Although the total number of companies choosing this option to reorganize and seek protection from creditors started to go down last year and the downward trend continued in the first half of 2015, Romania remains the ‘champion’ of the region by number of companies going insolvent and by number of insolvencies per 1,000 companies.
Romania had 45 insolvencies for every 1,000 active companies in 2014, compared with fewer than 30 in Hungary, 9 in Czech Republic and 0.5 in Poland, according to credit insurance company Coface.
“Insolvency is a solution stipulated by the law for collective debt collection. If we compare Romania with Poland, for instance, we must take a closer look at what we are counting – the number of insolvencies or the number of companies that have no cash,” says Octavian Barbu, partner with Casa de Insolventa Transilvania.
“If we look at the number of ailing companies liquidated through insolvency, Romania has a very high number thereof. What we need to bear in mind, however, is that in Poland, the same ailing companies are liquidated without going through insolvency.”
Poland’s bankruptcy legislation makes it hard for a creditor to get a debtor declared insolvent, because it protects the debtor. In Romania, the legislation is intended to protecting both.
A number of 20,120 companies went insolvent in Romania last year, 28% fewer than in the previous year. Only 823 companies in Poland filed for insolvency in 2014.
Although about 20,000 to 25,000 companies went insolvent each year in 2010-2014, this year might be the first when the number of those using this solution sees an abrupt decline, following a 57% drop to 5,524 in the first half.
“That the insolvency rate remains high compared with other countries’ despite the significant decline on the previous year (57%) is partly because Romania still does not use insolvency prevention means,” says Carmen Sanda, independent insolvency consultant.
“I mean here the ad-hoc mandate or preventive settlement. There is still reluctance to use such procedures. Not even creditors, especially banks have shown much interest in them.”
Out of the more than 5,500 companies that went insolvent in the first half, most were wholesale, retail and construction businesses, according to Coface data. A number of 1,006 retailers, 1,005 wholesalers and 893 builders went insolvent in January-June. The three sectors generate 53% of the total insolvencies.
Most of the companies going insolvent are entrepreneurial businesses. Even big names such as Leonardo (footwear), Jolidon (underwear), Straco (construction) or Apolodor (construction), whose revenues stand at tens of millions of euros or even over EUR100 million, have gone insolvent or even bankrupt in the past few years.
(English version by Loredana Fratila-Cristescu)