According to a press release sent by CITR on Thursday, the number of companies that filed for bankruptcy procedures in 2023 was 6,650, with the trade and construction sectors the most affected.

Of the 6,650 companies, 89 are companies with assets of more than 1 million euros, which is a slight increase compared to the previous year.

The high level of insolvency of retail and construction companies can be attributed to industry factors.

In the construction sector, bankruptcies have increased due to high energy costs, inflation, delayed infrastructure projects and cash flow problems. In addition, high industry competition and price sensitivity lead to lower profit margins, making companies more vulnerable to bankruptcy.

In the retail sector, insolvencies can be attributed to factors such as changing consumer behaviour, increased competition from the online environment, high levels of debt and the impact of the overlapping crises we are going through, in addition to high inflation.

Retail companies struggle with rising operating costs and sometimes the inability to adapt to ever-changing market trends.

“The figures reflect the results of European and national policies aimed at keeping companies alive in times of economic difficulties through various support mechanisms. But the hidden price companies pay is their very productivity, their ability to generate long-term profits. Debts are increasing, and their efficiency is decreasing. In other words, companies are living off the infusions, they are working, but they are accumulating debt,” says Paul-Dieter Cirlenaru, CEO of CITR.

In 2023, the following industries will be most affected:

• Wholesale and retail trade, as well as repair of cars and motorcycles – 1,630 cases and a slight decrease compared to last year by 1.15%;

• The construction sector recorded a growth of 3.60% in 2023, with a total of 1,208 cases;

• In transportation and storage there is an increase of 18% and a total of 636 cases.

Bucharest continues to register the highest number of insolvent companies, increasing from 1,153 in 2022 to 1,289 in 2023.

at the same time, we see an increase in the number of insolvent companies in districts such as Bihor, where the number increased from 545 in 2022 to 599 in 2023. We also see a decrease in counties like Argesh from 178 in 2022. , to 120 in 2023, signaling possible improvements in economic conditions or the effectiveness of preventive and restructuring measures introduced.

Preventive contract, an increasingly popular solution for companies in a difficult situation

In 2023, 90 applications were registered for the opening of the procedure for carrying out preventive measures, of which 60 are currently ongoing. All of them have a total turnover of 250 million euros and fixed assets of more than 100 million euros.

The companies are mainly engaged in trade, construction and production from counties such as Dolj, Bucharest, Cluj and Mures.

Of them, 14 companies have core assets of more than 1 million euros. Their total turnover is 120 million euros, and their combined fixed assets are 78 million euros.

“The number of companies that turn to restructuring decisions is increasing, but these procedures are confidential, they are not visible. Even if we cannot have prospects for restructuring deals or business restructuring in general, we see increased interest in this area,” concluded Paul Dieter Cirlenaru.

What restructuring solutions are available to companies?

Restructuring agreement

The new concept integrated in Romania is brought by the restructuring legislation, which is based on the European Directive, which aims to offer recovery prospects to companies in difficulty. Thanks to a restructuring agreement, companies can quickly and on a case-by-case basis resolve issues in regulated negotiations, allowing them to restructure their business and debts.

Prevention and preemption are two important elements of the philosophy of this procedure, and the role of the courts is minimal.

Preventive contract

An updated product, thanks to the new provisions on restructuring, the preventive agreement offers the possibility to temporarily suspend any enforcement, from which the entrepreneur can benefit to review negotiations with partners, within a regulated framework, allowing the restructuring of the business and debts and the reflection of the balance sheet and prospects in the business .

The solutions that can be implemented in such a restructuring mechanism can be adapted to the specifics of each company and can include such measures as: distribution and adjustment of debts, conversion of debts into shares, transfer of business, sale of non-core assets, attraction of financing, merger / break-up, etc. .

Extrajudicial business restructuring

While the restructuring agreement and preventive arrangement are modern restructuring procedures governed by Law 85/2014 on Insolvency Prevention and Bankruptcy Procedures, companies may in certain situations also resort to out-of-court restructuring by agreement with their partners. Thus, financial and/or operational restructuring measures can be agreed by consensus between the company’s administrators, partners and principal creditors.

Financial restructuring can be aimed at changing the company’s debt structure, as well as the capital structure by attracting an investor or increasing share capital. Operational restructuring aims to increase efficiency and profitability by implementing measures to optimize production, distribution, marketing or cost control processes.

The success of restructuring depends on many factors, but it is very important to start the restructuring process early, before the problems become acute.