The Impact Of The Econica Recession In Romanian Debt Recovery Market

The impact of economical recession in Romanian debt recovery market

Contents

Introduction

This paper deals with the debt collection market evolution in Romania before and after the economic crisis hit in 2008, putting particular emphasis on the evolution of the number of claims and their recovery for Coface Romania.

Legislation in Romania, comply with EU law treats both legal and accounting assignment of receivables and also debt recovery methods.

The motivation of choosing the topic is given by the desire to find out the indebtedness level of the population, the number of people who cannot pay back their loans, their inability motivation and the recovery methods used by companies to which receivables were assigned.

Debt recovery market has emerged mainly due to the increasing number of non-performing bank loans that banks had to sell either from the desire of faster recovery or due of the high costs that are involved in debt recovery. If the turnover of the debt collection companies did not register, until 2007 inclusive, alarming amounts is observed that with the outbreak of the crisis situation has changed, the existing companies expanding more and defending other new companies.

Regarding commercial debts, entities began to turn to debt collection companies in order to easily recover losses caused by unpaid bills by suppliers. This was also compounded by the emerge of the crisis when the economic entities wanted increasingly more to delay the payment of suppliers either for lack of liquidity or the belief that not paying will not cause problems in the future. Therefore by selling debt, entities could more easily recover their assets.

Chapter 1: Theoretical aspects of disposal of claims by third parties

Romanian legislation provides definitions for terms that will be used throughout the paper:

Credit agreement: “contract whereby a creditor grants, promises or provides for the possibility of granting credit to a consumer in the form of deferred payment, loan or other similar financial accommodation, except contracts for services continuously or for providing goods of the same kind, where the consumer pays for such services or goods in installments throughout their supply.”

Creditor: “legal entity, including credit institutions and branches of foreign non-bank financial institutions that carry out activity in Romania and who agrees to give or lend in the course of his trade or profession.”

Credit intermediary: “the person or entity that is not acting as a creditor and who, in the course of his trade or profession, for a fee, which may take a pecuniary form or any other form of payment agreed, performing at least one of the following activities:

a) Presents or offers credit agreements to consumers;

b) Assists consumers by undertaking preparatory work in respect of credit agreements other than the letter a);

c) Concludes credit agreements with consumers on behalf of the creditor”

Credit risk: “is the risk assumed by the bank in case of bankruptcy of one of its clients. A bank that is heavily engaged in a company, both through equity investments or loans as well as through will face this risk in its bankruptcy case. Because of this risk is the difficult economic situation, poor financial status of firms, lack of supervision. For bank is focused on the effects of total or partial loss of borrowed capital depending on the nature of guarantees and the possibility of recovery. Banks can also use certain measures to manage this risk: the constitution of guarantees, close supervision of authorized lending limits, the existence of a centralized system risk.”

1. Legal aspects of debt assignment

Assignment of debt is settled in the "New Civil Code" in Articles 1566 to 1592. The notion of debt assignment is defined in Article 1566 as "agreement in which the creditor transfers to the assignor a claim against a third part".

Assignment of debt can be against payment or free of charge. If the transfer is free of charge, is completed adequately provided with the contract of donation matter. If the transfer is for consideration is completed accordingly with the contract of sale matter or, where appropriate, with those governing any other legal transaction in which the parties have agreed to perform its consisting in transmission of a claim.

When the debt is transferred shall be transmitted without the need for debtor Agreement to the transferee:
a) "all the rights that the assignor has in connection with the claim surrendered;
b) guarantee rights and all other accessories of the ceded claim."

Inspire of these, entire paragraph 2 of Article 1568 states that goods taken as guarantee may be disclosed to third parties only with their consent.

Article 1578 gives explanations regarding the debtor's obligation to paying the debt to the transferee. So the borrower is forced to accept the assignment if:

a) "accepts the assignment with a given in writing by a certain date;

b) Receives a written notice of the assignment, on paper or electronic format, which indicates the identity to the transferee, reasonably identifies the transferred receivable and the debtor is required to pay to the transferee. If it is a partial assignment must be indicated also the extent of the assignment.”

There are also made ​​clarifications on the rights of a debtor. This can pay to the assignor the debt before receiving notice regarding the cession of credit. Also the communication of the assignment takes effect only after it has been made in pen and ink. If the written notice was filed by the assignee, the debtor may request written evidence of the assignment and to its receipt payment may suspend.

The debtor may oppose, according to Article 1582, to the transferee all means of defending which he could have raised against the assignor. So, it may oppose paying the assignor before the assignment should become enforceable against it, whether or not aware of the existence of other assignments as well as any other cause of extinguishing obligations arising before that time.

The debtor may also oppose to the transferee the payment which he himself or his guarantor done in good faith apparently creditor to a, even though formalities required to make opposable the debtor and thirds assignment were completed. If the assignment were completed has become opposable by acceptance, the debtor can not oppose to the transferee gave the compensation which he could invoke in relationship with the transferor.

Of the assignment the communication together with the debtor's legal action entails the lack of obligation of the debtor to "costs if paid by the first term, unless, at the time of communication of the transfer the borrower is already in default.”

When the transferor has submitted the same claim to several successive assignees, the debtor releases himself by paying on the basis of the assignment communicated to him first or that he accepted first by a certain date registered . In relations between successive assignees of the same receivable is preferred the one who has inscribed firstly the assignment to the archive, regardless of the time of the assignment or its communication to the debtor.

If a partial assignment the payment to the transferee and cadent is done in proportion to the claim of each of them. This rule shall apply accordingly to transferees who acquire along the same claim.

The state in which the claim was bought, the cedantul is required to provide to the transferee collateral on existing debt. If cedantul has committed to guarantee of the solvency of the debtor, it refers to its solvency at the time of transfer. "Also, if the seller knew at the time of the assignment, the debtor's insolvency snapped applicable, duly laws seller's liability for bad faith for hidden defects of the goods sold.” If the claim was ceded free, cedantul is not bound to guarantee unless stated contrary.

2. Accounting aspects of the assignment of debt

According to Article 16 of the Accounting Law no. 82/1991, republished, with subsequent modifications and completions, "Accounting customers and suppliers, of other receivables and liabilities are taken into categories, and each person or entity."

In application of article 16 of Law number 82/1991, has been prepared in accordance with paragraph 190 of Regulation Directive IV of the European Economic Community and Directive VII of the European Economic Communities, approved by MFP no. 3055/2009 for the approval of accounting regulations with European Directives, which provides: "If the sale of receivables, the difference between the transfer value taken and the amount of debt to pay to the transferor is income at the time of finding the rights and obligations under contractual terms"

According to the provisions of the section 20 paragraph (3) and (4) of Regulation of complies with Directive IV of the European Economic Community and with Directive VII of the European Economic Communities, approved by MFP no. 3055/2009 for the approval of accounting regulations with European Directives:

"An asset is a resource controlled by the entity as a result of past events from which future economic benefits to flow to the entity are expected. An asset is recognized in the accounts and presented in the balance sheet when it is probable the future economic benefits realization of the entity and the asset has a cost or value that can be measured reliably;

A liability is a present obligation of the entity arising from past events and through the settlement is expected to result in an outflow of resources embodying economic benefits. A liability is recognized in the books and presented in the balance sheet when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and when the amount at which the settlement will take place can be measured reliably;

The economic benefits represent the potential to contribute, directly or indirectly, to the cash flow or cash equivalents to the entity. This contribution is reflected in increased cash inflows or reduction of cash outflows as, for example, by reducing production costs. Thus, the potential may be a productive, when the asset is used alone or with other active services or producing goods for sale by the entity. The potential may take the form of convertibility into cash or cash equivalents."

According to the provisions of the section 41 of the Regulation of in accordance with Directive IV of the European Economic Community and with Directive VII of the European Economic Communities, approved by MFP no. 3055/2009 for the approval of accounting regulations with European Directives:

"The annual financial statements, assessment must be made on a prudent basis, and in particular:

Profit and loss account may be included only profits made at the balance sheet date;

must take into account all debts incurred during the current financial year or a previous year, even if they become apparent only between the date of the balance sheet date;

Must take into account all foreseeable liabilities and potential losses arising in the current financial year or a previous financial year, even if they become apparent only between the balance sheet date and the date of its establishment. For this purpose are considered and possible reserves and liabilities arising from contractual clauses;

Account must be taken of all depreciation, whether the result of the financial year is a loss or profit. Recording adjustments for depreciation or loss in value is made on account of expense accounts, regardless of their impact on the profit and loss account. As a result, assets and income shall not be overstated and liabilities and expenses understated. However, the exercise of prudence does not allow, for example, the creation of excessive provisions, the deliberate understatement of assets or income, nor overstatement of liabilities or expenses, because the financial statementsstatements would not be neutral and would not have the quality of being credible. "

According to the provisions point 49 of the Regulation of in accordance with Directive IV of the European Economic Community and with Directive VII of the European Economic Communities, approved by MFP no. 3055/2009 for the approval of accounting regulations with European Directives: "The elements presented in the annual financial statements shall, as a rule, on the basis of acquisition cost or production cost. Cases where using the acquisition cost or production cost are covered by these regulations. Where we chose revaluation of tangible assets and valuation of financial instruments at fair value rules apply alternative assessment.”

