04.04.2024

Provisional entry in the final table of claims. Practical issues

 

According to the provisions of Art. 112 para. (3)[1] of Law No. 85/2014 on Insolvency Prevention and Insolvency Proceedings ("Law No. 85/2014"), the maximum duration of the observation period[2] should not exceed 12 months, calculated from the date of the opening of the proceedings. In practice, this time limit is rarely complied with, given the time needed to resolve appeals against the preliminary table of claims.

To provide a solution to this problem, the legislator has regulated, through Art. 111 para. (6) of Law no. 85/2014, the mechanism of provisional registration, which allows, in some situations, the final table of claims to be drawn up in compliance with the 12-month time limit referred to above, even if the resolution of some of the appeals lodged against the preliminary table would require a longer period of time.

According to the aforementioned law:

"Art. 111. - [...] (6) Within the time limit set by the judgment opening the proceedings for the finalization of the table of claims, the syndic judge shall settle all the objections at once, in a single judgment, even if the settlement of some of them would require the taking of evidence; in the latter case, the syndic judge may admit, in whole or in part, the entry of the claims concerned provisionally in the final table. The claims provisionally entered shall have all the rights provided by law except the right to collect the amounts proposed for distribution. They shall be entered in the single account until the claim has been finalized."

Article 111 para. (6) of Law no. 85/2014 gives the syndic judge the possibility to order the provisional entry of a contested claim in the final table, when the resolution of the contested claim requires the taking of evidence that would require a longer period of time, in order to allow the final table to be drawn up and the time limit for the filing of the reorganization plan to run. Claims provisionally entered in the final table have all the rights provided for by law (including the right to vote), except for the right to collect the amounts proposed for distribution, which are recorded in the single account until the claim is finalized.

Although the provisional entry of claims in the final table could solve the problem of appeals against the preliminary table, which require complex evidence, in the practice of the courts, this mechanism is often avoided or misapplied, due to the difficulties of interpretation raised by the wording of Art. 111 para. (6) of Law No 85/2014.

Therefore, in the following, we intend to inventory the main problems encountered in practice in connection with the application of the aforementioned provisions and offer a number of clarifications that may help to overcome them.

1. Who can order provisional entry in the table of claims?

The wording of Art. 111 para. (6) of Law no. 85/2014, it follows that the person who decides on the provisional entry of a claim in the final table is the syndic judge.

The only exception provided for by the Insolvency Law is found in para. (⁸¹) of Article 102[3] and concerns the situation of tax claims established by a contested tax administrative act whose enforcement has not been suspended by a final court decision, which may be provisionally entered in the preliminary table of claims by the insolvency administrator until the appeal is finalized by the administrative court.

Therefore, in any hypothesis other than the one referred to above, the entry of a claim in the preliminary or final table, on a provisional basis, at the initiative of the insolvency administrator or liquidator, is unlawful.

Although this conclusion has been unanimously confirmed by specialized legal literature[4] and was also recorded in the Minutes drawn up following the Meeting of the Presidents of the specialized sections for professional and insolvency (former commercial) disputes of the Courts of Appeal, held in Sinaia, on June 13-14, 2016 ("Meeting of the Presidents of the Specialized Sections of the Courts of Appeal of June 2016")[5], not infrequently insolvency practitioners draw up tables of claims in which they state that certain claims are "provisional", which is, in our view, erroneous.

From this perspective, it should be noted that provisional registration is not an alternative to conditional registration, but must be seen strictly as an instrument available to the syndic-judge (except in the situation provided for by Art. 102 para. (⁸¹) of Law no. 85/2014), which he/she may use, when settling the appeals lodged against the preliminary table, in order to comply with the maximum duration of the observation period provided by law.

2. Is it necessary for the creditor to apply for provisional entry?

This question was also settled at the Meeting of the Presidents of the specialized divisions of the Courts of Appeal in June 2016, the unanimous opinion of the participants being that "The syndic judge may admit, in whole or in part, ex officio, the entry of the claims concerned provisionally in the final table, without there being a request to that effect from the contestant or the insolvency administrator.".

