12.12.2024
The principle of availability and the active role of the judge in insolvency: practical aspects
The particularities of insolvency prevention and insolvency proceedings and the applicability of both the fundamental principles of civil procedure and those specific to insolvency proceedings are nothing new. However, there are still difficulties and practical problems arising precisely from the intersection of these principles, in the absence of clear and express rules.
Insolvency legislation also draws other rules and principles of law into its regulatory sphere, with which it complements itself, according to Article 342 of Law No. 85/2014. However, even if they are considered fundamental in the subject matter in which they were enacted (for example, in civil proceedings), the fundamental nature of the principles may be diminished or even neutralized, given the specific nature of insolvency prevention and insolvency proceedings.
Of these, we will analyze the principle of availability and the active role of the judge and how they are adapted in the proceedings under discussion, which are governed by a determined purpose and special rules that attempt, but do not always succeed (nor could they) to regulate all situations that might raise problems in practice and provide a solution to them. In resolving such hypotheses, therefore, the interpretation and application of the law in accordance with its governing principles remains essential. Although the current regulation seems to set out quite clearly the principles and rules of insolvency prevention and insolvency proceedings, there may nevertheless be situations that are at the limit of interpretation, with case law being nuanced, and we will now present some aspects recently encountered in practice that may present real challenges in the conduct of these proceedings.
A first situation relates to the possibility of the bankruptcy court, ex officio, ordering the bankruptcy of the insolvency administrator in the event of failure of the reorganization plan or the expiry of its duration, although the creditors enrolled in the proceedings agree to continue the judicial reorganization.
In this regard, Article 145 para. (1) lit. C of Law no. 85/2014 provides the possibility for the bankruptcy judge to decide, by judgment or, as the case may be, by a final judgment, the bankruptcy filing in the event that, among other things, the payment obligations and other assumed tasks are not fulfilled under the conditions stipulated in the confirmed reorganization plan or when the conduct of the debtor's business during the course of its reorganization brings losses to its assets. This case appears to be regulated separately from the situation where any of the creditors or the insolvency administrator may request the bankruptcy judge to order the bankruptcy of the debtor, if the latter does not comply with the plan or accumulates new debts to creditors in the insolvency proceedings, pursuant to Article 143 of Law no. 85/2014.
Thus, in practice, the question arises to what extent the syndic-judge, without being notified with such a request, may order the debtor to file for bankruptcy ex officio, if the latter does not comply with the reorganization plan or even fails to do so or the duration of the plan has been far exceeded (without being able to be extended under Art. 133 of the Law), but the creditors agree to continue the reorganization proceedings and reject the proposal to file for bankruptcy. In this case, the active role of the bankruptcy judge and the principle of availability of the process play an extremely important role, since the question arises to what extent, in such a case, the bankruptcy judge could order, ex officio, the bankruptcy proceedings without the insolvency practitioner or the creditors requesting or even opposing it.
In case law, on the one hand, some courts have held that the creditors' meeting may not, by means of the resolutions passed, extend sine die the term of execution of the reorganization plan, as the Insolvency Law clearly establishes the content and duration of the reorganization plan, since otherwise, the very provisions of the law would be circumvented, depriving the entire procedure of efficiency and predictability. [1]Thus, in a case cited by way of example, the judgment of the first court was set aside, which gave precedence to the decision of the creditors' meeting that did not approve the opening of the bankruptcy proceedings of the debtor, although the deadlines for the execution of the reorganization plan had expired and the payment obligations and tasks assumed therein had not been fulfilled. In the argumentation, it was argued that, although the priority purpose of the proceedings is to give the debtor a chance to recover its business, the deadlines established by law must be complied with in relation to the provisions of Article 5 of Law no. 85/2014, according to which the prevailing priority is to carry out the acts and operations provided for by this law expeditiously, as well as to fulfill the rights and obligations of the other participants in these acts and operations under the conditions of the law.
On the other hand, we have found situations in which the syndic judge gave precedence to the will of the creditors who agreed with the continuation of the judicial reorganization, even though the term of the reorganization plan had been exceeded, considering that only the creditors can decide on the appropriateness of the reorganization, the latter being directly concerned and affected. In this regard, the syndic-judge would not be able to override the creditors' will on the duration of the plan, his jurisdictional powers being limited to reviewing the legality of the acts and operations carried out in the proceedings, and the vote on the plan is a matter of expediency under the exclusive control of the creditors. It could also be argued that, if the liquidator were to rule on certain claims, ex officio, without having been expressly notified by any participant in the insolvency proceedings, the principle enshrined in Article 22 para. (6) C. proc. civ. according to which "the judge must rule on everything that has been requested, without exceeding the limits of the assignment, unless the law provides otherwise".