According to the provisions the Regulation of in accordance with paragraph 50 of the Fourth Directive of the European Economic Community and with Directive VII of the European Economic Communities, approved by MFP no. 3055/2009 for the approval of accounting regulations with European Directives: "Upon entry into entity, the goods shall be evaluated and accounted for the input value, which is determined as follows:

The cost of procurement – for goods purchased against payment;

The cost of production – for goods produced in the body;

The amount of contribution, following the evaluation – for representing the company capital goods;

At fair value – for property acquired free of charge or addition to the inventory found."

According to the provisions of the section 56 paragraph (3) of Regulation of complies with Directive IV of the European Economic Community and with Directive VII of the European Economic Communities, approved by MFP no. 3055/2009 for the approval of accounting regulations with European Directives: "Assessing the inventory of claims and liabilities is likely to value the collection or payment. Differences between value down the inventory and fixed asset book value of receivables are accounted for at the expense Impairment of receivables. For doubtful receivables are established adjustments for impairment. "

Regarding the interpretation made ​​by the Ministry of Finance for the national legal framework provided by the accounting legislation in application of article 16 of Law number 82/1991, has been prepared in accordance with paragraph 190 of Regulation of Directive IV of the European Economic Community and with Directive VII of the European Economic Communities, approved by MFP no. 3055/2009 for the approval of accounting regulations with European Directives, which provides: "If the sale of receivables, the difference between the transfer value and the amount of debt taken to pay to the transferor represent of finding income at the time the rights and obligations under contractual terms."

In practical guide on some issues concerning the application of accounting regulations in accordance with Directive IV of the EEC, part of the accounting regulations compliant with European Directives, approved by the Minister of Public Finance number 3.055/2009, published by the Ministry of Finance on its website on pages 84 to 86, is presented accounting treatment applicable voluntary assignment, as follows: "Doubtful debts are recorded separately in the accounts (account 4118" Customer uncertain or disputed "or accounts of accounts receivable, other receivables than customers). Removing from the record of a claim may also be made by giving it to another lender. Under accounting rules, if the sale of receivables, the difference between the transfer value and the amount of debt taken to pay to the transferor represent of finding income at the time the rights and obligations under contractual terms."

3. AMCC, "Association trade receivables management" member of the "Federation of European National Collection Associations"

In the area of debt recovery activity is a worldwide federation pursued interests – FENCA "Federation of European National Collection Associations" – which was founded in 1993 and has the following purposes:

“Protect and take care of the interests of the national member associations;

Promote the development of European legislation within the debt collection industry;

Promote the development within national member associations of the following:

Keep the collected means for clients separated from the company means.

Have special insurance for the protection of the clients.

Establish a committee for complaints.

Establish training facilities.

Introduce basic rules and guidelines for contracts and agreements between the agencies and their clients.”

FENCA affiliated members are:

“ Debt collection and / or debt purchasing companies

Which are members of the full members of FENCA

From any other country where FENCA doesn’t have a full member

National associations of debt collection and / or national association of debt purchasing companies outside of Europe “

Since its establishment by 2010 17 countries are part of the Federation. Romania is also part Of these countries, represented by AMCC.

Overview AMCC

AMCC (Commercial Debt Management Association) was founded in 2007 on the initiative of Coface, EOS KSI Credit reform and currently brings together 11 members. AMCC is a full member in FENCA, European Federation of National Associations of collection, supreme governing the profession at European level. The AMCC, Romania became the 15th member of the European country FENCA. AMCC has proposed since the beginning to represent its members at the national and international activities to promote the concept of credit management services to support it in national law. AMCC wants to become a nationally representative association for receivables collection agencies in Romania and implement a high standard of quality claims management.

AMCC objectives are:

"Managing affiliated members and their promotion in profile market

Developing and updating the Code of Conduct of the Association, monitoring its compliance by all its members, and in case of its violation, appropriate disciplinary measures, as provided by law and these statutes

Attracting new members in the association and opening partnerships

Performing administrative and legislative lobbying

Educate borrowers about the adoption of healthy behaviors Payment favorable business environment sustainable development

Managing complaints received from borrowers on bad behavior inconsistent Code of Conduct of the Association, practiced in some cases by members

Arbitration of divergences between members

Organizing events for media and partners in order to promote the collection of trade receivables and maintain audience interest informed on the evolution of the industry."

AMCC current members are: "CREDITEXPRESS Romania", "Credit reform Romania", "Coface Romania", "Mellon Romania", "Kruk International", "European Cycle SC", "SC DBR Factor", "EOS KSI Romania" "IFN Next Capital Finance "," KIA Legal"," Top Factoring ".

The new Board of Directors is:

President: George Kovacs, EOS KSI Romania SRL

First Vice President: Cristian Ionescu, Coface Credit Management Services Romania SRL.

Vice President: Isabel James Kruk International Ltd.

Member of the Board of Directors: Valeria Tomescu, Credit reform Romania SRL

Member of the Board of Directors: Catalin Neagu, Top Factoring Ltd

Code of conduct of Trade Receivables Management Association

Article 3 of Chapter 2 provides for the principles of communication with the debtor. According to a company of recovery must conduct all activities and must maintain continuous contact with the borrower in order to serve the interests of the Contracting Part and to act according to the law respecting the rules of politeness and legitimate rights of the debtor.

Regarding the correspondence with the debtor it must be sent to his/her home address and another address where it can be reached in a sealed envelope with no markings or signs on the envelope, indicating that the letter refers to the flow of the recipient. First letter of formal notice must contain a detailed description (source flow creditor invoice issuer, debtor primary date
maturity, interest unflattering and other liabilities, invoice number, time billing period covered by the invoice, if recovery efforts are on regular claims) the subsequent letters of formal notice must contain only the information necessary to identify the case and its status and the amount present flow.

If the debtor could not be contacted at any of addresses listed or not responded to the letters of formal notice can be send other types of letters to the debtor, provided that they do not contain any entry or signs indicating that the documents relate to the flow of the recipient.

Phone calls should be made ​​at any time and in any place, as long as it will not bring inconvenience to the debtor, or on weekdays between 7 AM and 9 AM. If you cannot contact the debtor in the schedule above, calls can be made ​​on other days of the week, but only between 8 AM and 8 PM. Calls must be completed in a polite way that ensures
protection of not disclosing information to third parties regarding the debtor's obligations
and personal information of his / her. When starting a conversation, the recoveror must present himself to tell the company name he / she represents and the creditors name and of the issuer of the invoice. During the call, the recoverer must explain the reason of the conversation with the debtor, and to clarify any doubts or questions.

Collectors that acts on the field can visit the debtors at the proper time and place,
so that it does not cause inconvenience respectively on weekdays, between 7 AM and 9 AM. If the debtor cannot be contacted within zone above, its healing borrowers can visit on other days of week, but only between 8 AM and 8 PM. The visits to borrowers in places other than at their homes should be conducted so as to protect the privacy of the debtor. Therefore visits may be undertaken only if not known place of residence of the debtor or the debtor may not be contacted at home. In addition without the agreement of the debtor, collectors cannot contact third parties regarding the amount to be recovered.

During the recovery activities and discussions with borrowers, they must always show ID and Operating license emitted by the debt collection company, based proxy authorization issued by the contractor, including a clear definition of the scope of authorization; collectors must also submit proof of debt signed by the debtor contract arrangement, the authorization for the recovery of money and all previous payment requests submitted by the debtor.

Article 7 of the provisions relates to claims borrowers. According to him:

During the first contact with the debtor company to recover flows will inform the debtor of his rights and will provide this information to each request of the debtor.

Debt Collection Company protects all debtors’ rights, including their complaints against
creditors and debt providers to the extent permitted by law.

