We will try to answer these questions by relating to a case that has come to our attention sometime at the end of 2019.

In 2013 a company from Italy (Ltd), whose main activity was the construction of roads and highways, decided to open a Branch in Romania.

Over time, the Branch in Romania has carried out several works contracted on Romania’s territory and for this purpose it had to hire Romanian employees.

In August 2019 the Italian courts of law declared the insolvency of the parent company and, according to Italian laws, two Italian curators were appointed to handle the insolvency proceedings.

In view of the situation, one of the aspects that had to be established was the procedure that needed be followed for the termination of the contracts of employment of the Branch’s employees and eventuallyfor closing the company.

In order to choose the right procedure, the following two key legal provisions were taken into consideration: Article 13(1) of Regulation 848 of 20 May 2015 on insolvency proceedings according to which the effects of insolvency proceedings on employment contracts and relationships shall be governed solely by the law of the Member State applicable to that contract of employment and Article 43(1) of Law 31/1990 on companies according to which branches are a part of the parent company, without legal personality, which must be registered before startingany commercial activities in the trade registry of the county where they shall operate.

After reviewing the contracts of employment, it was established that the governing law was the Romanian one.

Consequently, also based on the provisions of Article 21(1) of Regulation 848 of 20 May 2015 according to which the insolvency practitioner appointed by a court of competent jurisdiction from the Member State within the territory of which the center of the debtor’s main interests is situated may exercise all the powers conferred on it, by the law of the State of the opening of proceedings, in another Member State, as long as no other insolvency proceedings have been opened there and no preservation measure to the contrary has been taken there further to a  request for the opening of insolvency proceedings in that State, the provisions of the Labour Code were enforced together with the provisions of Article 123(8) of Law 85/2014 on insolvency prevention and procedures, according to which after the proceedings are opened, the termination of the contracts of employment of the debtor’s employees shall be regarded as a matter of urgency to be accomplished by the official receiver/trustee (in compliance with the required notice period), dismissalstaking therefore place for reasons not attributable to employees.

Accordingly, at first the Branch’s employees were issued letters of dismissal and upon expiry of the notice period they received their final dismissal decisions for reasons not attributable to employees, as per the provisions of Article 65 and the following of the Labour Code.

The next step was to close the Branch in Romania and to inform the Branch’s former employees about the procedure that needed to be followed in order for their unpaid salaries to be included on the parent company’s list of creditors.

None of the Branch’s former employees appealed their final dismissal decisions and they all agreed to follow the procedure that had been presented to them so as to include all unpaid salaries on the list of creditors of the parent company in Italy.

The goal wasthus reached: the opening of secondary insolvency proceedings in Romania was avoided, the contracts of employment of the Branch’s employees were terminated and the Brach was eventually closed.

The main insolvency proceedings shall continue in Italy, including the Branch’s creditors, if any, according to the rules applicable to thesetype of proceedings.

Author: Marian Bota  Lawyer @ Budusan & Associates