Insolvency Law: A “small bomb”in the foundation of Romanian economy
The vast majority of us hear every day about one or many more insolvencies around the country. Almost any kind of companies, in every city of Romania appear every day in the news as "the next one who fell". Sometimes people do not believe in the news. Some other times they get upset or even happy by the bad luck with the owners of the company which "didn't succeed". But meanwhile we also started hearing about… weird stories regarding the usage of Insolvency Law…
It should be a "tool"…
It is a problem, but not a tragedy if once in your life you lose the control of your business and end up "swimming into debts" (as we say in Greek). It can happen to every one of us once in his life to make mistakes, to take wrong business decisions and end up in trouble. This is why the State provides to us the Insolvency Law. In order to organize how these problems will be handles and eventually terminated, how this trouble will stop. This should be a "tool" so as to move on the economy and its people.
While some people use it as a "way to disappear"…
I heard more than 30 cases of people who borrowed money by the bank and now they do not care to give this loan back. They file for insolvency, causing problem to the banks ofcourse, and in some cases they just continue their activity under a similar brand name. Or they just… disappear. This means that the bank will transfer the whole amount into losses, hurting its own financial standards. Also the whole procedure requires 18 – 36 months to be solved = the black hole will remain at the books of the bank for long term.
Even if it sounds difficult to believe, there are plenty of cases nowadays with people "threatening" the banks that they will file for insolvency and block them. It is the new "part of the game" which was not taken into consideration during the past, when these loans were granded.
…or it becomes part of blackmail strategies
But the latest trend is different: I hear many cases when there is a Real Estate project worth several millions of Euro and there is a dispute between the developer and one of the providers. Two are the reasons for disputes: One is the poor quality of construction, which eventually fails to pass the quality controls before to be delivered to the developer. The second reason is the cash flow shortage of the developer due to the crisis.
So, I hear many cases where the supplier takes the developer to the court (or vice versa), filing against it for insolvency (as the law allows) just because there is a dispute of "small" amounts (comparing to the value of the project). If someone invested 15 – 20 million Euro on a development, is it normal to risk insolvency for a debt of 10.000 – 20.000 euro? When this procedure starts, employees are in danger to lose their job and many things paralyze within a company. Not good, especially in THIS kind of economic environment…
My proposal: Study the best examples of major western economies
No one said that someone should lose his money, money he deserves after his work. But if we start filing for insolvency against each other for minor amounts (comparing to each one's financial capability), isn't it sure that we will end up blocked, in courts, giving just great pleasure to lawyers? It is difficult to protect someone against the bad intention of someone else, but still there must be another way…
My proposal: Let us reconsider the insolvency law and study the examples of the major western economies on this issue. They solved these problems long time ago and there is not any reason to experiment in this corner of the globe. Everyone should be protected from bad collaborators. But in the same time, the ability to destroy each other should be a bit minimized, as we do not see it being used with wisdom nowadays.
Is insolvency law problem relevant to Real Estate?
You might say "what is his problem today? Why does he talk about irrelevant issues? We want to know more about Real Estate". Trust me, the problems which are created by the current situation regarding insolvency are influencing Real Estate too. And in 2010 they will influence the market even more, if we do not undertake some measures…