Debt Collection Company has the duty to clarify together with the borrower or seller of claims in accordance with signed agreement for the transfer of claims, all claims made by the debtor, taking into account current developments and effects of the complaint, the agreement concluded with the debtor and regulations framework agreements in force.

All claims made by the debtor must be addressed immediately by debt Collection Company within 30 days from receipt.

If the complaint cannot be resolved within 30 days, debt Collection Company must inform the debtor in writing to the reasons for delay and propose a new date for solving
complaint to be settled within 60 days from initial receipt of the complaint.

If the debtor's complaint or charges are dismissed, the company
debt collection should send a response to the debtor, in which specific reasons for the rejection, and any subsequent proceedings.

Assuming that the allegations made by the debtor are clear and well founded deviations or deficiencies should be rectified, and where necessary, subsequent rehabilitation activities must be discontinued.

debt collection company is not required to continue conversations or correspondence with the debtor, if it is obvious that those delaying the recovery process or to evade payment
and the debtor does not send the documents or fees clearly indicated that
allow proper assessment.”

The most important part of the code of conduct is the protection of information and personal data. This specifies:

The debt collection companies have a duty to protect confidentiality and ensure full legal and technical safety of all information obtained from the contracting parties with respect to negotiation, execution and performance of contracts. More so, companies should not use this information for purposes other than those for which it was provided or made available, it must disclose or make available to third parties, unless disclosure is necessary for the recovery activities in extent permitted by law.

“the debt collection companies have a duty to protect confidentiality and ensure full protection of personal data borrowers, the data provided to them with respect to the transfer of receivables and available data in order to provide services the debt collection in accordance with Law no. 677/2001 the protection of individuals regarding the processing of personal data and the free circulation, published in the Official Gazette of Romania, Part I, no. 790/12 December 2001 and Order no. 52/2002 for the approval minimum security requirements on all activities involving processing of personal data, published in the Official Gazette, Part I, no. 383/5 June 2002.”.

Prohibited practices of debt collection companies are, according to Article 9 the following:

Use of force, threats of punishment or other actions threatens the dignity of the debtor;

Use of vulgar or obscene language or any other terms that threatens the dignity of the debtor, using a rude tone.

Using any other method designed to intimidate the debtor.

Disclosure of information flow and the development activities unauthorized third party the debt collection primarily members family child debtor.

Sending or use of documents, letters, clothing or tools to suggest that activities are carried out by a court or by any state agency, or use of information characteristics belonging or be designed for such agencies.

Providing false information on flow, primarily those related the nature, amount and his legal position.

Providing false information about the situation, qualifications, experience and
professional duties of rehabilitation, including in particular actions so-called
unauthorized, acting on behalf of another company for the recovery of
debts or providing false information about the qualifications and duties
for legal professionals.

Providing false information on the consequences of default
flow, including arrest, detention or seizure of property.

Suggesting during meetings with the debtor or third parties, that the debtor is
a criminal.

Accepting money by collectors, or any other objects the debtors, without a corresponding receipt.

Any threats or actions to violate rights ownership or possession of the debtor.

Stages of accession to the AMCC

stage I: In order to join the AMCC you should send the file with the following documents:

1. Completed membership form

2. Company Overview with: general, Shareholders, historical, evolution, mission, objectives, Reasons why you want to affiliate AMCC, Other issues that you consider relevant

phase II: Study of the founding members of the company by AMCC

phase III: AMCC notice by the company if the file was accepted for the next stage

stage IV: Company representing interview with the three founding members of AMCC

phase V: Response letter regarding acceptance as a member of the AMCC

4. Civil Procedure for debt recovery

Debt collection is a difficult process, regardless of the industry. But the Romanian legal system offers solutions to speed up the recovery. Legal instruments which the creditor has on hand to recover damages are:

Requesting for a ordinance containing a collection letter issuance

The application of receivables to pay the price

Requesting for the initiation of the insolvency procedure

Submitting application for a forced execution

Summons procedure: is regulated by OG No. 5/2001 and modified by the: Government Emergency Ordinance no. 58/2003, Government Emergency Ordinance no. 142/2002 and Law no. 295/2002.

The debtor may be:

person or entity

traders or non traders

The main features are:

Inexpensive (judicial stamp duty of 39 RON)

Does not involve the fulfillment of the preliminary procedure of calling a direct reconciliation (quietly)

Allows a rapid court decision (emergency citation, restricted evidence etc.)

Does not allow the rapid execution of the court’s decision (investing with executor formula obligation, cancellation demand suspends the execution)

The purpose of the collection letter is the achievement of debt certain, liquid and demandable, on the creditors application either voluntarily or through enforced collection (Paragraph 1).

The outstanding amount (including interest or penalties) is updated in relation to the actual inflation rate at the time of when the payment is made (Paragraph 2).

In order to recover the damage, the creditor is obligated to submit an application for order for payment to the competent court. (ART2) The request must contain the following:

a) "the name and address or, if applicable, the name and place of business;

b) the name and address of the individual debtor and if debtor for the legal entity name and address and, if applicable, the registration certificate number or trade registers in the register of legal entities, tax code and bank account;

c) The amounts referred to in article. 1 paragraph 2. ), obligations, basis by facts and law when the period to which they relate, the time at which payment should have been made and everything required for determining the liability;

d) Enclosing a contract or any other document evidencing the amounts due”

Citing all parties by the judge is required for solving the application, for explanations and clarifications and to insist on payment of the debtor or for the understanding of both parties (Article 4).

If an agreement is reached or the creditor receives his duty it will be initiated the closing procedure of the file with a ruling (Article 5).

Payment ordinance procedure: is provided by OUG. 119/2007 republished

The debtor may be:

person or entity

contracting authority

The main features are:

Inexpensive (judicial stamp duty of 39 RON)

Does not involves carrying out preliminary procedure of calling a direct reconciliation

Allows quick obtaining a court order – maximum 90 days (citation emergency, restricted evidence etc.)

Enables rapid implementation enforcement of the judgment (no obligation to (investing with a enforceable formula does not suspend the execution of the request for cancellation)

Chapter 1, Article 1, paragraph 2 defines contracting authorities as:

a) “Any public authority of our country or of a Member State of the European Union, acting at central, regional or local;

b) Any public body other than those provided in the law: a), with legal personality, which was established to meet the needs of general interest, not commercial, and that is in at least one of the following situations: – Is funded in majority by a contracting authority as defined in point. a) is subordinated to or reviewed by the contracting authority as defined in point a) in the board of directors or, as appropriate, the supervisory board and directors more than half of the members are appointed by a contracting authority as defined in point a);

c) Any association formed by one or more contracting authorities referred to at point a) or b);”

This emergency ordinance is applied to liquid debt, reliable and exigible representing payment obligations of money. In this category do not enter the contracts concluded between traders and consumers and the credit receivables included in mass of the insolvency proceedings. (Chapter 2,

Article 2, paragraphs 1 and 2)

The interest is applied on the payment obligations to the amount of debt often under contract (interest is established between the two parties) or by calculations with the reference interest rate set by the National Bank (Chapter 3, Article 4).

The law regulates the procedure of the collection of the debt by the creditor in Chapter IV of this Ordinance. The first step for recovering the debt is the application of a demand in court in order to the judge merits to be able. This request must include:

"a) the name and address or, if applicable, the name and place of business of the creditor;

b) the name and address of the individual debtor and if debtor is an entity, name and address, and, if applicable, the certificate of registration number in the Trade Register, fiscal code and bank account;

c) the amount receivable , of fact and law the basis of the paying obligation , the period to which they relate, the deadline of the payment and everything that is required for determining the liability;

d) The signature of the creditor;

e) The application shall be accompanied with writings proving the amount due and any other documents proving it."

The next step of the procedure is summoning the parties at least three days before the hearing, and if the debtor's address is not known is proceeding to citing defense by advertising in a newspaper with wide circulation and in "Monitorul Oficial" at least 5 days before the hearing.

After the trial, if the court concludes that the request is justified it will be proceed with issuing a payment ordinance that will contain both the amount and date for the payment. Payment term cannot be less than 10 days and more than 30 days if the parties do not reach a common agreement in this respect. If the debtor is deemed wronged by the decision of the court may request a cancellation of the payment order and a fresh decision taken is irrevocable.
If the creditor gets his money before making a judgment or if the two parties reach a mutual agreement, the court will give a ruling or decision by expedient, the last being enforceable.

Insolvency procedure: updated under Law 85/2006.

