As well as incorporation of companies, we are often asked to advise on the closure of a company’s business and the subsequent steps to be taken to close a company and to ensure that there are no outstanding liabilities on the administrator and the shareholders. The concept of limited liability should in theory protect the administrator and the shareholders but sometimes this is not the case. The intention of this article is to provide a brief overview of some of the issues which can and do arise. A company can therefore be closed in in of the manners as set out below.
1. A company can be closed voluntarily by the shareholders without any liability upon them, if the company has no employees; has paid all its debts including outstanding taxes; has paid all its other debts in full and has repaid any shareholders loans. In such a case the application is made by the shareholders/administrators to the Trade Registry to close and liquidate the company and for it to be deleted from the register. The procedure will take between 3–6 months.
If there are unpaid debts and the company has not entered into an agreement with the creditors on how to settle the amounts due, then a liquidator must be appointed in order to deal with the closure operations.
This is the simplest procedure and the shareholders/administrators are in a position to control the procedure. The issue for them is to ensure that there are no outstanding liabilities to third parties before lodging the request with the Trade Registry.
2. According to the Romanian legislation, the administrators of a company must ask for the insolvency if a company has outstanding liabilities that exceed fifty thousand (50,000) RON and there is insufficient cashflow in order to pay these liabilities as they become due and payable. In such a case the court will appoint a liquidator to manage the liquidation of the company.
The insolvency application lodged by the administrator on behalf of the company must include the list of documents as set out in the law. Below we set out the principal documents and these are:
- the last annual financial statement, certified by the administrator.
- the profit and loss account of the company for the year prior to the submission of the application.
- the verified balance sheet for the month preceding the date of the registration of the insolvency request.
- a complete list of the assets of the company, including all the bank accounts.
- a list of creditors', mentioning their name, the amount due and when due as well the addresses of the creditors.
- the list containing the payments and transfers made by the debtor in the 6 months prior to the registration of the request
3. Any creditor who has an outstanding balance due to the company which exceeds fifty thousand (50,000) RON and which is due to them for more than sixty (60) days may request the insolvency of a company. In order to do that, the creditor must provide evidence of the debt, that it due and certain and that it is unpaid.
In such a case the court will appoint the liquidator designated by the creditor if no other creditor intervenes in the process and asks for a specific liquidator. If this happens, the court will choose between the proposed liquidators.
It is important to note that in all circumstance that if the company enters the insolvency / bankruptcy procedure, the legislation provides that Ministry of Finance (“ANAF”) has the obligation to make a complete check of the accounting records. In practice, there are times when ANAF does not do this. The fact that ANAF does sometimes not make any inspection cannot be relied upon.
4. If the insolvency / bankruptcy procedure is opened an administrator may become solely liable together with the company for the company’s outstanding debts.
According to the provisions of the Law, the administrators and directors of a company as well as any other person who contributed to the insolvency of the company can become liable for a part of the company’s debts. This is applicable irrespective of the type of debt that resulted in the insolvency (public or private). The liability must be established by a judgement given by the syndic judge responsible for overseeing the liquidation after a court action started by a person interested. Such persons are one of the following:
- the judicial administrator / liquidator
- the president of the creditors’ committee
- any creditor empowered by the creditors’ assembly
- any creditor who holds more than thirty percent (30%) of the debts of the company.
The liability can be established for part or all of the debts but without exceeding the damage which is directly caused by such acts.
The liability can be established only if one or more of the following acts have been committed:
a) the administrator or others have used the assets or credits of the company for their own or others benefit.
b) the administrator or others have conducted activities in their personal interest, under the cover of the legal person.
c) the administrator or others have ordered, for their personal interest, the continuation of any activity of the company that would obviously lead to the cessation of payments by the company.
d) the administrator or others have kept a fictitious accounts made some accounting documents disappear or did not keep the accounting in accordance with the law.
e) the administrator or others have embezzled or concealed part of the company’s assets or have fictitiously increased its liabilities.
f) the administrator or others have used fictitious acts to procure funds for the company, in order to delay the cessation of payments by the company.
g) the administrator or others in the month preceding the cessation of payments, have paid or ordered to be paid one creditor preferentially to the detriment of the other creditors.
h) the administrator or others have committed any other act intentionally, which contributed to the company’s insolvency.
As mentioned before, the liability of the administrator does not operate automatically but does require a court action and confirmation by the judge responsible for overseeing the liquidation. A court action in this respect must be lodged by one of the above-mentioned parties. The plaintiff must provide clear evidence that the above-mentioned deeds have been committed and that they affected the company and the creditor. The court action may be rejected by the syndic judge if the defendant fills proper defences. The decision of the syndic judge in the case can be appealed to a higher court by the plaintiff. If the court action is approved then the final decision will be enforceable in Romania as against the administrator. The final decision can be enforced in other countries based on the European or International conventions between Romania and that country.
Our experience in commercial and insolvency matters means our advice is sought by our clients to sort out all issues and aspects in order to avoid any consequence resulting from their legal duties as administrators and also as shareholders in relation to their companies in Romania. From our experience and knowledge there are cases when the foreign investor abandons their companies in Romania without being aware of the possible legal and financial consequences, even though they proceeded in good faith and without bad intentions. What should and could have been a simple procedure at the beginning then becomes involved and costs the client more money.
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