Insight

Well-Managed Insolvencies Usually Make a Difference

From both a legal and business perspective, the critical period in any insolvency proceeding is the observation period, which is the period between the opening of the insolvency and the approval and implementation of a reorganization plan.

Well-Managed Insolvencies
GR

Gelu Maravela, Mirela Metea, and Dana Rădulescu

September 1, 2017 12:31 AM

In the economic context of the last decade, most companies in Romania have been affected by insolvency procedures, either as debtors in default or as creditors, with a low chance of recovering their debt in a reasonable time.
For companies, insolvency may be viewed as a solution or a problem depending on the perspective and the insights on the matter, which is multidisciplinary, requiring legal, management, and accounting knowledge. For professionals, restructuring and insolvency require a creative, flexible, and goal-oriented approach apart from an extensive and in-depth knowledge of various areas of expertise, such as mergers and acquisitions, project financing, employment, and litigation.

One of the key elements to make a success story out of an insolvency case by succeeding to restructure the business, preserve its identity, or even expand is to make the debtor liaise with its important creditors to find a common middle ground.

The first step in the process is to identify the signs of an imminent insolvency, demand professional legal and financial advice, and file for insolvency as soon as possible. The mere filing is a rather simple process—the more difficult part is to have a vision on the future implications from many perspectives, including legal, financial, business, and reputational as well as trying to intelligently and creatively balance debtor’s needs with creditors’ expectations.
On a general note, from a legal perspective the current insolvency legislation in force is quite balanced and offers sufficient protection to both debtors and creditors. Importantly, the management prerogatives remain with the debtor under the supervision of the creditors and the judicial administrator while the syndic judge is called to ensure the legality of the entire process and settle any potential disputes between the parties involved in relation thereto.

The insolvency practitioner plays a particularly important role, and it is essential that the latter has the necessary expertise and the right overview. That is why thinking through the entire process, seeking professional help, and choosing qualified and experienced professionals as judicial administrators to be further endorsed and confirmed by the creditors during the process is critical and may make the difference between a successful reorganization and bankruptcy.

From both a legal and business perspective, the critical period in any insolvency proceeding is the observation period, which is the period between the opening of the insolvency and the approval and implementation of a reorganization plan.

The most important aspects are occurring during this phase, such as drafting with the appointed preliminary table of receivables’ judicial administrator and its report on the causes of the insolvency, confirmation of the appointed judicial administrator by the creditors’ assembly, taking preliminary restructuring measures, and starting negotiations with the important creditors to create the proper basis for future cooperation during the reorganization period.
Equally, the debtor and the judicial administrator have a difficult mission during this observation period, apart from the procedural steps outlined above. The challenge resides in finding the proper balance between, on one hand, offering the creditors a reasonable degree of comfort that the reorganization is possible, that the chances for them to recover their receivables to the best extent are righteously preserved, and that nothing is allowed to diminish the value or protection of their receivables. On the other hand, it can be helping a debtor facing reputational damage and overnight reluctant business partners and suppliers.

In this context, the constructive partnership between the company management and an experienced judicial administrator is, without a doubt, the best solution to overcome critical moments and mediate the often contradictory interests of the creditors.

Experience shows that the chances of having a successful reorganization plan leading to the company’s going out of insolvency depend on the duration of the observation period and how things are handled by the debtor and the judicial administrator during the time. Although it may be first seen as a time of growing and gathering resources to sustain a viable reorganization plan, a too extensive observation period due to endless procedural battles between debtor and/or creditors is leading, in most cases, to weakening the chances of successful restructuring because the creditors become impatient, the business partners may have already found alternative business opportunities, or the key employees may have decided to leave.

Furthermore, other elements to consider are the practical viability of a reorganization plan that gives the market constraints, the degree of support from the financing creditors, the appetite of such to still sustain the business that requires sophisticated and sometimes rather sensitive assessments from various perspectives including legal, financial, business, and marketing.

As said, insolvency may be either a solution or a problem depending on the perspective. However, a well-managed insolvency can make that difference.

Related Articles

Is Your Contractual Partner Insolvent or under Criminal Investigation?


by Violeta Saranciuc and Cosmin Vasile

This is how it may affect your ongoing dispute.

Contractual Partner

Solving Insolvency


by Best Lawyers

Markus Fellner discusses emerging trends in insolvency and reorganization law and the work his firm has done with the visually impaired.

An Interview With Fellner Wratzfeld & Partner

An Interview With Norton Rose Fulbright


by Best Lawyers

Australia’s 2020 “Law Firm of the Year” in Insolvency and Reorganization Law

An Interview With Norton Rose Fulbright

A Globalized Sprint: How Japan’s Insolvency Practice Is Expanding and Preparing for the Future


by Best Lawyers

Emerging legal trends are a relished opportunity for reorganization, while natural disasters present an opportunity for innovation.