Debtor, provided by articolul1 can be:

Company

cooperative society

agricultural society

society of economic interest

other private individuals carrying out economic activities

The main features are:

Mixed (contentious and non-contentious)

Inexpensive (judicial stamp duty of 39 RON)

Does not involve carrying out preliminary procedure of calling a direct reconciliation

Allows quick obtaining of a court decision for opening insolvency proceedings

Does not allow quick recovery of the debt

Article 3 of Chapter 1 defines the insolvency as "the state of the debtor's assets that is characterized by lack of available funds for the payment of certain, liquid and due debt:

a) Insolvency is presumed to be obvious when the debtor, after 90 days maturity, has not paid his debt to the creditor, the presumption is relative;

b) The insolvency is imminent when is proved that the debtor cannot pay the outstanding liabilities incurred at maturity with the funds available on the due date". All property and property rights represent debtor actives.

The organs that should ensure the smooth running of acts and operations of this law are courts, bankruptcy judge, receiver and liquidator.

Stages of the insolvency proceedings are:

1. Demanded for opening insolvency proceedings shall be submitted by the debtor or by the creditors and if the latter hold claim against the debtor a safe, older than 90 days.
2. After filing, the debtor can either accept the opening of insolvency or he can contest within 10 days from the receipt of the summons. If an appeal will be filed, it will be analyzed by the bankruptcy judge who will take the decision to continue or not the insolvency procedure.

3. The procedure will begin in one of the possible forms: general procedure and the simplified procedure, depending on the requirements fulfilled by the company.

4. Within 45 days of the opening of creditors will submit claims for admission of debtor's debt.
5. Applying to the debtor's reorganization procedure involving proposal and acceptance of a reorganization plan.

6. Borrower will pay his debts to the creditor by selling assets as follows: – taxes, postage and any other costs related to the sale of such goods, – claims of secured creditors during the insolvency born in confirmation of the reorganization plan, as part of the reorganization plan (the receivables include principal, interest, additions and penalties of any kind) – claims of secured creditors, including all principal, interest, additions and penalties of any kind, and expenses for claims arising before initiation.

7. After the liquidation of the debtor's assets, the liquidator bankruptcy judge shall submit a final report accompanied by the final financial statements.

A reorganization or liquidation by continuing work on of plan will be closed by sentence, after meeting all the liabilities assumed in the plan.

A bankruptcy or a procedure that begins as reorganization, but then becomes bankrupt, will be closed when bankruptcy judge approved the final report when all funds or assets of debtor were distributed and when the funds were deposited in the bank unclaimed.

The procedure Of forced execution: provided by Civil Procedural Code (Book V)

The debtor may be:

Natural or legal persons

trader or non trader

Procedure characteristics are:

non-contentious

last stage of the debt recovery process

expensive (expert fees)

prior notification procedure presupposes that the debtor

enables fast implementation of the enforceable said (no obligation of investment with executor formula, the appeal does not suspend execution to execution)

Chapter 1, section 1 defines the purpose and object of the forced execution. Foreclosure occurs if and only the debtor does not voluntarily perform the obligation established by a court. The termination of the payment obligation can occur both on a sum of money but also on a good that the debtor uses (Article 371, paragraphs 1 and 2).

Throughout the procedure of enforcement the debtor and the creditor can reach to an agreement about execution only to the debtor's cash income or about selling goods subject to prosecution (Article 371, paragraph 3).

The foreclosure Stops in the following cases:

a) "the entirely obligation was done under Enforcement Order , all costs , and other amounts due under the law were acquitted, in this case, the executor will deliver the enforcement to the debtor, indicating the total extinction of obligations;

b) cannot be performed or continued because of lack of traceable assets or the inability to capitalize such goods, in such cases, the officer will personally deliver the enforcement to the creditor or his representative, mentioning the cause of the refund obligation and the part of the obligation that was executed;

c) Creditor dropped the foreclosure;

d) The enforcement was dissolved"

The foreclosure takes place only under a court decision, and expenses caused by this will be paid by the claimant who wanted the development this action. Application is made to judicial executor who will use all legal means to achieve fully the obligation laid down in the enforcement. If he deems necessary will be able to resort to other organs (e.g.: police, gendarmes) which will be required to assist in for recovering the debt through specific means (Article 373).

For all forced executions the judicial executor will be forced to sign protocols in accordance with the Article 388 will contain the following:

a) "Name and address of the execution body;

b) The name and position of the person who concludes the report;

c) Date of the preparation of the minutes and the execution file number;

d) The enforcement under which the execution act is performed;

e) Name and address or, if applicable, name and address of to the debtor and to the creditor follower;

f) The place, date and time of the execution;

g) Measures taken by the executor or its findings;

h) Explanations recorded and the participants’ objections;

i) Other mentions required by law or considered necessary by the executive;

j) Mentioning, where appropriate, the missing of the creditor or the debtor or about the refusal or the obstruction of signing the minutes;

k) Specifying the number of copies that the report was prepared, and the person to whom was awarded;

l) Signature of the executor, and, where appropriate, of other persons interested in performing or assisting in the performance of execution;

m) The executor’s stamp"

Chapter 2: Analysis of nonperforming loans and debt collection in Romania before and after the outbreak of the crisis. Analysis of Coface Romania

1. Bad loans and debt recovery market before the start of the crises.

The emergence of the debt collection companies

For banks, insurers companies and telecommunication companies the externalization of debt recovery has become a common procedure. Among them the 'best customers" of the collectors are undoubtedly the banks. Perhaps because of this the main reason for their appearance, in 2004, is the increased number of nonperforming loans caused by the "explosion of the consumer credit". The regional players entered the market in 2007, attracted by its potential.

The opportunities for the purchase of receivables are the following:

The increasing number of banks that standardize this procedure

Improving financial performance

Cleaning the balance sheet and eliminating the provisions

Monetization and conversion of considered lost receivables into cash immediately

For financial institutions: positive impact on their financial indicators Basel II

Reducing costs of pursuing debt

Maximizing income from nonperforming loans

Focus on their own business

Selling the portfolios of receivables registers a spectacular growth in 2007 when the total reaches at the value of 634.25 mil lei. Their structure is the following:

In the banking industry: the total number of externalization cases was 140000 and the total amount was 172.15 mil lei.

In the telecommunication industry: the total number of externalization cases was 148500 and total value was 79.37 mil lei.

In the insurance industry: the total number of cases was 14584 and the total value was the smallest, 20.29 mil lei.

Analyzing the above information we find that although the number of cases is higher in the telecommunications industry the total value of receivables sold is greater at the banks, from this we can conclude that in telecommunications externalization occurs faster (at a lower number of days late ) and a less amount of money.

The evolution of nonperforming loans before crises according to the National Bank of Romania statistics

Bad loans are one of the biggest concerns of banks worldwide. Their evolution is one of the factors which harms the bank because in order to collect their debts without transferring them they must either employ personnel or transfer existing staff to the newly established "debt collection" department and train them.

Table nr.1 – Loans and outstanding debts in absolute amounts in mil lei

Source: www.bnr.ro/statistici

As can be seen from the table above, both bank lending and arrears in Romania had an increasing trend for the entire analyzed period. Loans increased in 2007 by approximately 2.47 times compared to 2005 but the arrears do not have a spectacular growth, increasing only with 264 mil lei, as an increase of 13.15%.

In statistics the number of loans granted by banks is divided into types, depending on the period of delay, as it follows: Type A loans have a maximum time delay of 15 days; loans type B have a delay between 16 and 30 days; loans type C have a delay between 31 and 60 days; type D credits have a delay of between 61 and 90 days and type E loans have a delay from payment of over 90 days and type E credits have a large delay and are brought out of the balance sheet.

Arrears of A type totalize 47 mil lei in 2005 and have an ascendant trend throughout the period under reviewed, increasing 3.74 times until 2007 and reaching the value of 176 mil lei. B type outstanding debts reach, in the analyzed two years, from 9 mil lei to 70 mil lei registering the highest percentage increase among all types. The biggest concern for the banks is growth with 318 mil lei of the credit payment arrears that exceed 90 days. The cause of this increase can be explained partially by the decrease of the overdue amounts written off balance sheet from 1552 mil lei in 2005 to 1,228 mil lei in 2007.

The share in total loans of outstanding amounts that the population made has a descending trend during 2005 and 2007. In 2005 the outstanding debts were 2.56% of total loans; in 2006 the percentage was 1.63% while in 2007 compared to 2006 decreased by 0.43% to 1.20%. This is apparently hopeful and is due to the great growth of the number of loans granted and the lack of so large percentage growth of the number of people who do not return payments on time, as agreed with the bank.