The liquidator may therefore order provisional entry even where the creditor has not made a request for provisional entry. Moreover, in principle, it would not even be in the creditor's interest to apply for provisional entry, since he is seeking final entry in the table of claims, which, unlike provisional entry, would enable him to collect the sums proposed for distribution.

At the same time, there are no grounds for rejecting an application for provisional registration as untimely, since the Insolvency Law does not provide a deadline by which provisional registration must be requested. An application for provisional entry may therefore be made at any time up to the time at which the appeals against the final table are resolved.

3. When should the court decide on provisional entry?

According to Article 111 para. (6) of Law No 85/2014, all appeals against the preliminary table shall be resolved simultaneously, by a single judgment. This solution is logical, since the insolvency proceedings are collective and the amount to be distributed must be determined simultaneously for all creditors.

Given the fact that the substantive resolution of objections relating to claims in respect of which provisional registration has been ordered takes place after the final list has been drawn up, after the necessary evidence has been gathered, some courts consider that the above-mentioned rule does not apply to such objections, and therefore proceed to consider applications for provisional registration before the time limit for the judgment at which the list of claims is finalized.

However, the wording of Article 111, para. (6) of Law no. 85/2014, it is clear that the syndic-judge should decide on the provisional entry of claims once all appeals lodged against the preliminary table have been resolved. This interpretation is also supported by the conclusions contained in the Minutes of the Meeting of the Presidents of the Specialized Divisions of the Courts of Appeal of June 2016.

Moreover, it is also unnecessary to give a ruling on provisional registration before the time at which the appeals against the preliminary table are settled, since it is not possible to draw up the final table in any event until those appeals have been settled.

Misinterpretation of the provisions of Article 111(111)(1) of the Rules of Procedure. (6) of Law no. 85/2014, from the perspective of the time at which the court should rule on the provisional registration measure, has led in practice to illogical solutions. Thus, we have encountered situations in which the liquidator has rejected the creditor's application for provisional registration on the grounds that this measure cannot be ordered before the final list has been drawn up, as the conditions laid down by law for provisional registration have not been met.

Such a solution is clearly erroneous. In fact, to the extent that requests for provisional entry are made before the deadline for the resolution of objections to the preliminary table, the solution is not to reject them as premature/unfounded, but to postpone the discussion of the possibility of provisional entry until the time when the table of claims is to be finalized.

4. Can the syndic-judge order the disjunction of objections involving complex evidence?

On this question, two opinions have emerged in doctrine:

- some authors consider that, in the case of appeals that cannot be settled immediately, because they require the taking of evidence, the court may order the disjunction, with the final settlement taking place after this evidence has been taken[6];

- other authors consider that, in the appeals procedure, the syndic-judge may not dismiss appeals which delay the judgment of the case (such as those which require the taking of evidence)[7] .

As far as we are concerned, we are of the opinion that it is of no practical relevance to draw a clear conclusion as to the possibility of severing appeals against the preliminary list, insofar as their resolution involves the taking of evidence.

In fact, as already stated in the previous section, what matters is that the court rules on the provisional entry by means of the judgment in which it resolves all the objections to the preliminary table, so that the claims to be provisionally entered are taken into account when the final table is drawn up.

In other words, in the event that the court leaves some of the objections to the preliminary table unresolved (whether or not it orders them to be separated), the final table should in no circumstances be drawn up without the claims which are the subject of those objections being taken into account.

5. What factors should the liquidator consider when deciding on provisional registration?

Article 111 para. (6) of Law no. 85/2014 does not indicate which are the elements to be taken into account by the syndic-judge when considering the possibility of provisional registration of a claim, it being expressly provided only that provisional registration occurs when, in order to resolve a dispute, it is necessary to take evidence.

