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Transformations in the Romanian economy

By Catalin Nichifor

On May 18th, 2020, Romania switched from lockdown to state of alert (situation still in place until end of September), forcing the government to provide on some measures to prevent and combat the effects of the Covid-19 pandemic for business and employees.

The Romanian economic landscape is going through a series of transformations, mainly determined by the impact of the Covid – 19 pandemic and the deep macroeconomic imbalances. Some of the changes are long time expected by the business community and some are derived (mainly indirect right now) out of EU Directive 2019/1023 - on preventive restructuring and insolvency, expected to be implemented in the local legislation until June 2021.

Temporary or permanent amendments to the legislation in force are related to optional vs mandatory filing for insolvency during the state of alert for companies and their directors, a minor increase of the threshold for petitioning for insolvency from 40’000 RON to 50’000 Ron (approx. 10’000 euro), clarifications and highlight of importance for the existence of a payment agreement between the creditor and the debtor, possible extensions and amendments of the reorganization plans, scheme of arrangements and observation period, mere clarifications on the existence of a turnaround practitioner and turnaround practice, etc.

The government has also supported the economy by salaries contribution for the companies and employees affected by the pandemic, state guaranteed loans and grants for working capital and investments for SME’s. Some support for large companies is still under debates or in process to be approved by EU, but it relates mainly to individual cases.

Probably, and as expressed by the entrepreneurs, the main support for their cash flow, during this period, came from the moratorium on the payment of taxes due -  until October 25th, 2020 and also from the moratorium on bank and NBFI loans and leasing installments -  until December 31st, 2020. To add a little bity of fun to the situation, these two dates are already called Judgment Days in the business conversations.

However, despite of all these measures mentioned above, most of the sectors of the economy are severely affected and I expect the number of turnaround and insolvency cases to rise exponentially in the second part of 2020 and to continue to grow in 2021. Hospitality industry, transportation (especially airlines and land), automotive, heavy industry, oil and gas, landlords, etc., are suffering the most, but the entire national economy is hurt. The preliminary estimates of the National Institute of Statistics showed a real GDP decline of 12.3% in Q2 2020 compared to Q1 2020. Financial analysts anticipate that the economic impact of the coronavirus pandemic will be felt strongly in Romania until the second quarter of 2021, according to a survey conducted by the CFA Romania Association in July 2020.They anticipate a budget deficit of 8.3% of GDP for the current year, and a GDP decline of 4.4%. Not to forget, we are facing local elections in September 2020, parliamentary elections in Q1 2021 and a possible dismissal of the actual government by the parliament…

It is tough, but still manageable, if we start doing something now.

For the next months, I expect banks and financial institutions, probably even the tax authorities, to increase their focus on preventive measures, debt restructuring and operational turnarounds, with the support of professional management, avoiding the deep black waters of the insolvency and bankruptcy processes (with above 94% of the insolvency cases ending in bankruptcy and liquidation). It is already proven, for private and state owned companies, that managing for restructuring brings more value added than filing for insolvency. As support of my sayings, I can mention two schemes of arrangement started in this period, Blue Air Aviation (low cost airline) and CFR Marfa (state owned rail freight operator), intended solutions which are a huge improvement for such special situation cases.

The effort to improve the rate of success for special situation cases needs to be supported by experts, and TMA Romania is a leading organization for the process. With the support of its members, TMA Romania has proposed various legislative initiatives and started discussions with the government, other business associations and stakeholders, being an active player in the improvement of the economic landscape. Educational materials, including a Guideline for a Turnaround Plan, and events are in process to be deployed.

Even if now we are a small community, I am looking forward for EACTP and the Romanian CTPs, to become the resources needed for driving the enhancement of the restructuring projects and to become the unrivaled targets when companies and entrepreneurs, why not even the government, are looking for such experienced and strong professionals.


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