Regarding the percentage of individuals or legal entities overdue in the total of persons who took a loan in 2005 it was recorded a rate of 0.06%, in 2006 it increased to 0.08% and in 2007 reached a rate of 0.091 %. This shows that although the share of overdue in total debt decreased, the number of people who have not paid their loans increased each year.

The analysis of the cases of bank receivables ceded to the debt collection entity in 2006 and 2007

In the following I will analyze the situation of the debt ceded by banks in terms of the type of the loan, the currency in which it was contracted and the number of days of delay in payment.

Table nr.2 – Percentage of cases by type of loan

Source: www.coface.com

In the table above transferred receivables are structured by type. As we can see the number of consumer loans and personal loans are leading the charge as percentage. If in 2006 consumer loans are headed to a difference of 14.83%, in 2007 the situation changes, first place is being taken by personal loans at a difference of 9.25% and an increase of 13.94% in comparison with 2006. In terms of non-performing loans provided by credit cards and externalized by banks an increase by 2.34 times in 2006 compared to 2007 can be found. Although mortgages increased as a share in total loans transferred they do not register a significant share in the total. Besides consumption credit the only type of externalized loan which decreased in 2007 is the car loan.

Regarding the currency in which the bad loans were contracted the highest percentage is obtained by the national currency, 98.66% in 2006 and 93.47% in 2007, followed by the euro, at a rate of 1.27% in 2006 and 6.32% in 2007, at a great difference. The Swiss franc and the dollar have a small range with the average percentages of 0.55% and 0.08% for the years analyzed.

In 2007 the percentage of loans in RON dropped by 5.19% due to the increased euro, of 5.05%, and U.S. dollars, of 0.14%, borrowing. This increase is due to the increasing exchange rate for the two currencies, which leaded to a growth of the number of people that could not afford to return the loans taken from banks.

Chart nr.1 – Percentage of cases by currency

Source: www.coface.com and personal interpretation

The chart below divides the percentage of debtors in the number of days of delay in the payment of the loan, regardless of type. It would be expected that the percentage of debtors to decrease with the increase of the number of days but it is found that after the category of people who did not pay their loan for up to 90 days, which are 28.18%, follow those with a delay between with 5 and 6 months, representing 25.67%, that either cannot afford their loan or do not want to pay it anymore and 3rd are debtors who have not paid the credit for more than two years, with a percentage of 21.03 %, which means that the chances of collection are slim.

The big number of people who have not paid their obligations to the bank for more than two years is caused either by the fact that they could not pay their loan and they gave up trying, or because they never had the intention to pay and were encouraged by the easy credit conditions offered, especially for consumer loans and personal loans.

The very small percentage of debtors who have not paid their credit for a period greater than three years can be explained relying on two assumptions: first one would be that these debtors were already forced executed and thereby do not appear in the records of debtors and the second explanation is that the number of people who could delay more than 3 years the credit payment are few because most loans were taken for personal needs, starting in 2005 and have a small period of payment.

Chart nr.2 – Percentage of cases by number of days of payment delay

Source: www.coface.com and personal interpretation

2. Bad loans and debt recovery market after the outbreak of the crisis.

The foreclosure of the crisis is a decisive moment in the development of debt collection companies, this due to the decline of the living standards and the increasing number of debtors who cannot pay loans that were taken in times of economic growth. The increasing number of debtors but also their unpaid amounts prejudiced banks in terms of lack of liquidities, financial losses and human resources reorganization.

To the question "what is the reason why you could not pay the loan on time anymore?" Romanians have multiple answers:

22.81% said that their income decreased

16.80% said it came as a result of job loss

10.97% motivate that they are technically unemployed

9.98% are out of country

9.78% motivate by health issues

3.58% say they have reached an excessive debt caused by the large number of loans

to 1.97% of cases the motivation is death

Besides those there are debtors who refuse the dialogue with the collector; that motivate by not receiving the notification of payment or that it is loaded deliberately. However for 0.28% of the total debtors which have not paid reason is fraud.

In order to recover the debt banks have established their own debt collection department, action that proved costly for the bank. So they decided to outsource a large portion of uncollected receivables to specialized companies.

In the following the evolution of nonperforming loans will be presented, based on official data of the National Bank, in the Romanian banking system as well as their impact on the debt collection market.

The nonperforming loans evolution during the financial crisis according to the National Bank of Romania statistics

Table nr.3 – Loans and outstanding debts in absolute amounts in mil lei

Source: www.bnr.ro/statistici

The situation of the volume of loans made by the population for the period analyzed is fluctuating. The highest value is 2008, 2009 is marked by recourse, 2010 and 2011 are characterized by a slight recovery and 2012 is a year of decline. If one compares the volume of loans taken in 2008-2012 with the contracted loans finds that they amounted 36531 million lei, while contracted credits in 2008 were 58676 mil lei worth of.

Banking loans to the population had the highest value in 2007 and 2008. We can see from the table that the increase suddenly stopped in 2009 when the amount of credits contracted was only 13 mil lei. The cause of this occurrence was the refusal of banks of more lends giving without a careful analysis of the credit file and guarantees provided by the debtor. Population has also ceased borrowing, narrowing its consumption both because of the financial crisis that began to feel at high intensity in 2009 and because bank interest on loans growth.

In 2010 and 2011 Romanians have took courage and borrowed more than in 2009, the total amount borrowed being 11113 mil lei in 2010 and in 2011 20203 mil lei. The increase in 2011 compared to 2010 was approximately 82%. In 2012 population reduced the borrowed amount substantially to the level of 5202 million lei, representing only 25.7% of the value of 2011.

Regarding the credit, payment arrears the trend is ascending for the entire period. Although the Romanians borrowed less they were not able to pay their loans made years ago which led to this alarming situation for banks, for the population but also for our country's economy. On the axis of the table below the trend arrears in relation to loans taken can be seen.

Chart nr.3 – percentage in total amounts owed of outstanding amounts

Source: personal interpretation

Total outstanding amounts in 2009 were 7839 mil lei, representing 3.46% of the total amount borrowed. Compared to 2008 when their value was 3323 mil lei the share in total loan debts increased by 1.99%. In 2010 the increase was even more dramatic, of 2.87%, the total amount owed being 15031 mil lei. In 2011 it was also recorded an increase but not as spectacular because in 2009 the population did not take high value loans. If we compare the arrears situation in 2008 with the one in 2012 we can notice that the percentage of growth debts in total credits is alarming in 2012, with a growth of 9.06%, increasing by 7.16 times, compared to 2008.

Analyzing by type of delay (see section "The evolution of nonperforming loans crises Before According to the National Bank of Romania statistics", paragraph 3) it is found that the greatest delays from payment are for loans type E with a delay greater than 90 days. This totalizes 61098 mil lei in absolute amount and represents 82.79% of the total debts. Their value increases, from 2008 to 2012, 22.58 times reaching from 1113 to 25136 mil lei.

Regarding the evolution of X type debts ("loans written off the balance sheet") the situation is more interesting. If in 2008 were in absolute amount of 1361 mil lei, which is higher than E type arrears, in 2009 they decrease by approximately 35% because of the bank’s decision to externalize debt collection. In 2012, is recorded the smallest amount of debts written off balance sheet, 4 times smaller than in 2008.

The analysis of the cases of bank receivables ceded to the debt collection entities in 2008, 2009 and 2010

Despite of the fact that the market for debt collection increased in 2005-2007 and had all the perspectives for further grow, it appears that the height was reached in 2008. It seems that the economic crisis has flowed out also over these companies, even if the media tells us otherwise. Indeed the decrease from the 2009 is not due to the decreased percentage of transferred debt in total receivables but that the amount of credits extended dropped.

Selling the portfolios of receivables registers a spectacular growth in 2008 when the total reaches at the value of 1612.16mil lei. The market for debt collection increased in 2008 compared to 2007 with about 977.91 mil lei. Debt structure was the following:

In the banking industry: the total number of externalization cases was 106953 and the total amount was 1268.51 mil lei.

In the telecommunication industry: the total number of externalization cases was 63346 and total value was 334.31 mil lei.

In the insurance industry: the total number of cases was 9493 and the total value was the smallest, 158.75 mil lei.

