The impact of the insolvency procedure over ongoing lease agreements

Among the issues financiers must deal with one must also count the impact of the insolvency procedure over ongoing lease agreements. Many lessees, who find it hard to maintain a valid cash flow, look for the protection granted to them by the Insolvency Law no. 85/2014 and subsequently attempt to restructure their activity and schedule the payment of their debts.

Once the insolvency procedure starts, lessors are forbidden to cancel the lease agreements despite the lessees becoming insolvent. Lessors are thus entitled to ask the judicial administrators to terminate the leasing operations. Such a termination entails sending a notification for this purpose, within a three months period from the date the insolvency procedure has started. If the judicial administrators do not respond to the lessors’ notification within 30 days, the aforementioned agreements are considered to have been cancelled.

If the judicial administrator decides to maintain the lease agreements, the installments owed after the procedure starts should be paid by the lessee, as current receivables, whereas the overdue installments shall be enlisted on the table of creditors. The lessor will be considered as legal secured creditor of the leased item and will transfer the property to the lessee, only upon full payment of all the installments, during the insolvency procedure. If, however, the lessee is not able to pay all the dues, the financier may execute its mortgage.

Most of the financiers choose to cancel the agreement because their major purpose is to recover the leased item and diminish the losses of the non-performing leases. Therefore, they seek to have the judicial administrator terminate the agreement. In case of an unjustified refusal on its behalf, the lessor may file a motion to the court, in order to compel the lessee to hand over the leased item.

Once the agreement is cancelled by the judicial administrator or by the court, the financier may begin the enforcement procedure in order to recover its property.

The new rules regarding financial leasing under Law no. 85/2014 represent a major development compared to the previous provisions of Law no. 85/2006. As of 2014, specific issues which may occur are regulated in a distinct manner and case law confirms such practical benefits.

Our company, Avestis International, employs a highly-trained team of lawyers and legal advisors specialized in such matters and ready to defend the interests of our partners, be they financiers or other companies interested in diminishing their financial losses and in recovering their assets from insolvent debtors.

On 2016, approximately 30% of the insolvent companies on our portfolio were executing ongoing leasing agreements, upon the opening of the insolvency procedure. Avestis International successfully assisted the finance companies on such cases and, on 95% of ongoing leasing agreements, recovered the leasing items. On such cases, major help came from good communication skills of our team and adequate cooperation with the judicial administrators.

Attorney at law, Madalina Ionescu – Partener of Avestis International SRL