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Introduction |
Recovering a debt can be a serious problem for almost every business
owner regardless of the industry or the profession. Collecting a debt
can be an arduous process anywhere, but coupled with the anxiety
associated with the Romanian justice system and a general lack of
understanding as to the protections afforded to creditors by Romanian
law, doing business and lending in Romania is often too daunting for
most lending institutions – particularly in troubled times. Fortunately,
the Romanian legal system does provide an expedited framework for
creditors to collect debts, and this article describes the legal tools
available to them in Romania that allow for the recovery of their debts. |
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Different Procedures for Debt Recovery |
Under Romanian law, if a debtor has not paid the amount due by the due
date, a creditor may initiate a court proceeding against the debtor for
the recovery of the debt within the three-year statute of limitations.
Additionally, of course, creditors may use the insolvency procedures set
forth in Law 85/2006 (the “Insolvency Law”) where applicable.
Since October 2007, when the Government Emergency Ordinance no. 119/2007
(“GEO 119”) came into effect, as part of Romania’s responsibilities in
its accession to the European Union, two expedited procedures for debt
recovery have co-existed -- the summons procedure, created by Government
Ordinance no. 5/2001, and the payment ordinance procedure, established
by GEO 119. Where applicable, creditors may opt between either of these
two expedited recovery procedures, or they may continue to resort to the
procedure provided by the general provisions of the Civil Procedural
Code, but which takes longer to fully implement.
Summons and payment ordinance procedures
If the creditor has enough information regarding the solvency of its
debtor, and if the claim be attested entirely by written evidence, then
the best option is for the creditor to use one of the two expedited
procedures. Both the summons and the payment ordinance procedures refer
to claims that are determined, liquid and matured. A claim is determined
when its existence is under no doubt, it is liquid when its amount can
be perceptibly determined, and it is matured when it has become due.
The summons procedure is a special and immediate court proceeding that
may only be used for the collection of pecuniary debts resulting from a
contract or other written instrument, signed by both parties. The
payment ordinance has a narrower area of application, in the sense that
it regulates the collection of pecuniary debts deriving only from
commercial agreements, defined as agreements concluded between traders
or between traders and contracting authorities.
While invoices signed by the debtor represent the basic proofs submitted
in court, attesting to the debtor’s payment obligation, the payment
ordinance procedure allows for a higher flexibility in providing
evidence in court. Consequently, a creditor using such a procedure may
successfully submit, in addition to the aforementioned invoice, other
documents evidencing its claim against the debtor, such as
correspondence. This is an important aspect that turns the payment
ordinance procedure into a more advantageous procedure for creditors, as
compared to the summons procedure.
Another advantage of the payment ordinance is the fact that the debtor
may acknowledge only part of its debt while, under the summons
procedure, this is not permitted. Consequently, the judge may rule only
with regard to such partial debt, and the creditor will therefore be
able to collect part of its debt based on the expedited procedure; while
for the rest of the alleged debt the creditor may submit a claim in
court based on the general common procedure.
General
common procedure
 According to the Civil Procedural Code, which describes the basic
procedure on debt recovery, before commencing an action, the creditor
must attempt to settle the matter amicably with the debtor. The creditor
must send a written notice to the debtor inviting him to a meeting to
negotiate an amicable settlement. The notice must have all the documents
proving the creditor’s claim attached and must be sent at least 15 days
prior to the date of the proposed meeting. If the parties succeed in
settling the debt amicably, the debtor pays the amount due and no court
proceeding is commenced.
If the parties do not reach an agreement, or if the parties reach an
agreement, but the debtor breaches it, then the creditor may submit a
court claim to which it has to attach all the documents proving that the
parties have attempted an amicable settlement prior to the action filed
with the court. Without such proofs, the court claim will be dismissed.
As in the case of the payment and summons procedures, the competent
court for the common procedure is the local or the county court,
depending on the amount of the debt in question.
Main advantages and disadvantages
between the expeditious and the common
procedures
An advantage of the two expedited procedures is the fact that creditors
must only pay a stamp tax amounting to 39 lei, representing the
equivalent of around €10, while with actions brought pursuant to the
common general procedure, creditors must pay a stamp tax representing a
certain percentage of the debt amount and, consequently, the higher the
amount of the debt, the higher the stamp tax that the creditor must pay.
The greatest advantage of the expedited procedures is the speed by which
a determination can be made allowing a judgment to be delivered in
approximately 2-3 months -- the text of GEO 119 requires the court to
render a decision within 90 days. Significantly, the expedited
procedures do not contain the requirement that the parties first attempt
to settle the matter amicably, and this also shortens the entire
process.
Succinctly stated, the disadvantages of the common procedure lie in the
amount of the court fees and the duration of the procedure (lower court,
appeal and second appeal), which can sometimes take 2-3 years before a
final and binding judgment is delivered. But the common procedures must
be used instead of the expedited summons or payment ordinance
procedures, when the creditors need more than documents to prove their
claims (e.g., witness depositions or expert testimony). However, when
the existence, the due date and the amount of the debt is substantiated
with documentation, creditors have at hand one of the two expedited
procedures, instead of the burdensome and long procedure set forth in
the civil procedural code. |
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The Insolvency Procedure |
 Statistics
show that in 2008, between 12,000-14,000 insolvency requests were
submitted. The prognosis for 2009 estimates that insolvency requests
will double. Indeed, creditors too often submit insolvency requests,
even if they do not have enough information on the lack of solvency of
their debtors, their only purpose being to put pressure on debtors in
order for the latter to pay their debts. Unfortunately, in the end, this
strategy often turns against them.