We consider that the application of these principles must be circumscribed to the specific features of each insolvency proceeding. Therefore, where the issues of expediency are closely linked to those of legality, it could be considered that there is a question of legality on which the syndic judge would be entitled to rule. However, it remains questionable to what extent he can intervene and censure, ex officio, the decision of creditors who expressly accept the continuation of the judicial reorganization period (beyond the legal time limit) because there would be a real chance of covering the claims and reinserting the debtor into the economic circuit, without having to go through the bankruptcy procedure.
Another situation encountered in practice, which has raised problems in terms of the application of these fundamental principles, concerns the closure of the composition procedure in the absence of a restructuring plan, a solution ordered ex officio by the insolvency judge.
In this regard, we point out that according to art. 24 of Law 85/2014, within 60 days from the opening of the proceedings, the administrator in composition shall draw up or, as the case may be, assist the debtor in drawing up the restructuring plan. At the same time, according to Art. 26 of the same Law, the period during which negotiations and voting on the restructuring plan are conducted may not exceed a period of 60 calendar days from the date of its submission.
Also, Article 34 of Law 85/2014 regulates the situations in which the syndic-judge orders the closure of the composition procedure, including the case in which the restructuring plan is not voted by the creditors within the negotiation period, is not approved by the syndic-judge or the case in which the debtor considers that the negotiations cannot lead to the approval of a restructuring plan.
Thus, this case could also include the hypothesis where, although the composition procedure has been opened, the debtor and the administrator in composition do not draw up and do not submit a restructuring plan for negotiation, raising the question of whether the syndic judge may order the closure of the composition procedure at the request of a creditor or ex officio.
In one case[2], the first court, at the request of a creditor, found that the debtor and the composition administrator had failed to comply with the legal obligations laid down, the debtor being protected by not taking any action for 11 months and without the closure of the composition composition proceedings being requested. Thus, the court found that the debtor's rights under the composition procedure had been forfeited and ordered the closure of the proceedings with the consequence that the measures ordered in the file concerning the suspension of enforcement measures had been terminated. However, the court of appeal set aside the judgment, holding that the creditor, by the introductory application, had requested a finding of a state of facts, that of the failure by the composition administrator to fulfill certain obligations established by Law 85/2014, namely a finding of rejection of the composition offer, and that no express request for closure of the composition proceedings had been made. Therefore, it was held that the first instance ordered a measure that was not the subject of its investigation, and in the appealed judgment it did not analyze the exceptions of lack of standing to bring proceedings and inadmissibility of the claim, absolute and prohibitive exceptions, and did not investigate the merits of the case referred to it for resolution.
In another case[3], it was found that the debtor had not fulfilled its obligations and, at the set deadline, without a request to that effect, the court considered the closure of the composition with creditors proceedings, considering that the debtor was committing an abuse of rights by unjustifiably delaying the completion of the proceedings in order to block the steps of creditors who had already filed petitions for insolvency against it. Thus, it was held that the obligations imposed on the debtor were very precise and that the debtor's arguments to the effect that the success of the composition procedure and the drawing up of an offer depended on the collection of claims from a particular debtor could not be accepted, in reality representing a knowing disregard of the obligations, in order to prolong the urgent procedure unjustifiably, precisely in order to paralyze the steps already initiated by some of the creditors.
In conclusion, it can be seen from the issues raised that the applicability of fundamental principles ends up being particularized within the limits of the law for each individual case, taking into account the purpose and rationale of each of the rules in question, as well as the factual circumstances of each procedure. Therefore, we do not dispute the relevance of the fundamental principles, however, in insolvency prevention and insolvency proceedings, given their specific nature, the availability of the process and the active role of the judge may sometimes take on reduced valence, even to the point of diminishing their fundamental nature in cases expressly provided for by special, derogatory law.
[1] Decision No 2/2018 of January 10, 2018, Court of Appeal Iasi, Civil Section
[2] Decision no. 1169/2017 of 15-Dec-2017, Court of Appeal Craiova, Second Civil Section
[3] Decision no. 1445/2018 of 19-Jun-2018, Bucharest Court of Appeal, 5th Civil Section
An article written by Carmen-Alexandra Mureșan - Managing Associate - and Corina - Ioana Șerbănescu - Associate.
