The impact of the new insolvency law on the public procurement procedures

Radu Cataniciu, Partner with Cataniciu & Asociatii, explains to Which Lawyer in Romania how the new insolvency law impacts the public procurement procedures.

I. The Law no.85/2014 brings many innovations and improvements to the insolvency legislation and unifies in one legislative act the procedure of insolvency prevention and the insolvency frame procedure along with the special procedures for the insurance/reinsurance companies and credit institutions and the insolvency cross-border procedure and, for the first time, the insolvency procedure for the corporate groups is regulated.

One of these innovations is stipulated by the Art.77 paragraph (6) in the Law no.85/2014 (hereinafter referred to as the LAW), and regulates an interdiction for the third parties, namely it forbids that the opening of any insolvency proceedings represents a reason to prevent a professional to participate in public bids.

Practically, according to the above-mentioned text of law, the insolvent debtor is allowed to participate in public bids.

The analysis of the legal text reveals that there is no distinction related to the type of procedure according to which the public bid takes place and there is no distinction concerning the entity who organizes the public bid, which leads to the conclusion that any debtor for whom the insolvency proceedings have been open has the vocation to participate in any kind of public bid regardless the person organizing it or being its beneficiary.

The subjects to whom applies the Art.77 are those stipulated in the art.3 paragraphs (2) and (3) in the Law, namely the professionals defined in the Civil Code and the autonomous administrations. The exceptions to the application of the Law, and thus not being concerned by the Art.77, are the professionals carrying out professions, the entities to whom special insolvency laws are applied and the institutions of education and scientific research.

Yet, the right for an insolvent debtor to participate in public bids is not absolute, it subsists until this one is declared bankrupt.

The following arguments have led to these conclusions:

First, the text of the paragraph (6) in the art.77 is put in the Title concerning the insolvency procedure in Section 3 “Opening the procedure and its effects”, containing the enforceable provisions for the period of observation and for the reorganization.

The participation in the public bids may be the current activity of a professional, and being awarded with a contract after winning a bid may represent a solution to continue the debtor’s activity for the period of observation and for the reorganization, in order to get additional liquidities to pay the creditors and to keep the jobs.

Thus, in the Law it is expressly stipulated that the debtor may conclude new contracts during the period of observation and reorganization (art.5 point 2 let.a) and point 66 let.b) and art.87 paragraph (1).

A reinforcing of the right of the insolvent debtors to participate in public bids and to eliminate the obstacles for these one, comes from the Art.341 in the Law, which confirms that any ban or limitation stipulated in other laws concerning these debtors are enforceable only after the bankruptcy was filed, and the opposite provisions are abrogated.

It was no longer logically and economically justified that a debtor in bankruptcy participates in public bids, as, once filed for bankruptcy, are dissolved and will be carried only the activities necessary for the debtor’s liquidation, according to the art.85 paragraph(7) in the Law. Besides, one of the fundamental principles of this new insolvency procedure is to put the assets to work in due time and as efficiently as possible (art.4 point 11), or the bankruptcy has exactly this purpose, namely to liquidate the debtor’s fortune.

II. The stipulations of the Art. 77 in the Law have a major impact on the public procurement procedures regulated according to the OUG (GovernmentEmergency Ordinance) no.34/2006.

In case of the public procurement procedures, the rule for awarding the contracts is open bid, which represents a form of public bid.

If, until now, in the documentations for public procurement procedures, the insolvency of a possible bidder was considered a criterion for its non-eligibility in the procedure, in the new insolvency law, such a criterion can no longer be introduced.

For this purpose, according to the Art.341 in the Law, all the bans or limitations for the debtor, even the legal ones having been conditioned by the opening of the insolvency proceedings, are eliminated.

The art.181 letter a) in the OUG no.34/2006 supports this idea according to which the contracting authority has the right to exclude from the public procurement procedures only the bidder declared in bankruptcy, which per a contrario means that a bidder being in the period of observation or judicial reorganization can participate in the procedure.

If, until now, it was the exclusive right of the contracting authority to appreciate if an insolvent bidder (being in the period of observation or reorganization) may participate in the public procurement, once the Law has entered into force, the obligation for the authorities to allow the insolvent companies to apply for the procedure of public procurement has been instituted.

In case the procurement documentation excludes the bidders to participate, on the pretext that they are insolvent, the damaged party can ask for this restriction to be eliminated or to revoke all the documentation, through the administrative and jurisdictional procedures and the contentious procedures stipulated in the OUG no.34/2006.

Yet, the insolvent debtor has not the right to participate in any public procurement, but only in those for which the method to award the contract is public bid.

OUG no.34/2006 regulates several methods for the contract awarding, and, relying on the text of the art.77 in the Law, we can see that it refers only to the procedures carried on through public bid, which offers the possibility for any bidder to apply for the procedure after a public call, namely: open bid, restricted tendering, competitive dialogue.

As a consequence, in case of the procurement procedures through the methods of negotiation without the prior publication of a call for tender or a bid request, the contracting authority has the right to limit the bidders’ participation, inclusively according to the criterion of insolvent debtor. Of course, nothing prevents the contracting authority to allow the participation of the insolvent debtors for such procedures (citing the above-mentioned art.181 let.a)), but the decision in such a case is taken only by the authority and it is no longer its legal obligation.

As for the debtor for whom the insolvency proceedings have been open and who wishes to participate in public procurement procedures, this one will have to comply with all the other conditions concerning the technical and professional ability stipulated in the procurement documentation.

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