This is the basic explanation for the insolvency of 12 of the 100 largest Romanian-held companies, believes Andrei Cionca, founding partner of Casa de Insolventa Transilvania insolvency firm, which has in the last few years managed the cases of Romanian companies such as Leonardo, Flanco, Astra Vagoane Marfa and Romstrade.
“The main reason for the large number of insolvencies among Romanian entrepreneurs is that they did not start off well capitalized. The development of the largest Romanian companies was done through loans, and the second reason for the insolvencies would be the lack of management,” said Cionca at Thursday’s ZF Live show.
Some bank officials and entrepreneurs say the insolvency law favors debtors at present, and even prime minister Victor Ponta has recently endorsed their opinion.
On this matter Cionca says Romanian legislation on insolvency has been modeled on the American one and in general is favorable to rescuing companies. But he says Romanian companies need support because widespread bankruptcy is not the best solution.
“We are condemned to try to restructure specifically in order to keep employees in, stop losing money and cover costs, be they minimal, until we see where the economy is heading. If we throw all companies into bankruptcy, we will have billions of assets to liquidate, which will still include these costs and whose price will go down because today there isn’t a balance between supply and demand,” Cionca also said.
Casa de Insolventa Transilvania currently manages a portfolio of firms with assets of around EUR500 million, but Cionca says in the absence of relevant transactions, the real value of these assets is difficult to determine.
The insolvency practitioner admits that the current insolvency law leaves room for interpretations, which can even affect the state budget, as prime minister Victor Ponta said early this week.
“This non-payment of debts to the state budget comes from the interpretation of a legal provision which says that if a company goes insolvent, penalties, which in some cases amounted to as much as 36% per year, are no longer added to overdue debts to the state budget. But there were companies which interpreted the law differently and said they would not even pay penalties charged on their current debts, which piled on after the start of insolvency proceedings.”
However, Cionca says one must not believe that most insolvency cases are started with the sole purpose of taking advantage of this law.
“There are companies that ended up insolvent exclusively for objective reasons, because of the economic situation, not because of poor management. That is why creditors, partners and suppliers have to be supportive so that the insolvent companies can return to profitability,” Cionca also said.
(English version by Daniela Stoican)