Challenges in Insolvency Proceedings

Insolvency proceedings regulated by Law No. 85/2014 on insolvency prevention and insolvency procedures rest on a collective mechanism for verifying and ranking claims to be satisfied in the proceeding.

A challenge is the procedural instrument through which interested parties — particularly creditors, but also the debtor, the judicial administrator/liquidator, or other interested persons — may challenge before the syndic judge entries made in the various claims tables, the refusal to register a creditor’s claim in the table, or measures taken (or the refusal to take measures) by the judicial administrator/liquidator during the proceeding.

Through a challenge, an interested party may thus dispute the registration or non-registration of a claim, as well as the amount of the registered sum or its priority ranking. An interested party may also challenge certain administrative measures ordered during the proceeding.

The purpose of these challenges is to ensure the creditors’ mass is correctly constituted and to protect the rights of the parties within a collective proceeding that produces extended effects.

The Law sets short time limits — often running from publications in the Insolvency Proceedings Bulletin (BPI) — and special jurisdictional rules for resolving these challenges, precisely in order to preserve the efficiency of the proceeding.

Types of Challenges Under Law No. 85/2014

Several types of challenges are regulated directly, or derive from, the provisions of Law No. 85/2014. The most common are:

  • Challenge to the preliminary table of claims [art. 111, Law No. 85/2014] – disputing entries or omissions in the preliminary table.
  • Challenge to the final (definitive) table of claims [art. 113] – disputing entries/omissions after the table of claims has become final.
  • Challenge to the supplementary table [art. 146 para. (4)] – concerns claims arising after the opening of the proceeding, which are accepted or rejected in the supplementary table.
  • Challenge against measures taken by the judicial administrator [art. 59 para. (5)–(7)] – where a party considers a measure unlawful or unjustified (for example: refusal to execute, in authentic form, a sale contract based on a pre-sale agreement; recognition or non-recognition of the status of a current claim; payments made from the debtor’s assets, etc.).

When and How Is a Challenge Brought?

1. Challenge to the Preliminary Table of Claims [art. 111, Law No. 85/2014]

Scope

A challenge to the preliminary table seeks to correct the preliminary table prepared by the insolvency practitioner (judicial administrator/liquidator) as regards the registration, incorrect registration, or non-registration of a claim, or of its priority right. It may be filed by creditors, the debtor, or any interested person. Its immediate purpose is to have a claim registered where the insolvency practitioner refused to do so, to remove an incorrectly registered claim (for instance, belonging to another creditor), or to correct the amount of a claim or its ranking.

Procedural Aspects

The challenge takes the form of an application addressed to the court and generates an associated case file within the debtor company’s insolvency proceeding. Filing a challenge requires payment of a court stamp duty of RON 200 [art. 14 para. (1), Government Emergency Ordinance No. 80/2013].

The Law sets a strict time limit: the deadline for filing a challenge to the preliminary table is 7 days from the publication of the preliminary table in the Insolvency Proceedings Bulletin (BPI) [e.g., art. 111 para. (2), Law No. 85/2014]. Failure to meet this mandatory 7-day deadline results in the challenge being dismissed as time-barred and the loss of the right to have the disputed matter examined. Meeting the deadline requires continuous monitoring of the BPI, which is why specialized legal assistance is recommended for a successful challenge. The BRISC LEGAL team has the logistics in place to monitor an insolvent debtor company’s proceeding in the BPI and to receive automatic notifications of relevant publications, enabling court action to be filed within the statutory time limit.

The challenge is filed with the registry of the Tribunal that opened the insolvency proceeding, and falls within the jurisdiction of the syndic judge assigned to hear the entire insolvency case. The Law provides that all challenges to the preliminary table are resolved together, by a single judgment [art. 111 para. (6), first sentence, Law No. 85/2014]. However, where a challenge filed by a creditor requires the taking of complex evidence that will take longer to administer (e.g., a judicial technical expert report), the syndic judge will provisionally register the challenging creditor (a provisional entry in the table) so as to avoid blocking the insolvency proceeding and to respect the one-year limit applicable to the observation period in insolvency proceedings [art. 112 para. (3), Law No. 85/2014]. The provisionally registered creditor will enjoy all the rights provided by law, except the right to collect sums proposed for distribution, which will be held in a separate account until the claim is finally determined [art. 111 para. (6), last sentence, Law No. 85/2014].

