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The termination of the ongoing contract/agreement at the date of the opening of the insolvency proceedings shall be of interest to each contracting party, whether creditor or debtor, professional bodies or not. Thus, according to the insolvency law, all ongoing contracts/agreements at the date of opening the insolvency proceedings are considered maintained, and all clauses for termination of contracts/agreements, forfeiture of the term benefit or declaration of early maturity due to the opening of the proceedings are null and void. However, there are exceptions that you can find in this article.
The situation of the ongoing contracts/agreements according to Law no. 85/2014
Through art. 123, paragraph 1 of Law no. 85/2014 on insolvency prevention and insolvency proceedings, all ongoing contracts/agreements at the date of opening the insolvency proceedings are considered maintained, all clauses for termination of contracts/agreements, forfeiture of the term benefit (art. 1417 of the Civil Code not being applicable) or declaration of early payment for the reason for initiating the procedure being null and void.
Thus, any contractual termination clause in anticipation of the insolvency of one of the parties will be null and void, the contractors being bound by the provisions of the above-mentioned Law which will prevail over the provisions of the contract/agreement concluded between the parties.
Moreover, according to decision no. 42/2021 regarding the examination of the notification formulated by the Iași Court of Appeal – Civil Section in order to pronounce a preliminary decision on certain legal issues, the actions for termination of contracts/agreements with successive execution maintained by the judicial administrator or judicial liquidator and which are introduced by way common law after the opening of the insolvency proceedings for non-compliance by the debtor with the contractual obligations consisting in the payment of amounts due before the opening of this procedure shall not be admissible.
Exceptions to the provisions on the obligation to maintain contracts/agreements and the nullity of termination or acceleration clauses
They are exempted from the provisions of the obligation to maintain contracts/agreements and the nullity of the terms of termination or acceleration of obligations, qualified financial contracts/agreements, as well as bilateral clearing operations based on a qualified financial contract/agreement or a bilateral clearing agreement.
Moreover, Law no. 85/2014 expressly establishes the conditions under which the judicial administrator / liquidator may terminate any contract/agreement with an insolvent company, such as short-term leases, as well as any other long-term contracts/agreements that have not been fully executed or substantially by all parties involved.
In this sense, the judicial administrator / liquidator shall respond to the contractor’s notification requesting the termination of the respective contract/agreement within 30 days from its receipt. The contractor shall send the notification within 3 months from the date of opening the insolvency proceedings.
In the absence of a response from the judicial administrator / liquidator within the term mentioned above, the contract/agreement will be considered terminated under the law. Moreover, in the event of termination of the contract/agreement concluded with an insolvent company, the co-contractor will be able to bring an action for damages against the debtor, being able to make use of his rights based on a final decision rendered by the syndic judge.
Another exception is the possibility for the judicial administrator to modify the terms of contracts/agreements concluded by the debtor, including credit agreements, in order to ensure the equivalence of future benefits. However, the contractual terms may be amended only with the agreement of the contractors and only during the observation period of the insolvency proceedings. In this regard, it would be useful to request legal advice from a lawyer specialized in insolvency, restructuring and bankruptcy to ensure that all conditions are met and the provisions of insolvency law are observed.
A lawyer specialized in insolvency, bankruptcy or in the judicial reorganization procedure may consider before or after the insolvency, as the case may be, the conditions and possibilities for terminating the ongoing contracts/agreements.
The situation of certain classes of contract/agreements expressly provided in Law no. 85/2014
In the case of contracts/agreements for the sale of goods with reservation of title by the seller until full payment of the price, the sale will be considered executed by the seller, the reservation of title being opposable to the judicial administrator / judicial liquidator provided the publicity formalities mentioned by law are observed. In this case, the provisions regarding the ongoing contracts/agreements that remain in force at the date of opening the insolvency proceedings, as well as those regarding the nullity of the clauses for termination of contracts/agreements, forfeiture of the term or declaration of early due date for the opening of proceedings shall not apply.
With regard to employment or rental contracts/agreements, the contracts/agreements may be terminated only in accordance with the legal notice periods. Also, after the date of opening the insolvency proceedings, the administrator or the judicial liquidator, as a matter of urgency, will be able to terminate the individual employment contracts/agreements of the debtor’s staff in compliance with the legal notice period.
In contracts/agreements which stipulate that the debtor is entitled to periodical payments, the fact that the contract/agreement remains in force under the insolvency proceedings shall not oblige the administrator or the liquidator to make outstanding payments for periods prior to the opening of the proceedings. With regard to the outstanding payments related to the period prior to the opening of the procedure, the law provides for the possibility of filing an application for the admission of the claim against the debtor.
In the event of termination of the finance lease, the lender has two options. The first option is to transfer the ownership of the property to the debtor, in which case the receivable registered with the creditor’s table of liabilities shall consist of the rest of the price of the property and the leasing rate accessories. In this case, the lender will obtain a legal mortgage on the leased property.
The second option is to recover the asset, in which case the receivable registered with the creditor’s table of liabilities shall consist only of the accessories of the leasing rates. This case applies if there are no other assets that confer on the holder the status of creditor benefiting from a cause of preference.
In conclusion, the ongoing contracts/agreements at the time of the opening of insolvency proceedings shall remain in force, and all clauses for termination of contracts/agreements, forfeiture of the benefit of the term or declaration of early maturity due to the opening of the proceedings are null and void. However, the insolvency law provides for exceptions in the case of qualified financial contracts/agreements, bilateral clearing operations or bilateral clearing contracts/agreements concluded by the debtor, including credit agreements that may be amended by the judicial administrator in accordance with the conditions expressly provided by the law.
In order to carry out these steps, Pavel, Mărgărit and Associates Romanian Law Firm recommend contacting a lawyer specialized in insolvency, restructuring and bankruptcy proceedings to analyze the terms of each contract/agreement, as well as the applicable legal provisions in order to identify the situations in which an ongoing contract/agreement may be terminated or not.
These legal provisions may influence and generate damages to the contractual parties and are sensitive aspects in any contractual relation.