Creditors entitled to request insolvency
The conditions imposed by the Insolvency Law allowing creditors to
submit insolvency requests against their debtors, legal entities or even
natural persons, are quite permissive. They regard the existence of a
determined, liquid and matured claim that is older than 30 days, and has
a value that exceeds either 10,000 lei, in ordinary cases, or the
multiple of six average annual national income wages for employees. For
reference, the annual average national wage was approximately 350 Euros
in 2008.
Once these conditions regarding the claim have been met, the creditor
may submit the insolvency claim with the court. The Insolvency Law does
not require the creditor to provide evidence proving the insolvency of
its debtor, and this makes the commencement of such a proceeding quite
simple. However, at the debtor’s request, the syndic judge may oblige
the creditor to lodge a deposit representing a maximum 10% of the value
of the claim. Such deposit will be returned to the creditor if its
insolvency request is accepted, or it may be used in order to cover any
losses suffered by the debtor if the creditor’s request is rejected.
Commencing the proceeding
When an application for insolvency is filed, the debtor may request that
the court approve a plan by which the debtor can reorganize in an effort
to pay its debts. The judge may confirm or deny the plan. If the judge
determines that the application filed by the creditor or debtor is
sound, if the debtor does not propose a reorganization plan, or if the
reorganization plan is dismissed, the judge opens an insolvency
proceeding and appoints a judicial administrator for the debtor legal
person.
The main consequences of opening an insolvency procedure are: the
statute of limitations for all the creditors’ claims is suspended; no
penalties or interest may be added to the receivables that are the
object of the claim after the commencement of the insolvency procedure;
the debtor may no longer run its own business and all of the managerial
tasks of the business are taken over by the judicial administrator
appointed by the syndic judge. The debtor must submit all information
and documents showing the situation of the company, such as balance
sheets, list of creditors, list of assets, accounts and banks used by
the debtors and other such information, to the judicial administrator.
Effects of opening the procedure on other
litigations
Since the date of the commencement of the procedure, all judicial or
extra-judicial actions regarding the fulfillment of claims against the
debtor or its assets are suspended. The decision regarding the opening
of the procedure must be communicated to all of the courts in whose
jurisdiction the headquarters of the debtor lies, as registered with the
trade registry, and to all the banks where the debtor has opened
accounts. Moreover, after the opening of such proceedings, the judicial
administrator must notify all the creditors who are registered in the
accounting books of the debtor and inform them of the terms under which
they may register their own claims against the debtor with the court.
Effects on acts concluded by the debtor
All the acts and correspondence issued by the debtor, the judicial
administrator or the liquidator must include, in Romanian, English and
French, the following expression: “in insolventa”, “in insolvency”, “en
procédure collective”. The syndic judge may rule that the management of
the debtor be performed not by the debtor itself, but by the judicial
administrator, and such judicial administrator may apply to the syndic
judge for the annulment of the acts concluded by the debtor that are
determined to be in fraud of its creditors’ rights during a 3-year
period prior to the date of commencement of the procedure.
Risks of opening the insolvency procedure
for the purpose of debt recovery
As mentioned above, some creditors make use of this procedure, even if
they do not have enough information on the lack of solvency of their
debtors in order to persuade the debtor to pay its debts. However, after
a thorough analysis of the economic status of the debtor, it may well
turn out that the debtor is indeed insolvent and unable to repay all its
debts, thereby extinguishing the creditors claim or severely restricting
any recovery.
Therefore, the biggest disadvantage of the insolvency procedure is the
fact that the amounts of money collected from selling the debtor’s
assets is often insufficient to cover all of the creditors’ claims. The
judicial administrator will make an inventory of all the debtor’s assets
and may, based on the decision of the creditors approved by the judge,
sell the assets, the proceeds of which may be distributed to the
creditors and be used to pay the expenses of the insolvency procedure.
The Insolvency Law establishes the order in which the creditor’s claims
are satisfied. For instance, the amounts obtained from the selling of
assets which are subject to a guarantee will be paid to the creditors
for whom the guarantee was set up and, only after the satisfaction of
these creditors’ claims, may the remaining proceeds – if any – be
distributed to the other creditors. Also, claims brought by public
institutions and salary claims have priority to the claims of other
creditors. Another disadvantage is the long duration of an insolvency
procedure, which may last for years.
Creditors should be aware of the fact that the Insolvency Law has not
been created as a legal tool for debt recovery. On the contrary, an
insolvency request should be submitted in court only if there is enough
information that the debtor is unable to cope with its determined,
liquid and matured debts. Creditors should recall that their direct
interest is to recover their debts and, if they open an insolvency
procedure, this may obstruct the debtor’s ability to continue its
activity and, consequently, make it impossible for the creditor to
collect its debts. |
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Conclusion |
 In
a fast moving economy, where blocking the financial resources of a
company in dead-end attempts for amicable debt recovery actually means
blocking the entire business of such company, the two expedited
procedures afforded by Romanian law provide for a fast means by which
creditors can efficiently and effectively recover debts. Therefore, the
choice among the different procedures for debt recovery under Romanian
law should be wisely chosen by creditors, with a view to the particular
circumstances of the case and also based on accurate information and
thorough advice. |
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Editors Note: It is our policy not to mention our clients by name in
The Romanian Digest™ or discuss their business unless it is a matter of
public record and our clients approve. The information herein is correct
to the best of our knowledge and belief at press time. Specific advice
should be sought from us, however, before investment or other decisions
are made.
Copyright 2009 Rubin Meyer Doru & Trandafir, societate civila de avocati.
All rights reserved. No part of The Romanian Digest™ may be reproduced,
reused or redistributed in any form without prior written permission
from the publisher.
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