The judgment rendered by the syndic judge is not final; creditors and interested parties have the right of appeal, to be heard by the hierarchically superior court (Court of Appeal).

Case Law

2. Challenge to the Final (Definitive) Table of Claims [art. 113, Law No. 85/2014]

Scope

A challenge to the final table concerns situations where, after the final table has been prepared (following resolution of the challenges to the preliminary table), forgery, fraud, or a material error is discovered which determined the admission of a claim or of its priority right, as well as cases where a previously unknown enforceable title is discovered [art. 113 para. (1), Law No. 85/2014].

Procedural Aspects

A challenge to the final table may be filed “even up to the closing of the proceeding,” but subject to a 15-day deadline running from the moment the party knew or should have known of the circumstance giving rise to the challenge [art. 113 para. (2)]. The conditions are strict: only clearly defined situations qualify (forgery, fraud, material errors, new titles). Procedurally, the competent court remains the syndic judge (the insolvency court).

Challenges to the final table are, in essence, an extraordinary remedy for controlling the creditors’ mass. The syndic judge will be alert to possible abuse, or to challenges to the preliminary table filed late and disguised as challenges to the final table. Judgments upholding such challenges are generally grounded in new evidence or clear proof of forgery, fraud, or material error.

Case Law

There are court decisions upholding challenges to the final table — in particular where evidence was produced showing that the initial registration had been based on court titles that were previously unknown. We note:

3. Challenge to the Supplementary Table [art. 146 para. (4), Law No. 85/2014]

Scope

The supplementary table comprises all claims arising after the opening of the proceeding and up until the date bankruptcy is declared [art. 5 point 70]. Challenges concerning this table relate to the acceptance or rejection of requests to register such claims in the supplementary table, their amount, or their ranking.

Procedural Aspects

Challenges to the supplementary table are regulated in a manner similar to challenges to the preliminary table, but in practice they arise in the context of the completion of the observation period, or of the failure of a reorganization plan, followed by the debtor’s bankruptcy. The challenge must be brought within 7 days of the publication of the supplementary table in the BPI [art. 146 para. (2)(c)]. Claims registered in the supplementary table following a successful challenge are entered in the consolidated final table of claims [art. 5 point 68].

Jurisdiction lies with the syndic judge, and the resulting judgment may be appealed to the hierarchically superior court.

Case Law

4. Challenge Against Measures Taken by the Judicial Administrator/Liquidator [art. 59 para. (5), Law No. 85/2014]

Scope

The judicial administrator/liquidator is required to conduct the insolvency proceeding and has various duties in doing so. The exercise of these duties may involve measures taken during the observation period or during bankruptcy, such as terminating or, conversely, continuing to perform contracts in progress at the date the proceeding is opened, appointing valuers to assess collateral or assets, liquidating them, recognizing current claims for payment, making payments, recovering the debtor’s claims in the course of the insolvency proceeding, and resolving requests concerning the coverage of secured claims, among others.

Art. 59 of Law No. 85/2014 (art. 63 para. (1) for the judicial liquidator in bankruptcy proceedings) requires the judicial administrator/liquidator to prepare a monthly activity report, in which it reports to the syndic judge on the activity carried out between the hearing dates set by the syndic judge (approximately every 120 days) for monitoring the insolvency proceeding. Interested parties may bring challenges before the syndic judge against the measures taken [art. 59 para. (5)].

This remedy provides swift protection against measures taken by the insolvency practitioner that may affect the position of creditors or the interests of the debtor. The accelerated procedure reflects the need for rapid intervention in organizational and decision-making measures capable of affecting the debtor’s assets.

