Up Again Romania: Suppliers and Contractors

Restructuring

1. Navigating the supply chain in a distressed market:

a. My company supplies goods and I am concerned about the solvency of my customers. Are there any steps I can take to mitigate risk/my exposure?

A preliminary step, to assess the risk for the supplier, is to check that the existing agreements concluded with customers provide adequate protection against the effects of customer insolvency.

On the one hand, by reviewing the agreements, if goods are being supplied to customers before receipt of payment and there is a retention of title clause, this can provide additional protection against customer insolvency by ensuring that the title over those respective goods is retained until the payment is made.

On the other hand, if the terms of the agreement, as initially established by the parties, are not in favour of the supplier, a renegotiation can be initiated with the objective of amending the contractual terms to limit the supplier’s exposure.

According to Law no. 85/2014 regarding the insolvency procedures (Law no. 85), there are two mechanisms that can prevent insolvency:

  • ad-hoc mandate (mandat ad-hoc)
  • an agreement with creditors, which involves the submission of a plan for restructuring the debtors’ debts (concordat preventiv)

Nonetheless, these mechanisms can be initiated by debtors that are in financial difficulties; therefore, the involvement of the supplier in these legal prevention procedures is rather limited.

b. My company relies upon the supply of goods/services and I am concerned about the solvency of my supplier? Are there any steps I can take to mitigate risk?

As per question 1 above, reviewing the agreement between the supplier and the customer is a key action in deciding how to proceed.

Another important aspect is the access the customer has to the supplier’s financial situations/relevant financial information, so that the customer can organise and plan its business accordingly and, when entering any renegotiation, to have not only a proper assessment of the situation, but also an appropriate proposal for amending the agreement – for example, agreeing the goods will be delivered first, in order for the payment to be made.

Regarding the legal approach, the above applies respectively in this case, as well.

Litigation and Regulation

2. How will legal disputes that have arisen as a result of COVID-19 or its effects (for instance, in relation to force majeure) be affected by restrictions being lifted and resuming business operations in whole or in part?

The main effect of the restrictions being lifted is that the forfeiture and limitation delays will start to run again and therefore the litigation/other claim proceedings will be resumed.

Force majeure is a situation that is considered in concreto, in the sense that is a factual state of being, based on the particular situation of a debtor – therefore it cannot be generally stated that, after the restrictions are lifted, all the contracts and obligations can be resumed.

3. How should you manage those disputes once COVID-19 restrictions are lifted?

Any legal dispute must be notified to the opposing party and the parties should try to resolve it amicably. In the absence of an amicable resolution, the parties can pursue legal action or arbitration.

In complex contracts, the parties can decide to resume the performance of the contract regarding matters not affected by the disputes.

4. What should you do when restrictions are lifted if you have suffered loss under a contract as a result of COVID-19 or the restrictions, but have not yet taken legal action in relation to that loss?

A notification should be sent to the rest of the contracting parties, stating the loss/non-performance, the legal reasons and factual justification and the remedy being sought. Although no delay for sending this notification is provided by the law, case-law has generally stated that it should be sent in a reasonable delay – for instance, in practice there have been cases where three to five working days was considered a reasonable delay among professionals (legal persons). For natural persons, the reasonable delay can be longer (one or two weeks).

5. Is there any risk of mass claims being brought against your business? If so, how would such claims be brought? Are third party funders able to fund such claims?

In Romania, class actions do not have a legal framework or a specific procedural regime. However, multiple claimants can bring a claim if they have the same right or rights that are closely connected. Third-party funding for such claims is not practiced in Romania.

6. What should I do about recording contractually or otherwise any of the changes put in place during the COVID-19 lockdown period?

To record contractually or otherwise any changes put in place during the COVID-19 lockdown, amendments to the contracts should be concluded. If this is not possible, official notification addressed to the contracting party, dated and bearing registration numbers, may be useful.

7. Any return to normal will likely not be as immediate as the impact of COVID-19 when it started (e.g, sales/orders will take time to ramp up, raw materials will take time to flow through supply chains, etc.) what should I think about and do to best manage this in my contracts?

Both the customer and supplier should communicate a formal notice stating their estimations regarding the performance of the obligations (e.g. timeline, any limitations, implications of costs, payment of invoices).

8. What additional protections or changes to existing provisions (e.g. force majeure) should I put into any new supply arrangements having regard to COVID-19?

The force majeure clause should be amended to specifically include the case of a pandemic. If pandemic is not specifically included, the force majeure clause can be applied only if the debtor proves that the pandemic prevented it from performing its obligations.