending the Insolvency Law No. 149/2012, published in the Official Gazette on 14.08.2020 (“Law amending the IL”). The law shall enter into force one month after its publication, i.e. on 14 September 2020.

BAA “Turcan Cazac” was actively involved in the activity of the working group for monitoring the application of IL, created within the Ministry of Economy and Infrastructure, activity that preceded the approval of the Law amending the IL.

The Law amending the IL mainly amends and completes the following areas:

      I.    Requirements for receiving the application on initiation of the insolvency proceedings;

      II.   Regime of the secured creditors;

      III.  Post-commencement financing;

      IV.   Situation of the contracts concluded by the debtor;

      V.    Negotiations of the debtor with creditors and accelerated restructuring;

      VI.   The procedure of appeal of the judgements and orders in the insolvency proceedings;

      VII.  Rights and obligations of the insolvency administrator / liquidator;

      VIII. Registry of insolvency cases.

 

I. REQUIREMENTS FOR RECEIVING THE APPLICATION ON INITIATION OF THE INSOLVENCY PROCEEDINGS

In the application on initiation of the insolvency proceedings filed by the debtor must be indicated data on the statements of claims filed in court or arbitration, with the participation of the debtor, as well as the writs of execution over debtor’s assets.

The amendments also detail some other obligations of the debtor that submits the application, namely to provide proof of notification of the debtor’s members (associates, shareholders) or proof of impossibility to notify them, as well as proof of notification of the State Tax Service about the intention to file the application on initiation of the insolvency proceedings.

For the application on initiation of the insolvency proceedings filed by the creditor, the law no longer provides the need to attach the final courtdecision or arbitral award or the writs of execution. At the same time, the Law amending the IL introduces a presumption regarding the debtor’s inability to pay, namely when the debtor is in delay to pay the monetary obligation for a period longer than 60 days.

 

II. REGIME OF SECURED CREDITORS

The Law amending the IL introduces a new category of secured creditor, namely that of a seller which is secured by reservation of the right of ownership (reservation of ownership), if the seller has not exercised the right to terminate the sale-purchase agreement.

Several amendments are made to the situation of creditors who have concluded investment contracts for house building. In particular, it has returned to the initial hypothesis established when the Insolvency Law No. 149/2012 was adopted, according to which only individuals who have concluded such contracts can be considered secured creditors. To be noticed that, starting with 14.01.2019, according to the Law No. 133 dated 15.11.2018, the legal entities were also considered secured creditors, same as the individuals.

To note that through the reform of the Civil Code, which entered into force on 1 March 2019, the real estate investment contracts were assimilated with the regime of the contract for the sale-purchase of real estate under construction, now regulated by Articles 1170-1176 of the Civil Code.

Important: The law provides for special rights of the individual as buyer who has concluded an investment contract in house building (purchase of future immovable asset), setting out that such a buyer has the right of option to:

(a)        separate the immovable asset from the insolvency estate; or

(b)        claim the performance of the contract by the debtor within the insolvency proceedings.

In case of exercising the right to separate the immovable asset from the insolvency estate, the insolvency administrator is bound to separate the asset, subject to the payment by the buyer of the outstanding amounts. However, in the event that the construction is not completed, the insolvency administrator may propose a restructuring plan, which provides for the completion of the construction. If the proposal for restructuring is not accepted by the creditor’s general meeting, then the law provides for the obligation of the insolvency administrator to separate the asset and to conclude the deed of conveyance with the purchasing investor.

It is provided a limitation of the rights of secured creditors against the insolvent debtor as a third-party guarantor / mortgagor. Such a secured creditor will not enjoy all the rights of a creditor, but will be able to pursue the encumbered assets only under the rules established by Articles 81, 130-132 and 184 of the IL.

 

III. POST-COMMENCEMENT FINANCING

The Law amending the IL introduces the possibility of financing after the insolvency proceedings are commenced (“post-commencement financing”). The insolvency administrator / liquidator has the competence to decide on the post-commencement financing, and if the financing acts exceed the legal proportion value, their conclusion should be approved by the creditor’s bodies. The obligations resulting from such financing are qualified as expenses of the insolvency proceedings and are paid with priority over other obligations.

In order to guarantee the performance of the obligations resulting from post-commencement financing, the administrator may encumber by first ranking pledge the assets that are free of guarantees, including newly acquired assets and assets recovered as effect of annulment of debtor’s legal acts, or may encumber by lower ranking pledge the assets already encumbered with guarantees.

