ARB – VIDEO PROFIT LIVE: We lack the culture of restructuring

Companies in difficulty, most likely from next week, can resort to European Restructuring Directive 123/2019, to avoid bankruptcy, and thus bankruptcy and liquidation, broadcast on PROFIT LIVE on PROFIT NEWS TV, Mirona Dolocan, Chairman of the Board of Directors of the Loan Recovery Committee Troubled under the Romanian Association of Banks. It also recommends that companies facing difficulties call for transparency and honesty in their dealings with creditors. At the country level, Mirona Dolocan sees a need for a culture of restructuring, which is completely lacking at the moment, but also of financial changes.

“In 2019, the EU-wide Restructuring Directive 123/2019 appeared, which seeks to rescue as many companies in financial difficulty as possible, with the aim of solving this problem of difficulties before a situation that could lead to bankruptcy and liquidation occurs,” states Merona Dolucan.

Restructuring Directive 123/2019 has already been adopted by the Senate and the Chamber of Deputies this spring and is due to be issued by the President of Romania. After that, it will be published in the Official Gazette in its final form.

“Compared to the European directive, the implementation in our country was carried out from a different perspective. The European directive talks about financial difficulties, and we are implemented in terms of difficulties, that is, a step ahead of financial difficulties. This means that the main idea is to create a culture of restructuring before the time when the company may face a level It is difficult to put them in a position to enter bankruptcy. The stated purpose of the directive is to rescue those companies that can be saved, in order to avoid bankruptcies, liquidations and the effect of insolvency on the economy in general,” she adds.

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Companies in difficulty are likely to be able to use this restructuring guidance starting next week.

“The implementation in our country was based on the structure we previously had in insolvency law, of pre-insolvency proceedings, which have been modified to meet the standards and requirements of the European directive. It essentially represents a European approach at the moment to companies in difficulty.”

Under this directive, companies have two options. They can use either the restructuring procedure or the precautionary Concordat procedure. The restructuring procedure is more flexible, it only includes the court sometimes, to approve the restructuring plan, while the preventive composition procedure is more detailed and court attendance is more intense. However, in both cases, companies need a judicial official to represent them.

“It is available to companies that have difficulty selecting all or a certain part of their creditors to negotiate with them on this plan. The implementation of the directive also aims to build an early warning system that seeks to identify those companies that have this risk in the face of serious financial difficulties in the future and that may lead to bankruptcy … The whole idea of ​​restructuring focuses on the need to prevent bankruptcy and then these early signals should help the company to identify these risks before the moment they occur and can be addressed with bankruptcy,” says the commission chairperson for the recovery of non-performing loans from the Romanian Association of Banks.

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Mirona Dolocan recommends companies in financial difficulty handle the situation honestly and transparently, especially with regard to business partners.

“Companies have obligations to report financial statements anyway. Basically, a bank creditor can see financial difficulty and it can be expected from the numbers the company gives to the bank. As a result, this situation cannot be hidden, nor can it remain unnoticed before bank creditor.

As soon as the bank creditor receives the information directly from the company, in time it will be able to analyze the situation on a case-by-case basis and will be able to find a solution to restructuring with the company. Businesses can expect to open their doors as long as there is openness on their part. There is an opening on the part of the banking financial system.”

She adds that companies facing financial difficulties may also face a reluctance on the part of banks to access the new financing needed to overcome their crisis situation.

“When you are going through financial difficulties, the bank starts to think of the most pessimistic scenario, where it is forced to do so. The banking industry is one of the most regulated industries in the world. As long as the banks are also custodians of customers’ savings, it is clear that it is necessary to regulate the banking activity From this perspective, there are many local and European regulations that we must comply with as an industry.

For example, a loan granted by a bank is entered in the bank’s balance sheet as a financial asset. This entails the application of a set of rules, IFRS 9, which govern exactly the treatment of financial assets, a situation in which a financial asset can be considered low value in terms of its quality.

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When the quality of such exposure deteriorates, banks have to exercise a high level of caution against such exposures. These are the EU rules, and guidelines, which banks must take into consideration. Basically, new financing is an event that must be well analyzed by the bank. This is why banks have to look very carefully when financing a company in difficulty, especially in financial distress,” says Myrona Dolokan.

She went on to say that the banks’ reluctance is given in practice by existing regulations, and not for personal reasons or related to the relationship with the customer.

“These are issues that come from national and European regulations that dictate certain behaviour. Each bank does its own analysis, has its own internal regulations and has no way of applying them differently from customers. That is why there is self-control. This restriction practically comes from over-regulation of the system. , from the fact that we have to apply maximum caution when talking about assets that can be reclassified. This is a source of hesitation, not a personal issue,” she says.
The head of the Commission for the Recovery of Bad Loans of the Romanian Association of Banks believes that financial changes are also necessary to clean up assets.

“The main obstacle is finance. Legislative changes are necessary on a financial level. There are no other obstacles at this time than those of a financial nature to cleanse assets. It is a topic that will require much broader discussions,” she added.

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Mirona Dolokan also believes that a more thorough analysis of the insolvency law and the regulation of certain measures is necessary.

“I think the most important thing to adjust for the very large share of the liquidation is to correct our expectations of what restructuring and capitalization means. If we look at bankruptcies at the moment, we can see that companies going into bankruptcy have a big problem that is not necessarily with liquidity, but On the balance sheet, which shows a financial illness that has become chronic, no longer acute.

At a time when we have a lot of bankruptcies, more than 95% of bankruptcies in the huge amount of bankruptcies, there is a problem. This shows us that the insolvency appeal is already too late. We need to change the culture towards capital and what restructuring means. I believe that transparency and honesty are key elements in dealing with relationships with business partners, as they are essential in trying to restructure the business until it is too late. In short, we lack a culture of restructuring,” says Myrona Dolokan.

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