Accordingly, there is reason to hold that, as long as the resolution of a challenge requires the taking of complex evidence, which would be time-consuming, the court may order the provisional entry of the contested claim in the final table, without further consideration of whether other conditions are met. This solution seems to be supported by the Minutes of the Meeting of the Presidents of the Specialized Divisions of the Courts of Appeal of June 2016, which held that "the determination of the provisional status is justified strictly from the perspective of the complexity of the evidence. In other words, only such reasoning can lead to the solution of provisional registration".".

In addition to this condition, it has been held in court practice[8] that, in order to resolve the application for provisional registration, it is necessary to analyze the contested claim at the level of appearance. Although that condition is not expressly laid down by the text of the law in question, it might be considered that, in order to grant a creditor the right to vote, it is not sufficient for the creditor to assert his claim, but there must be prima facie evidence that the claim exists. In practice, however, the notion of 'complex evidence' in most cases translates into the need for an expert's report on the accounts showing the exact amount of the claim. In such cases, in most cases there are two options: (i) either the claimant proves to the panel judge, by means of written evidence, that he has a claim, the only issue to be clarified being the amount of the claim, in which case there is an appearance of law, or (ii) the claimant does not prove to the panel judge the existence of the claim, in which case the expert evidence should not be required and the claim should be rejected.

On the other hand, in accordance with the majority of case law[9], we do not agree with the insolvency judges who reject applications for provisional registration by referring strictly to the appropriateness of the provisional registration measure, for considerations such as the amount of the contested claim, its weight in the creditor's estate or the percentage it represents in the category of unsecured creditors, since the provisions of Art. 111 para. (6) of Law no. 85/2014 does not distinguish on the basis of such considerations of expediency, which means that the said interpretation impermissibly adds to the law.

6. Can provisional registration be considered optional?

On a reading of Article 111 para. (6) of Law No. 85/2014, we note that it provides that, in the event that more complex evidence is required for the resolution of some of the appeals, the syndic judge may admit provisional entry in the final table.

The problem raised by the wording chosen by the legislator is that, in practice, this 'faculty' has been interpreted to mean that the syndic could decide not to order provisional entry, leave the objection in question unresolved and proceed to finalize the table of claims.

In reality, however, a systematic interpretation of the provisions of the Insolvency Law shows that the liquidator has only two options:

Ø either he waits until all the objections can be settled, in the sense that he administers the evidence necessary to settle all these objections, if necessary, orders the observation period to be extended, and only then pronounces, by the same judgment, on the merits of all the objections;

Ø either settle those appeals in respect of which it is not necessary to adduce evidence which requires time to establish whether they are well-founded or not and, by the same judgment, order provisional entry of the claims in respect of which it appears that the claim is well founded, but where more complex evidence is required.

This conclusion is confirmed by the provisions of Article 112 para. (3) of Law no. 85/2014, which provide that "Before the expiry of the 12-month period, the creditors, the debtor or the insolvency administrator shall apply to the syndic judge for either the application of Art. 111 para. (6) or to extend the observation period for good cause".

Under no circumstances, however, can the court leave unsolved the appeals for which evidence would be required, without pronouncing provisional registration, and at the same time resolve the remaining appeals.

It can therefore be concluded that the syndic is not obliged to order provisional registration, in the sense that he may opt to resolve all the challenges after all the evidence has been submitted. On the other hand, if he proceeds to the resolution of the appeals and finds that he is unable to decide whether to admit or reject one or more of them, provisional registration is the only possible option and is therefore mandatory.

In fact, as explained above, the reason why the legislator regulated the mechanism of provisional registration was precisely because the final table cannot be drawn up until all the objections have been resolved, otherwise the rights of creditors who hold claims in respect of which the objections have not been resolved will be seriously prejudiced. A contrary interpretation would therefore defeat the very purpose of the regulation.

7. Conclusions

Finally, it should be noted that the provisional inclusion of a claim in the preliminary list does not have negative consequences for the course of the insolvency proceedings, given that, according to the provisions of Art. 111 para. (6) of Law no. 85/2014, creditors whose claims have been provisionally entered do not have the right to collect the amounts proposed for distribution, until the finalization of their claim.

