In Romania, only a few companies manage to reorganize and restructure the activity after they have entered into the insolvency procedure. Although Romania’s economy is growing, in 2018 more than 8,000 companies have opened insolvency proceedings and many others have gone bankrupt. The companies either did not manage the financial resources well or they did not know how to negotiate with the creditors to overcome the deadlock and avoid entering into the insolvency procedure, says drd. Radu Pavel, the managing partner of Pavel, Margarit & Associates Romanian Law Firm.

Radu Pavel, one of the most experienced Romanian lawyer specialized in insolvency and restructuring, which managed successful restructuring but also assisted and represented the debtors against creditors, indicates the steps to be followed by a company with financial problems, to succeed restructuring and reorganizing the activity and exit from the insolvency procedure.

Verify if the business can become viable – First of all, the manager must check if the firm has a chance to restructure. “The first indicator to be tracked is the cash flow. Does the company have liquidity and customers for the product it sells? Does the costs are lower than revenue? If the answer is positive, there are chances of reorganization. On the other hand, when debts far outweigh the value of the assets, the company lost its customers or the space where it was operating, or when the company had leased equipment with which it performed works, and the leasing companies terminated the contract, so the means of production disappeared, management can think of the simplified bankruptcy procedure”, says Radu Pavel.


           First step – approving the reorganization plan by negotiating with creditors – In order to get the creditors’ agreement, it is essential to know how to handle the negotiations, says lawyer Radu Pavel. If there are five types of creditors, for example, the plan will be voted by a simple majority of three out of five. Those who vote on the plan must hold 30% of the value of the debts. “Lawyers specialized in insolvency and bankruptcy deal with the strategy to be implemented by the company and provide continuous assistance and representation to the special administrators, negotiating with all the groups of creditors, respectively with those who hold guaranteed, salary, fiscal debts, ensuring that an agreement is reached. For example, if fiscal debts do not have a very large volume, the reorganization plan may provide for their payment within 30 days. In which case, you make sure that state representatives accept the plan. At the same time, debts to banks may be rescheduled during the reorganization plan – it may be proposed to pay lower rates. When negotiating with the big creditors, the company representative must present them the benefits they have following the vote of the plan. The main benefit is that by voting they may receive a certain percent of the debt. Instead, in the event of bankruptcy, they must wait for the assets to be sold. There were many procedures where the asset were sold only 5-6 years after bankruptcy”, says lawyer Radu Pavel.

Plan should involve attracting investors – Even if the borrower believes it can sustain the business by its own means, it is advisable that the plan include more financial sources such as capital infusion from an investor, which may involve the sale of shares, merger by absorption or division. If these ways are not mentioned in the plan from the start, they can no longer be proposed afterwards. Radu Pavel presents the situations in which the company may think of an investor: “For example, a debtor company may have all the logistics necessary to run the business (premises, machines) but not enough working capital. An investor can help it restructure, providing funds. When the company starts to have problems, usually banks stop lending, generating a chain of problems for the borrower. But with an infusion of capital, the business may recover”, explains the lawyer.

How to set the payment schedule – The payment plan is set by the judicial administrator, along with the lawyer specialized in insolvency and restructuring, the liquidator and a tax advisor. A financial analysis of the debtor’s ability to restructure is planned. The company establishes a revenue and expenditure budget, based on the turnover over the last three years. 

Maturity of payments must be strictly observed – Once the payment schedule has been established, it must be strictly respected. Payment installments are established for each category of creditors. “Any creditor from a certain category can demand the bankruptcy of the company, if the deadline has not been met”, says Radu Pavel.

If these premises are respected, the chances of a company to restructure and exit from the insolvency procedure grow substantially. It is essential that the borrower hire lawyers specialized in insolvency and restructuring in order not to risk bankruptcy. “Insolvency involves a rather complicated procedure. The insolvency law defines the steps to follow. For example, any measure taken by the insolvency practitioner, the decisions of the creditors ‘meetings, the creditors’ preliminary table is disputed within a very short time, so there is a need for a lawyer specialized in insolvency and restructuring to monitor everything and advise the debtor in all these stages”, recommends lawyer Radu Pavel. 

In 2019, Pavel, Margarit & Associates Romanian Law Firm ranked for the third time in a row on second place in Romania in Restructuring and insolvency practice area, in the rankings realized by Legal 500, the most prestigious guide for law firms in the world. Also, Pavel, Margarit and Associates Romanian Law Firm received in 2018 the Award for Excellence in Restructuring and insolvency from Legal Magazin review and has been designated one of the most important Romanian law firms in the field of Insolvency and Restructuring. This award is usually conferred to Romanian law firms that have achieved the best results in this practice area in previous years.


      Pavel, Margarit & Associates Romanian Law Firm is one of the top law firms in Romania, which offers legal services at the highest quality, beyond clients expectations. The Law Firm approaches the cases with maximum professionalism and dedication. Its ultimate goal is obtaining exceptional results and achieving the clients objectives, in a time efficient manner. Among Pavel, Margarit & Associates clients are top multinationals and local companies. In 2019, the success stories of the Romanian Law Firm have brought recognition of the most prestigious international guides and publications. Thus, Pavel, Margarit & Associates Romanian Law Firm ranked second place in Romania in the rankings of business law firms with the most relevant expertise this year, realised by the Legal 500 publication, the most prestigious guide for law firms in the world, based in London, UK. The law firm is also recognized internationally by IFLR 1000 Financial and Corporate Guide 2019. Pavel, Margarit & Associates Romanian Law Firm is also the only law firm in Romania recommended by the Global Law Experts Director in London in the Dispute Resolution area of Practice. All the relevant information regarding Pavel, Margarit & Associates Romanian Law Firm including areas of practice and the most important deals can be found on the website, which is one of the most complex law firm websites in Romania.