Other industries: 40.59 mil lei

In 2009 the situation changes, the receivables decreasing from 2008 to 964.62 mil lei. Debt structure is the following:

In the banking industry: the total number of externalization cases was 144116 and the total amount was 675.23 mil lei.

In the telecommunication industry: the total number of externalization cases was 93152 and total value was 183.27 mil lei.

In the insurance industry: the total number of cases was 1375 and the total value was the smallest, 84.5 mil lei.

Other industries: 21.61 mil lei

In 2009 and 2010 situation externalized credits has a descending trend and the structure of 2010 is as it follows:

In the banking industry: the total number of externalization cases was 153386 and the total amount was 524.99 mil lei.

In the telecommunication industry: the total number of externalization cases was 90236 and total value was 142.49 mil lei.

In the insurance industry: the total number of cases was 7916 and the total value was the smallest, 65.70 mil lei.

Other industries: 16.80 mil lei

Table nr.4 – average value of the debt of a debtor whose credit was transferred, in euro

Source: personal interpretation

The average loan amount transferred in 2008 was about 858 euro. Due to the decrease of banking borrow the average value has also lowed, so in 2009 the average bank debt managed by debt collection firms dropped 3 times in comparison with 2008. The 2010’s market dropped more, by 14%, the minimum credit amount reaching 223 euro.

Chart nr.4 – percentage of debtors by delay

Source: personal interpretation.

Regarding the delayed payment of the loan can be seen that the highest percentage of debtors has a delay of less than 30 days. In general the cause of this is either not receiving the notification of payment or lack of money or simply forgetting the deadline for payment. In this case, debtors are interested and can afford to pay the rates, for which is recovered most easily in 66.89% of cases.

Lowest success rate, and the lowest percentage of debtors they have unpaid loans over 3 years. If the percentage of people is very low, 0.09% of the total success rate in recovering debt in total debt is less than one and namely of 0.0013%.

Personal loans are on top ahead of consumer credit of the outstanding loans that recorded in previous years the largest of the outstanding. The best recovery rate is recorded for consumer credit – the relatively small amount of debt – 30 euro / case favors this

It is noted that debtors from the public domain are more conscientious – the honor payment rate being higher. In the current macroeconomic context, it is expected a reduction in the public sector success. The evolution of success rate has a descending trend.

Collecting benefits – creditors benefits

The benefits of debt collection:

Reduced recovery time

International recovery

"NO COLLECTION – NO FEE" – the customer will only pay if successful.

Decisions to start legal proceedings are taken after evaluating legal and effective recovery of economic opportunities

alternatives for uncollected cases partially or completely

Creditor’s benefits:

Affordable prices just about fee collection

Control and monitoring of collecting processes

Outsourcing "the concerns" arising from non-collection claims

The increase of liquidity and improve of cash flow

Saving time, money and human resources

Able to avoid any cost of collection process

3. General information about the company Coface

Coface Company was founded in 1946 and was specialized in export credit administration, administering his own products and State guarantees for French exports. International expansion begins in 1992 with Italy and England followed by the entering into the German and Austrian market in 1996. In 1994, Coface is privatized and then the foundation was laid for Credit Alliance network.

In order to be as close to their clients as possible, especially large corporations that need receivables management tools in all countries worldwide, Coface operates a network of subsidiaries and branches in 65 countries and 217 cities. By 2010, it aims to run our four business lines via a direct presence in 82 countries. Its 1,000 sales staff or exclusive agents are underpinned by specialist brokers, instructing parties (banks and insurers) and through partners of the Credit Alliance network, spanning another 32 additional countries.

Coface Romania

Coface Romania, founded in 1996, is a member of Coface Central Europe Holding based in Austria. Nationally, they have over 16 years experience in credit risk management.
Coface Romania is the only integrated provider of credit risk management in Romania, choosing unique approach which allows a large market openness and flexibility in terms of how they respond to the needs of their customers. As business lines are connected, regardless of the requested service, clients benefit from expertise in all other lines of business.

Coface services offered in Romania are:

Companies and business intelligence assessment – since 1996>

Receivables Management:

B2B Debt Collection – from 1996

B2C Debt Collection – from 2005

Credit insurance – since 2007

Coface Romania values ​​are:

Accountability

Integrity

Creativity

Excellence

Professionalism

Customer satisfaction

Social involvement

Loyalty

Leadership

The process of debt recovery

The process of debt recovery is represented by the collecting procedures that track the amount of outstanding and unpaid sums by the debtors.

The recovery process involves two phases:

Receivables collection in a friendly manner through mutual exclusive procedures of negotiation and mediation for recovering, solving each flow for a period between one month and 12 months (B2B – collection of commercial debts; B2C – individual claims)

Collecting receivables through legal procedures

Enforcement of guarantees, promissory notes and checks

Payment of court action ordinance 119/2007 on combating late payment obligations resulting from the execution of commercial contracts

Actions under the law 85/2006 on insolvency proceedings

Commercial legal common law actions for recovery of trade receivable

Criminal complaints economic crimes

Coface’s debt recovery tools are the following:

Specialized staff

Specialized software

CRM – DCON – database on-line customer interface

auto Dialer

Soft internal management tasks

Software for automatic search of contact information

Customized workflow according to the specific and customer needs

Phones by debtor / employer / relatives

SMS Campaign

Automated email campaign

Custom Notifications

Investigation of debtor solvency

Investigations on the identification of partners and directors of the Company, credit report

Meetings with the debtor at the Cofaces

Debtor's domicile visits – street collection

2. The economic evolution of the Coface company in Romania. The situation of the assigned debts

Financial results in the period 2008-2011

In January 2008, Coface already announced the start of a global credit crisis. In the last quarter of 2008, the credit crisis has entered a second phase: global economic growth recorded a shock, which meant reviewing all forecasts.

Explains the recent slowdown in economic growth increased volume of receivables collected by Coface. The two phases of the crisis are clearly reflected in the report of loss of credit insurance segment: the low record figure of 49% in 2007has grown to 59% in the first three quarters of 2008 and to 109% in last quarter. However, with a figure of 73% for the full year, Coface has managed to limit the downturn better than other players on the credit insurance market.
 

In January adaptation measures were taken by the drawing of the plan "Act on Crisis" Coface launched in 2008.

An increased claims rate caused a marked reduction of the profit with a loss for credit insurance, however important contributions to profit growth by services (+22%) and factoring (+27%), brought Coface operating profit but net profit fell 54%.

The year 2009 was ended by Coface Romania with an annual turnover of approximately 7.04 mil euros and a consolidated net income of 0.96 mil euro. The turnover achieved a growth of 42% over the previous year, thus following the growing trend of Coface Romania in the last 5 years. The two main growth drivers were the same as in 2008, the development of trade credit insurance segment, the collection of commercial and service information and ratings about companies.

Line credit insurance has increased its turnover by 76% compared to 2008, although in certain sectors such as construction, it was not possible to takeover new risks and policies due to rapid and severe deterioration of activity in this area. Coface strengthened its leading position in Romania. Despite the turnover increase due to claims paid due to the explosion of corporate payment incidents, the result was negative, with a loss of 0.27 million euro. Even in adverse economic conditions credit insurance Coface has fulfilled its mission to cover its losses insured by paying compensation over 3 million while maintaining commitments from companies that have chosen correctly, to ensure against the risk of default.

Services sector in credit risk management grew by 30.3% compared to 2008. Companies have felt the need for updated information on business partners in an economic climate affected by distrust. If in the years preceding the crisis domestic companies preferred to collect their debts, in 2009 more and more of them preferred outsourcing this service to specialized companies, the amount debts assigned by Coface in 2009 increasing by 57%. The turnover segment of debt collection of individuals recorded an advance of 29%, and the corporate debt collection of 106%. Although the amount of receivables assigned has increased considerably in 2009, the difficulty of collecting has increased on both segments, both companies and individuals being unable to pay.

In 2010 the turnover of Coface Romania reached 8.28 million euro, representing an increase of 35% over the previous year, following the rising trend of Coface Romania in the last 6 years. The two main growth drivers were the same as in 2009, the development of trade credit insurance segment and service division: the collection of commercial and corporate ratings & information about companies.

In a less favorable year for credit insurance, this line of business has increased its turnover by 9% compared to 2009, while the market has not recovered and has experienced for the second year with a situation of financial instability. The share of insurance in the total turnover of Coface in Romania has reached 34%. If in 2009, Coface Romania registered a negative result due to compensation for damage provided its customers amounting to 3 million in 2010 was insurance business tax with a rate that the damage was at 55%, damage costs reaching the value of 1.2 million euro. This year, Coface has consolidated its position as market leader in this segment, respecting its commitments to the companies that have chosen correctly, to ensure against the risk of default.