Interview with Nishimura & Asahi Law Firm

Return the Favor When Bidding


by Denys Myrgorodskiy

Denys Myrgorodskiy, the managing partner of Dynasty Law Firm, looks at the process of withdrawing insolvent banks from the market in Ukraine and its potential consequences.

New Bank Fraud Laws in Ukraine

How PLMJ's Unique Structure Shapes Its Insolvency Practice


by Best Lawyers

A leading attorney with the 2019 "Law Firm of the Year" winner for Insolvency and Reorganization Law in Portugal speaks to Best Lawyers CEO Phillip Greer.

PLMJ "Law Firm of the Year" Interview

An Interview With Eberhard Braun of Schultze & Braun


by Best Lawyers

The 2019 "Law Firm of the Year" winning firm was recognized in Germany for Restructuring and Insolvency Law.

Eberhard Braun Interview

Trending Articles

Announcing the 2023 The Best Lawyers in America Honorees


by Best Lawyers

Only the top 5.3% of all practicing lawyers in the U.S. were selected by their peers for inclusion in the 29th edition of The Best Lawyers in America®.

Gold strings and dots connecting to form US map

Announcing the 2022 Best Lawyers® in the United States


by Best Lawyers

The results include an elite field of top lawyers listed in the 28th Edition of The Best Lawyers in America® and in the 2nd Edition of Best Lawyers: Ones to Watch in America for 2022.

2022 Best Lawyers Listings for United States

2021 Best Lawyers: The Global Issue


by Best Lawyers

The 2021 Global Issue features top legal talent from the most recent editions of Best Lawyers and Best Lawyers: Ones to Watch worldwide.

2021 Best Lawyers: The Global Issue

The U.S. Best Lawyers Voting Season Is Open


by Best Lawyers

The voting season for the 31st edition of The Best Lawyers in America® and the 5th edition of Best Lawyers: Ones to Watch® in America is officially underway, and we are offering some helpful advice to this year’s voters.

Golden figures of people standing on blue surface connected by white lines

How To Find A Pro Bono Lawyer


by Best Lawyers

Best Lawyers dives into the vital role pro bono lawyers play in ensuring access to justice for all and the transformative impact they have on communities.

Hands joined around a table with phone, paper, pen and glasses

What the Courts Say About Recording in the Classroom


by Christina Henagen Peer and Peter Zawadski

Students and parents are increasingly asking to use audio devices to record what's being said in the classroom. But is it legal? A recent ruling offer gives the answer to a question confusing parents and administrators alike.

Is It Legal for Students to Record Teachers?

How Palworld Is Testing the Limits of Nintendo’s Legal Power


by Gregory Sirico

Many are calling the new game Palworld “Pokémon GO with guns,” noting the games striking similarities. Experts speculate how Nintendo could take legal action.

Animated figures with guns stand on top of creatures

The Best Lawyers in Australia™ 2024 Launch


by Best Lawyers

Best Lawyers is excited to announce The Best Lawyers in Australia™ for 2023, including the top lawyers and law firms from Australia.

Australian Parliament beside water at sunset

Best Lawyers: Ones to Watch in America for 2023


by Best Lawyers

The third edition of Best Lawyers: Ones to Watch in America™ highlights the legal talent of lawyers who have been in practice less than 10 years.

Three arrows made of lines and dots on blue background

Inflation Escalation


by Ashley S. Wagner

Inflation and rising costs are at the forefront of everyone’s mind as we enter 2023. The current volatile market makes it more important than ever to understand the rent escalation clauses in current and future commercial lease agreements.

Suited figure in front of rising market and inflated balloon

A Celebration of Excellence: The Best Lawyers in Canada 2024 Awards


by Best Lawyers

As we embark on the 18th edition of The Best Lawyers in Canada™, we are excited to highlight excellence and top legal talent across the country.

Abstract image of red and white Canada flag in triangles

8 Different Types of Criminal Defenses in Law


by Best Lawyers

Learn about the different types of criminal defenses available in law, including innocence, self-defense, insanity and more. Protect your rights today.

Silver handcuffs laying on finger printed papers

Wage and Overtime Laws for Truck Drivers


by Greg Mansell

For truck drivers nationwide, underpayment and overtime violations are just the beginning of a long list of problems. Below we explore the wages you are entitled to but may not be receiving.

Truck Driver Wage and Overtime Laws in the US

The Upcycle Conundrum


by Karen Kreider Gaunt

Laudable or litigious? What you need to know about potential copyright and trademark infringement when repurposing products.

Repurposed Products and Copyright Infringemen

Choosing a Title Company: What a Seller Should Expect


by Roy D. Oppenheim

When it comes to choosing a title company, how much power exactly does a seller have?

Choosing the Title Company As Seller

Unwrapping Shrinkflation


by Justin Smulison

Through the lens of the United States, we take a closer look at the global implication of companies downsizing products while maintaining and often raising prices.

Chocolate bar being unwrapped from foil