The solution adopted by the legislator is as fair and equitable as possible because, on the one hand, it allows the time prescribed by law for the observation period to be observed and, on the other hand, neither the debtor nor other creditors are prejudiced, since such a creditor provisionally entered in the table of claims will not be able to collect the money until the exact amount of its claim has been established.

The provisional entry in the table of claims is therefore an extremely useful tool provided by the legislator, but it is underused in practice, given the problems raised by the interpretation of Article 111(1)(1) of the Regulation. (6) of Law 85/2014. Therefore, we believe that, de lege ferenda, it would be opportune to make a legislative intervention in order to clarify the mechanism of functioning of the provisional entry in the table of claims.

An article signed by Dan-Rareș RĂDUCANU, Senior Partner (rraducanu@stoica-asociatii.ro) and Irina TITORIAN, Associate (ititorian@stoica-asociatii.ro), STOICA & ASOCIAȚII.

[ Art. 112. - [...] (3) The maximum duration of the observation period shall be 12 months, calculated from the date of the opening of the proceedings. In order to comply with this period, the syndic judge may apply the provisions of Art. 111 para. (6) accordingly. Before the expiry of the 12-month period, the creditors, the debtor or the insolvency administrator shall apply to the liquidator for the application of Article 111 para. (6) or to extend the observation period for good cause. If the application is not made by the insolvency administrator, the creditors or the debtor may make such an application.

[2] According to the provisions of Art. 5, item 42 of Law no. 85/2014: "Art. 5 - Within the meaning of this Law, the terms and expressions shall have the following meanings: [...] 42. the observation period is the period between the date of the opening of the insolvency proceedings and the date of the confirmation of the reorganization plan or, as the case may be, the date of the bankruptcy;"

[3] According to Art. 102 para. (⁸¹) of Law no. 85/2014: "(⁸¹) Tax claims established by a contested tax administrative act whose enforcement has not been suspended by a final court decision shall be admitted to the creditor's estate and provisionally passed until the appeal is finalized by the administrative court."

[4] See in this connection, by way of example, Insolvency Code - Notes. Correlations. Explanations. Art. 1-203, Coord. G. Piperea, Ed. C.H. Beck, București, 2017, pag. 611, para. 2-4

[5] This meeting was dedicated to discussing aspects of non-uniform practice in the field of disputes with professionals and insolvency, and the topics under discussion were analyzed both by trainers from the National Institute of Magistracy and representatives from the Courts of Appeal (presidents of specialized sections, judges of these sections and vice-presidents of the courts) - The minutes of the meeting are available at: https://inm-lex.ro/fisiere/d_2443/Minuta%20intalnire%20sectii%20specializate%20-foste%20comerciale-%20Sinaia,%2013-14%20iunie%202016%20.pdf

^[6] See Insolvency Code Annotated. Vol. I - art. 1-182, Nicoleta Țăndăreanu, Universul Juridic, București 2017, pag. 410

^[7] See Código insolvenței comentat, St.D. Cărpenaru, M.A. Hotca, V. Nemeș, Universul Juridic, Bucharest, 2014, pag. 303

^[8] See, by way of example, Civil Decision no. 215/24 June 2021, rendered by the Oradea Court of Appeal, and Civil Decision no. 333/21 July 2020, rendered by the Timisoara Court of Appeal

[9] See Civil Decision no. 333/21 July 2020, rendered by the Timișoara Court of Appeal, and Civil Decision no. 111/9 April 2015, rendered by the Oradea Court of Appeal - The latter decision refers to the provisions of art. 73 para. (3) of Law no. 85/2006, however, given the fact that these provisions are identical in content to Art. 111 para. (6) phase I of Law no. 85/2014, the recitals of the judgment are fully applicable also with regard to the interpretation of the legal provisions analyzed in this article.