Management services segment credit risk (rating corporate & business information and debts collection business) grew by 26% compared to 2009. Thus, the share of services in total revenues in Romania Coface percentage reached 66%. Companies have felt the need for updated information on business partners in an economic climate by distrust affected. If in the years preceding the crisis companies prefer to collect debts internally, in the second year of the economic crisis, more and more of them preferred outsourcing this service to specialized companies, the amount debts assigned by Coface in 2010 increasing by 17%. The strongest increase service revenue was recorded in the segment of commercial debt collection, with a percentage of 33% compared to 2009.

In 2011, Coface continued combining profitability and growth. Current net profit increased by 21%, while turnover increased by 7.4% compared with 2010. After the cyclic recovery occurred in the second quarter of 2011, Coface has noted a sharp break in payment behavior of companies with a tangible increase of delayed payments. Overall in 2011, Coface recorded a 27% increase in payment incidents worldwide, with a particularly pronounced increase of 47% for companies in the South.

Analysis of the evolution of transferred debts in 2009, 2010 and 2011

Table nr.5: Evolution of B2C and B2B transferred debts for 2009

Source: www.coface.ro

The table above shows the evolution of Debt sold, on quarters in 2009. Individual Debt volume in 2009 is about 627 times higher than legal persons.

In B2C segment (Business to customer) the maximum value is obtained in the second quarter, being 2 million euro higher than in the first quarter, 17 million euro higher than in the third quarter and 3119 times higher than last quarter.

Regarding the debt of legal entities transferred I noticed that in the second and third quarter the year there were not any transferred debt to Coface Romania. The highest value of transferred debt was in the first quarter, of 1455331 euro, debt smaller 24.17 times compared to that of individuals. In the fourth quarter, although the transfer is smaller by about 1.4 million euro than in the first part of the year, the value becomes higher with 13,000 euro than in the B2C segment.

Although in the 2nd quarter B2B receivables are not we see that quantum registered is the greater, of the period, followed closely by one quarter to a difference of about 746 000 euro. The lowest value was recorded in the last part of the year, the total of transferred debt being only 37,000 euro.

Table nr.6: Evolution of B2C and B2B transferred debts for 2010

Source: www.coface.ro

Regarding the evolution of transferred debt to Coface in Romania in 2010 there can be seen that in the B2B segment there are no ceded receivables in the second, the third and the last quarter of the year. In the first quarter is registered a sum that is approximately 2.2 times smaller than in the first quarter of 2009 but bigger than in the last three month of the previous year.

In the “Business to Customer” segment the highest value is obtained in the last part of the year, October, November and December bringing an assignment of 60.41 mil euro. This value is higher with 23 mil euro than in the first quarter.

Table nr.7: Evolution of B2C and B2B transferred debts for 2011

Source: www.coface.ro

As can be seen in the table above, the trend of non assignment of debt in second and third quarter of the year, in the Business to Business sector, is being followed. In the first quarter the debt ceded was 516200 mil euro and was bigger than in the last quarter with 452400 euro.

Regarding the debt ceded in the B2C sector the numbers are different. In the first three month of the year the debt of the individuals transferred to Coface was 87.68 times bigger than in the case of the entities debt transferred. The highest number in this sector is reached in the fourth quarter and is 1.62 bigger than in the first part of the year. In the second and third quarter is being registered the smallest amount, its sum being 44.4 mil euro smaller than in the last part of the year.

Table nr.8: Evolution of B2C and B2B transferred debts

Source: www.coface.ro

Individual debtors segment ceded the amount to the debt recovery company has had an upward trend. Therefore, although loans to households declined in the period under review, economic entities sold increasingly more claims to Coface. In 2010 the value of the assignments was 30.75% higher than in 2009 and in 2011 the difference increased to 59.17%. Comparing the years 2010 and 2011 can be seen an increase of 21.74%.

While individual debts are increasingly transferred, liabilities of the legal entities disposed have a downward trend. So if in the base year 2009 were transferred receivables totaling 1,480,348.91 EUR, in 2010 they fell to 43.5% from the value of the year 2009 and in 2011 came to be 39.18% of the base year. Also the value of 2011 represents 90.06% of 2010.

Table nr.9: Evolution of cases of B2C and B2B transferred debts in 2009

Source: www.coface.ro

In 2009 the number of individuals whose debt was taken over by Coface is maxim in the first quarter, reaching 48,827 cases and 39.54% of the total. Debtors in the 2nd quarter The number of debtors is 25068 and represents 51.34% of the number of the first quarter and 20.3% of all cases in 2009. In the third quarter debtors number increased by 19.06% from the second quarter and represents 61.12% of the first quarter and 0.24% of the total. The number of debtors in the last trimester is the lowest, being 15.99% of the total in 2009 and 40.44% of persons from the first quarter.

In the Business to business segment we can notice that the number of transferred debt is significantly lower, in the first quarter being by 48,520 cases smaller compared to the same period in the B2C segment and in the last part of the year being smaller with 19,641 cases. Also is remarked that the number of cases transferred from March to September inclusive was 0. The largest number of assignments for companies is the first part of the year and represents 74.58% of the total in 2009. The value of the last quarter is 34.07% of the trimestrial maximum and 25.42% of the annual value.

Table nr.10: Evolution of cases of B2C and B2B transferred debts in 2010

Source: www.coface.ro

In the total of 99.16% Quarter 1 debtors are individuals and only 0.84% are legal entities. In the second quarter the number of assigned by Coface entities with debt is 0 and the number of individuals is with 81.63% lower than in the first part of the year. In the third quarter the number of debtors remains constant in the B2B segment and B2C segment registers a decrease from the previous period and represents 16.56% of 1st quarter and 5.45% of the annual the total of. The maximum number of assignments is made in the last period of the year when the Business to Costumer segment is 69% higher than in the first quarter and is representing 55.60% of the total period.

Table nr.11: Evolution of cases of B2C and B2B transferred debts in 2011

Source: www.coface.ro

The cases in B2C segment was maximum in the first quarter of 2011 when it amounted to 70,070 cases and represented 99.25% of all cases of the first quarter and 32.92% of the total cases in 2011 for this segment. In Between April and May the number decreases, representing 59.47% of the first quarter and 19.58% of the annual total. In the third of the year the number increases but only reaches at 76.41% of the first period and 25.15% of the total of 2011. In the last part of the year is recorded again a decrease, the debts value of the 4th quarter for individuals representing 99.86% of the period and 22.34% of the annual total.

Table nr.12: Evolution of cases of B2C and B2B transferred debts

Source: www.coface.ro

In 2009 the total cases is represented in proportion of 99.66% by individuals and 0.34% by legal entities. In 2010 the share of B2C cases decreased from the previous year by 0.23% and the B2B segment increases reaching to 0.56% of the total of the period. In the last analyzed year the share of individuals in total persons with assigned debt to Coface increases, reaching 0.06% higher compared to 2009, representing 99.72% of the total period while legal entities have only 0.2755% of the total cases from 2011.

In the case of B2C segment the evolution is oscillatory, registering 123,487 cases in 2009, decreased by 30.77% in 2010 up to 85 617 and in 2011 rising again with 72.37% compared to 2009 and with 184.61% compared to 2010 and getting to 212,850 people. In case of legal entities the evolution the number of assigned debts has a upward trend being in 2009 of 412 companies, increasing in 2010 with 17.35% compared to 2009 and getting to 483, and in 2011 is a 42.86% increase compared to 2009 and 21.74% compared to 2010 and the number of cases is 588.

The total number of cases has an oscillatory evolution for the period under review, led by the number of assigned debts on the B2C segment. The maximum number of claims is in 2011 and is 213,438 cases. In 2009 the number of cases is 123,899 and is 40.51% higher than in 2010 and with 72.26% lower than in 2011. In 2010 it registers the lowest value, of 86 100 cases, representing 69.49% of the year 2009 value and 40.33% from the value of 2011.

Table nr.13: Evolution of cases of B2C and B2B transferred debts

Source: www.coface.ro

As it can be seen from the table above, in 2009 the average debt of entities is 4.78 times bigger than that of individuals. This happens because most of the loans taken by entities are caused by the need for investment, while the B2C segment loans are mostly bank credits for personal needs.