 

IV. SITUATION OF THE CONTRACTS CONCLUDED BY THE DEBTOR

The insolvency administrator’s right to terminate lease or rental agreements in which the debtor is a lessee or renter are extended over movables, previously the right of termination being limited only to the lease and rent of immovable assets. However, the termination of the contract can operate only by complying with the legal period for termination.

Once the Law amending the IL enters into force, the creditors will be entitled to file a claim for annulment of the legal acts concluded by the debtor within the suspect period established by law. The right could be exercised after obtaining the consent of the insolvency administrator / liquidator. In case the insolvency administrator / liquidator refuses to consent, the creditor may request the authorization from the insolvency court to submit the claim for annulment.

The period for submitting the claim for annulment of the legal acts is 6 months from the moment of finding about the annulment grounds, but not later than 12 months from the commencement of the insolvency proceedings. At the same time, the grounds for annulment are restated, and the suspect period of the concluded acts has been amended, mainly, from 3 years to 2 years, and, respectively, from 4 months to 6 months.

 

V. NEGOTIATIONS OF THE DEBTOR WITH CREDITORS AND ACCELERATED RESTRUCTURING

The law introduces the possibility of the extrajudicial negotiations between the debtor and creditors for the purpose of approving a plan and apply for the accelerated restructuring procedure.

In order to benefit from this procedure, the debtor, who is in financial difficulty, will submit to the insolvency court a notification regarding the extrajudicial initiation of the negotiations with the creditors. Once the notification has been submitted, the debtor may request the insolvency court to suspend the enforceability of the judgements over debtor’s assets during the negotiations, a period which shall not exceed 2 months.

In case that, following the negotiations, a restructuring plan is approved, the debtor will submit to the insolvency court an application to commence the accelerated restructuring procedure, attaching, inter alia, the restructuring plan and proof of its acceptance by the creditors affected by the plan. Once the accelerated restructuring procedure is commenced, the insolvency court will appoint the interim administrator, who is bound to draw up an independent report on the real possibility of restructuring and maintaining the debtor’s activity.

The law sets short deadlines for summoning creditors, organizing the hearings on validation of the claims, as well as confirming the accelerated restructuring plan by the court.

In case that, following the negotiations, a plan is not approved, the debtor is obliged and the creditors are entitled to submit an application initiate the insolvency proceedings.

 

VI. THE PROCEDURE OF APPEAL OF THE JUDGMENTS AND ORDERS IN THE INSOLVENCY PROCEEDINGS

The law establishes the right to appeal the judgments and orders of the insolvency court only in the cases expressly provided by law. The Law amending the IL expands the situations in which the parties can appeal the decisions and orders of the insolvency court. Thus, for example, once the Law amending the IL enters into force, the following decisions will be subject to appeal: court order on the restitution without examination of the introductory request, court order on the separation of the asset from the insolvency estate, court decision on the admission or rejection of requests to annul the debtor’s legal acts etc.

The appeal will not suspend the enforcement of insolvency court’s judgements, but, at the motivated request of the appellant, the enforcement may be suspended by the court judging the appeal, except for the decision to commence of the insolvency procedure.

 

VII. RIGHTS AND OBLIGATIONS OF THE INSOLVENCY ADMINISTRATOR / LIQUIDATOR

Several provisions of the Law amending the IL amend and clarifies the regime of the insolvency administrator within the various stages of the proceedings. In particular, the following main amendments could be highlighted:

  • the supervisory role of the interim administrator was detailed and clarified, for the situation when debtor's administration right has not been lifted (debtor in possession);
  • the law introduces the right of any creditor to request the administrator to provide explanations, information or reports about the state of affairs, the administration of the insolvency estate or about the debtor's financial situation;
  • the law introduces the rule that the administrator shall not be limited in the number of managed cases and could be unlimitedly appointed in the position of interim administrator, insolvency administrator or liquidator;
  • the liquidator can sell through direct negotiations assets whose individual value is up to 10,000 MDL (except for real estate and securities), ifs/he has obtained the consent of the creditors' bodies.

 

VIII. REGISTRY OF INSOLVENCY CASES

The law amending the IL provides for the introduction of an electronic registry of insolvency cases. Participants to the insolvency proceedings will be able to obtain free electronic extracts from this registry. However, the norms on the registry of insolvency cases will enter into force only once the registry becomes operational.

 

You can ask questions about this information note:

Vladimir PalamarciucVladimir.Palamarciuc@TurcanLaw.md.

Partner Lawyer, specialized in insolvency proceedings

 

For previous legislative news on insolvency proceedings see New Rules for Insolvency Proceedings