Procedural Aspects

This challenge is likewise brought within a short time limit (7 days from publication of the relevant extract in the BPI) and is resolved by the syndic judge through a judgment that may be appealed to the hierarchically superior court (Court of Appeal).

Case Law

Legal commentary and court practice have developed differing interpretations concerning the scope of application of art. 59 (for example, whether it may extend to challenging the report on the causes of insolvency) — some authors take the view that the text should be interpreted narrowly, in the sense that the challenge concerns the specific measure taken by the practitioner, not just any administrative act or report. Nevertheless, the challenge has been held admissible in numerous situations, including:

5. Other Challenges Available Under Insolvency Law

Throughout the insolvency proceeding, creditors and other interested persons may also resort to a challenge in other situations. These include, among others:

  • The debtor’s challenge to creditors’ introductory application for the opening of the proceeding [art. 45 para. (1)(b); art. 72 para. (3)] – disputing the state of insolvency itself, where the debtor considers the conditions for opening the proceeding are not met;
  • Challenges to the legality of a resolution of the creditors’ assembly, or of the decision of the creditor holding more than 50% of the value of claims appointing the judicial administrator/liquidator [art. 45 para. (1)(e); art. 57 para. (6)] – disputing the capacity of the judicial administrator/liquidator where its appointment was unlawful;
  • Challenges to the calculations made by the judicial administrator/liquidator for claims that have no fixed monetary value, or whose value is subject to change [art. 107 para. (1)];
  • Challenges to the plan for distributing the funds obtained from liquidation and the collection of claims [art. 160 para. (5)]. An example of such a case may be reviewed here;
  • Challenges to actions, measures, and decisions taken by the creditors’ committee [art. 51 para. (6)].

Conclusions and Recommended Practices

  • Mind the deadlines. A constant feature of Law No. 85/2014 is the use of very short time limits (7 days for challenges to the preliminary table, to the supplementary table, and under art. 59 for measures taken by the insolvency practitioner). Missing these deadlines results, in practice, in the challenge being dismissed as time-barred, and thus in the loss of the possibility of obtaining the syndic judge’s intervention to protect the party’s rights. Case law is strict on the application of these deadlines. That said, the time limit for bringing a challenge may be reinstated where serious grounds are shown that are not attributable to the party who filed the challenge late. As regards registration in the preliminary table, it should be noted that the filing deadline runs from the date of the notice sent for that purpose by the judicial administrator. In practice, situations arise where a creditor was not notified in this way; art. 42 para. (3) provides that such a creditor will be deemed by law to be within the deadline for submitting its request for admission to the creditors’ mass, but will be required to take the proceeding as it stands at the time of registration. The short 7-day deadline therefore calls for vigilance: creditors and other interested persons must monitor publication in the BPI and file their challenges in time.
  • Compliance with formal requirements. Unlike applications filed with the ordinary courts, applications made within an insolvency proceeding presume a higher degree of formalism, non-compliance with which attracts severe sanctions. For example, art. 401 imposes an obligation to communicate applications/challenges to the opposing party and to file proof of that communication, on pain of a judicial fine. This rule is intended to ensure the swift resolution of applications made in insolvency proceedings.
  • Evidence is decisive. Whether a challenge is admissible and well-founded depends heavily on the evidence: enforceable titles, authentic instruments, evidence of forgery or fraud, supporting documents for the claim, or even judicial expert reports.

It is essential to make use of the appropriate legal remedies. The success of a challenge filed by creditors and other interested parties depends on compliance with the applicable legal requirements and formalities. Non-compliance frequently results in the challenge being dismissed without the syndic judge examining the merits of the matter raised — which is why legal assistance is recommended.

Choose the Brisc Legal team of lawyers from Cluj-Napoca for solving your legal problem.

Contact

14-16, Dorobantilor street
Cluj City Center
2nd floor, room 210
400121, Cluj-Napoca

(004) 0744 475 971 horatiu@brisc.ro Privacy Policy
See the location on the map