In 2010 and 2011 is noticed a downward trend in the B2B segment, the average being about 63% lower in 2010 compared to 2009 and by 72.5% smaller in 2011 compared to 2009. The decree registered in the last analyzed year is 26.1% over the previous year.

In the B2C segment the evolution is oscillating. If in 2009 the average receivables of Coface Company is 752 euro, in 2010 the amount is almost double, while in 2011 the average dropped to a value lower with 57 euro compared to 2009.

Analysis of the evolution of transferred debts recovered by Coface in Romania in 2009, 2010 and 2011

Table nr.14: Evolution of recovered debts in 2009

Source: www.coface.ro

Regarding the share of each segment in the total of the period we conclude that recovery in the individuals segment ranks the leading position for all 4 quarters of 2009. So the segment "Business to Customer” represents in the first quarter 99.58% of the total and in the other quarters 99.99% of the total. This is due to the much higher number of debts transferred in the B2B segment as well as higher average liability of legal entities in relation to the individuals.

Recoveries from the B2C segment develop positively in 2009. Similar values are noticed between the quarters of the first half of the year and between quarters of the second half. In the period 01.04.2009-30.06.2009 is registered an increase of 2.85% over the first period, the third quarter growth is higher than in the second quarter, of 30.42%, and in the latter part of the year the increase is not significant, being 3.26% versus the previous period.

In the businesses segment, the value of recovered debts has in this case also an ascending evolution, but only in the first three quarters of the year. So in the second period increases by two times compared to the first period, in the third quarter increases with 16.64% compared to the second period and in the last quarter is decreasing with 14.21% compared to the penultimate period.

Table nr.15: Evolution of recovered debts in 2010

Source: www.coface.ro

In 2010 the situation of the segment B2B in the B2C segment remains relatively the same as in the previous year. So in the first quarter the share of recoveries from entities in the recovery from individuals is 0.54%, in the second is 0.48% in the third is 0.40% and the last is 0.25%.

In the case of recovery from individuals, the lowest value is recorded in the first part of the year, of 2067895 euro. Quarterly evolution is fluctuating, value increasing in the second period with 15.13% ,in the third quarter decreasing with 3.04% compared to the second quarter and in the last three months increasing by 1.24 times compared to the previous period.

In segment B2B value is descendant in the second half, in the third quarter decreasing with 20.1% compared to the maximum value of the first half, and in the 4th quarter decreasing with 22.33% from the third quarter. In the first half of the year we can say that the amount of debts collected is almost constant, the difference between the two quarters being only 239 euro.

Table nr.16: Evolution of recovered debts in 2011

Source: www.coface.ro

The total amount collected was maxim in the last quarter due to the substantial increase of debt collected from individuals. Quarterly evolution was an oscillating one, but the increase from the latter part of the year was 24.3% compared to Quarter 3.

In the B2C segment recovered debt fluctuated, the maximum of recoveries were in forth quarter. In the second quarter the amount collected has increased by 15.13% from the first part of the year, in the third quarter the sum fell by about 4% compared to quarter 2 and quarter 4 was registered a growth of 17.27% from Quarter 3.

Regarding the collected debts, partially or totally, from legal entities the sum decreased in the third quarter of 2011after in 2nd quarter had a growth of 2.12%. In the third quarter the amount decreased with 20.12% from Quarter 2 and in the last quarter fell by 22.32% compared to the third quarter.

Table nr.16: Evolution of recovered debts

Source: www.coface.ro

The smallest amount collected by Coface Romania was in 2010 when its value was only 67.03% of the total in 2009, which was also the year with most cashes. In 2011 there was an increase in the volume of receivables partially or totally collected, with 21.73% compared to 2010.

In the segment "Business to Business" the maximum value is 92400 euro of collected debts. In 2010 amount collected for this segment decreased considerably, representing less than half of the amount in 2009. In 2011 the situation has remedied considerably by collecting up by 21.73% more than in 2010.

Collection from individuals had roughly the same trajectory as in the case of legal entities. Therefore the maximum recovery is in 2009; in 2010 the value decreases by 37.19% and in 2011 increases again reaching 121.79% from the value of the year 2010.

Table nr.17: Debtors who played their loan in 2009

Source: www.coface.ro

In 2009 the number of people who have become "good payers" quarterly increases with values ​​exceeding 10%. Therefore the number of people increases by 12% in the second quarter from the first part of the year, in the third quarter is 17% the increase over the second quarter and the last part of the year is an increase of 12% recorded compared to Quarter 3.

In terms of individuals, is a noticeable evolution for all four periods. In the 2nd quarter the number of former debtors increases with 3407 people, in the third quarter with 5533 compared to the previous period, and in the last quarter the increase is 11.76% compared to the 01.07.2009-30.09.2009 period.

In the segment of debtor entities, the maximum number of players, in 2009 was in the second quarter, when there was an increase of approximately 120% from the first period. In quarter 3 and 4 the number was steadily depreciating compared to the second quarter by 10%.

Table nr.18: Debtors who played their loan in 2010

Source: www.coface.ro

The year 2010 is also marked by Quarterly evolution of the number of people who pay their debts fully or partially managed by Coface. Therefore the 2nd quarter is marked by an increase of 3634 units; the third quarter of a small increase of 253 units and the last part of the increase is high, of 3145 units.

In case of individuals the increase is the most obvious, the second period being marked by an increase of 3,626 units; in July, August and September is of 1.18% the increase from the 2nd quarter and in the last quarter is of 14.49% the increase from the third quarter.

The number of legal entities who have paid their debts in 2010 is relatively small, yet growing in the analyzed period. In the first six months of the year is registered an increase of 8 units, in the third quarter of only one unit, compared to the 2nd quarter and the largest increase is in the last part of the year when the number of persons increases with 6.

Table nr.19: Debtors who played their loan in 2011

Source: www.coface.ro

In case of individuals the loans paid in 2011 had a positive trend over the quarters. Into the second quarter it registered a growth of 20.39% compared to the first period. In Q3 the increase was low, of 308 units and during the months October to December the increase was of 15.12%.

For companies it is maintained the upward trend but with hardly any changes. Therefore the increase between the first two quarters was 9 units; between 2 and 3 quarter increased by one unit and in the last quarter the increase was 8 units.

Table nr.19: Debtors who played their loan

Source: www.coface.ro

The evolution of the number of cases for the examined years is similar to the evolution of the volume of debts recovered. Therefore the smallest number of payers is in 2010 and is with 70.06% lower than in 2009 and with and 21.73% lower than in 2010.

In the Business to Customer highest value is recorded in 2009 and is of 145,614 units, while the value from 2010 represents only 58.79% of the total of 2009. In 2011 the number increases with 21.73% compared to 2010 but does not reach value of 2009 being with 29.42% smaller than this.

Regarding the B2B segment the situation is similar with the individuals segment in terms of values fluctuating from one year to another. Value of 2010 represents only 60.84% from the value of the year 2009 and is with 21.73% less than the value in 2011.

Conclusion

Nonperforming loans had a fluctuating trend during the period 2005-2012. If the beginning of the period is marked by a constant increase of loans by the population, with the coming crisis there were not taken loans, both due to the increased required solvency of companies and due to the public awareness of the risk of not paying to which they submit by taking a loan. Since 2010 the population began to borrow again, but the volume was not similar to the pre-crisis period. The largest loan growth, 8.5%, after the outbreak of the crisis is in 2011, followed in 2012 by a decrease in 74.36% of new loans.

Although not many were loans, contracted the National Bank of Romania statistics shows that, from 2008 to 2009 the arrears doubled, from 2009 to 2010 they have suffered an increase of 59.26% and from 2011 to 2012 increased by 59.31 %. The only year in which the loan arrears have decreased was from 2010 to 2011, with a decline of 32.13%. Of these arrears the highest amounts are represented by the arrears whose delay exceeds 90 days.

This increase of non-performing loan loans market has led to the development of the recovery of receivables, Therefore companies analyzed the total increases in the value assigned receivables (B2C + B2B segment) for the entire period. Regarding the amount recovered claims are accounted decreases. If in 2009 15% of them were recovered in 2010 and 2011 the percentage dropped to 8%.

Given all this it can be said that the debt recovery market can be very profitable for the entities but involves many risks.

Bibliography

www.bnr.ro

www.coface.ro

www.amcc.ro

www.fenca.org

OUG 50/2010

http://www.comunicatedepresa.ro/riscul-de-credit/definitie/

The New Civil Code

Law no. 82/1991

Directive IV of the European Economic Community

MFP no. 3055/2009

Law number 3.055/2009