Receivership, as an alternative to bankruptcy for companies in default, stands little chance of catching on in Romania because receivers do not demand protection in court against creditors in due time, liquidators say. Only 5% of companies in a position of insolvency resort to a reorganisation plan and, of these, only 1.5% achieve a turnaround. In other words, only eight out of 10,000 companies unable to pay their debts succeed in resurfacing.
Globally, between 25% and 30% of companies in financial difficulties come up with a revival plan, and in a quarter of these cases the plan is successful. “The receivers of Romanian firms are doing nothing to seek protection when faced with creditors until it is too late. This happens for several reasons, including the desire to cover up fraud or incompetence,” explained Arin Stanescu, chairman of the National Union of Professionals in Reorganisation and Liquidation in Romania (UNPRL). The situation could soon change, owing to modifications to bankruptcy legislation.
After Romania joins the European Union, there will be an increase in the number of cases of insolvency among Romanian companies due to the higher level of competition Romanian companies will face on the common market.
“2007 will be a psychological threshold for Romanian companies since companies that are not capable of holding their ground on the market will have to withdraw,” said Arin Stanescu. He explained that, besides bankruptcy, withdrawal from the market may also mean mergers and acquisition processes. Indeed, in the countries that joined the EU this May, there was a considerable increase in the number of companies exiting the market. “In the first wave of EU expansion, about 50% of small and medium-sized enterprises have begun market exit procedures. Considering the mentality of Romanian businessmen, I expect two thirds of SMEs to disappear from the market in Romania by 2007 through bankruptcy procedures,” Gheorghe Piperea, deputy chairman of UNPRL, told Ziarul Financiar.
Receivership and bankruptcy experts say this year saw an increase in insolvency cases, though data on the number of companies going into liquidation or receivership since the beginning of the year have not yet been centralised. The main reason, say liquidators, for the increase in bankruptcies is that many enterprises are privately owned and their fate is determined exclusively by market conditions.
vlad.nicolaescu@zf.ro