CITR analysis: The fate of the 14,550 impact companies in Romania in difficulty remains unaddressed

A study conducted by CITR specialists, the leader of the insolvency and restructuring market, shows that in 2020, in the midst of a pandemic, the number of impact companies in a state of imminent insolvency was at the highest level in recent years. This level is comparable to that of 2013, when the number of imminent insolvencies was the highest in history, due to the prolonged effects of the 2008 financial crisis.

The most prominent causes, although meant to help the long-term business environment, were the measures taken internationally to mitigate the impact of the SARS-CoV-2 virus on the population. These had a significant impact on the Romanian economy, especially in the second quarter, through: temporary cessation of operations in the manufacturing sector, limiting population movement with a major impact in areas such as passenger transport, tourism, entertainment, services.

“Although we would expect a wave of insolvencies caused by the pandemic, this did not happen. Government support schemes have significantly contributed to reducing the number of insolvencies for impact companies. So, today we are no longer talking about an aggressive wave of insolvencies generated by the pandemic, but about a hidden one, which is always imminent, of the difficulty of those companies in a state of imminent insolvency or in difficulty already installed for years. The pandemic has given rise to pre-existing difficulties but has not forced troubled companies to access insolvency prevention or insolvency proceedings, ‘says Andra Caragea, CEO of CITR.

There are market studies that cancel out the idea of ​​a wave of insolvencies generated by the pandemic: globally an increase in the number of insolvencies in 2022 is expected, of about 15% compared to 2021, but this only means a return to the level considered normal before the pandemic. .

This conclusion also comes from the fact that, in Romania, out of a total of 6654 companies that were in a state of imminent insolvency in 2020, only 293 companies appealed to open a legal procedure provided by the insolvency law or resorted to measures of financial restructuring in the market.

In 2021, we have a 7% increase in the number of new insolvency proceedings and a 33% decrease in the number of new insolvencies. This dynamic is also due to government measures such as public and private moratoriums, tax deferrals, cash transfers or public guarantees, which have mitigated the effects of the pandemic.

Also at the national level, the CONFIDEX study conducted by Impetum Group, which also includes CITR, reflects the fact that SMEs were more affected by the pandemic, compared to the impact ones. SME managers confirm this fact by their perceptions – they estimated their company’s recovery to the pre-pandemic financial situation in 21 months, compared to managers of large companies who were more optimistic, estimating a return to 19 months.

Another important conclusion of the CITR study is that only 1% of companies in a state of imminent insolvency in 2020 managed to become financed by their own methods. The study took into account the companies that went from the state of imminent insolvency in 2019 to that of companies that can be financed in 2020.

The analysis indicated that this shift was due to internal restructuring measures or capital borrowing from shareholders, measures that are difficult to implement in the face of a lack of experience on the part of entrepreneurs regarding restructuring techniques and in the conditions of an acute lack of capital. related to investments in companies in difficulty.

“As for companies already in difficulty, the pandemic has served as a catalyst for existing problems and has strengthened the need for immediate action. However, experience tells us that one-off measures are never enough. As such, accessing prevention and / or restructuring procedures has become a necessity,” says Paul Cîrlănaru, CITR Senior Partner.

State-owned companies are no exception, as about 30% of all impact companies are in difficulty. Although there are companies that have been open to the prospect of restructuring, such as ROMAERO or CFR Marfa, more positive examples are needed.

In the context of an unprecedented crisis, the EU aims to stimulate the resumption of economic activity of companies experiencing financial difficulties, to facilitate access to restructuring measures at the first signs of difficulty.

Romania is in line with European trends, meaning that Law no. 85/2014 on insolvency prevention and insolvency procedures, by implementing EU Directive 2019/1023 in national legislation. CITR has the role of expert consultant in the consortium selected by the European Commission for the implementation of EU Directive 2019/1023 in the field of prevention and restructuring.

Once the legislation is adopted, Romanian entrepreneurs will benefit from clearer, more flexible procedures, freedom to negotiate with creditors, suspension of foreclosures, and company creditors will benefit from a higher degree of debt recovery by resorting to restructuring mechanisms. at the first signs of difficulty.