General commercial rules

08.02.2013 ZF English

Domestic Commercial Transactions

Commercial Law

The contractual and commercial (“professional”) rules are mainly set out under the Romanian Civil Code (which entered into force on 1 October 2011).

The main principle applicable to contractual matters is that contracting parties can freely choose the specific clauses that govern their relationship, except for those considered to be of public interest such as, for example, the legal status of the contracting parties.

To guarantee their contractual obligations, debtors and creditors may enter into suretyship contracts, issue letters of guarantee and comfort letters as well as set mortgages on immovable assets, which are valid only if registered in the land book (registration in the land book was used to ensure enforceability of the mortgage before third parties) and mortgages on movable assets and pledges. Additionally, creditors may introduce prior claims with regard to contract related receivables.

According to the Romanian Civil Code and Government Emergency Ordinance 99/2006 on credit institutions and capital adequacy (the “Banking Law”), mortgage or pledge agreements as well as any other agreements concluded for the purpose of securing credit agreements are deemed as writs of foreclosure (Romanian: titluri executorii).  As such, in order to enforce a pledge on a movable asset, the Law grants creditors the right to use the procedures governed by the former Civil Procedure Code. The New Civil Procedure Code entered into force on 15 February 2013, thus replacing certain elements in relation to enforcement of pledges. 

Finance and Bankruptcy

Law no. 85/2006 on Insolvency Procedures (referred to as “the Insolvency Law") applies to companies, agricultural producers, economic interest groups, individuals who undertake commercial activities either individually or in family associations, to any private legal entity carrying out economic activities that can no longer meet its commercial debts/obligations and to certain others (hereinafter referred to as the " debtor"). Thus, the Insolvency Law sets out a reorganisation procedure which enables debtors in financial distress to continue their business or, if that is not possible due to their financial situation, a bankruptcy procedure which aims to liquidate debtors’ assets so that the outstanding debts can be paid.  These procedures may be initiated at the request of the debtor or of its creditors, provided that their receivables meet certain requirements, mainly related to their value.  Debtors are legally required to file for insolvency if they are insolvent.

Once the insolvency procedure has been initiated, any actions, either judicial or extra judicial, to recover the receivables held against a debtor or its assets are suspended.  All creditors must register their receivables against the debtor with the courts of competent jurisdiction and recover such amounts only after the sale of the debtor's assets, according to the rules set out in the Insolvency Law regulating priority of creditors.

The Insolvency Law states that after the closure of bankruptcy proceedings, individual debtors are discharged from their obligations, provided they are not guilty of any fraudulent payments, fraudulent transfers or fraudulent bankruptcy.  With respect to corporate debtors, closure of bankruptcy proceedings will trigger the end of the corporate debtor’s legal existence by its deregistration from the relevant registry.  To protect creditors whose receivables are not covered by a debtor’s assets, the syndic judge may rule that any outstanding obligations must be partially paid by the management/supervisory team members of corporate debtors or by any other legal entity that is liable for causing the insolvency of that entity.

As of 2009, legislation on the avoidance of insolvency has been in effect (Law no. 381/2009 on composition of creditors and ad-hoc mandates).  These new provisions allow businesses in financial distress, but which are not insolvent, to reach an agreement with their creditors, with the help of professional insolvency practitioners and under the supervision of a syndic judge.  These procedures are confidential and may last only for limited periods and their successful implementation depends on the creditors’ cooperation.

Romanian legislation sets out specific provisions applicable in the case of bankruptcy of commercial banks, credit cooperatives, electronic money issuers and housing savings banks (“Credit Institutions”). Thus, under Government Ordinance 10/2004 on reorganization and bankruptcy of credit institutions, bankruptcy procedures may be initiated at the request of a Credit Institution, its creditors, or the National Bank of Romania.

With respect to commercial banks, the Banking Law states that the National Bank of Romania is entitled to impose special monitoring and administrative measures before bankruptcy is officially declared.

Disputes between professionals

The New Civil Procedure Code no longer makes a distinction between civil disputes and business disputes (e.g. between “professionals”). As such, the mandatory procedure of amicable settlement of disputes between professionals regulated under the current Civil Procedure Code is no longer applicable as of 15 February 2013.

The New Civil Procedure Code sets forth the possibility for the parties to pursue an alternative dispute resolution procedure. 

Alternative Dispute Resolution (ADR) procedures

The New Civil Procedure Code states that a court before which an action has been brought may invite the parties to use an alternative dispute resolution procedure or mediation. Moreover, the court may also invite the parties to attend an information session on the use and benefits of mediation.

Law no. 192/2006 on mediation, as amended in 2012; (the “Mediation Law”) states that any civil, commercial or even criminal minor disputes may be settled amicably by the parties through mediation.  Mediation is defined as a private procedure, conducted by a mediator, whose purpose is to facilitate the settlement of a dispute under private and confidential terms, upon the parties’ agreement.  The Mediation law also sets out the judges’ obligation to inform the parties, at the beginning of each trial, that they can settle their dispute through mediation.  If the parties choose mediation, the court case is suspended and, if the parties reach an agreement, the court will only confirm their agreement under a decision that can be appealed only for procedural reasons. Although the western world has applied the ADR procedure for the past 60 years, given that it ensures confidentiality, speed and reduced costs by comparison with the traditional dispute resolution before public courts, the Romanian business environment is only just starting to use this method.

Efficiency of procedures

The New Civil Procedure Code gives special consideration to the specific nature of relations between professionals, which require speedier resolution of disputes than in civil cases. It is therefore stipulated that lawsuits and claims between professionals should be given priority, with the court having the duty to ensure that the parties' procedural rights and obligations have been met, and also that the efficiency of the trial is ensured.

Written evidence

Under the New Civil Procedure Code, documentary evidence plays a more significant role. When filing an action in court, the complainant can be required to file any document invoked to support his/her case (e.g. commercial registers may be used as evidence when the other party is also a professional). 

Formal procedure for receivables collection

Insofar as the collection of receivables procedure is concerned, Government Ordinance 5/2001 on the procedures to be followed for receivables collection and Government Emergency Ordinance 119/2007 on trade receivables deriving from agreements concluded between professionals were abrogated after the enactment of the new Civil Procedure Code.

According to the new Civil Procedure Code, the formal procedure for receivables collection is an alternative solution to the general applicable rules for asserting a financial claim, having the advantage of being less time consuming than normal judicial proceedings and subject to a small-value, fixed stamp duty. Thus creditors may choose between the special procedure of payment ordinance (in Romanian “ordonanţă de plată”) and filing an action in court.  Nevertheless, creditors who are unsuccessful in this formal procedure for the collection of receivables will be given the opportunity to continue to pursue their case in accordance with the general applicable rules.

The procedure for receivables collection begins with a mandatory notice of delay whereby the debtor is advised to pay the amount owed. Moreover, under the new Civil Procedure Code, this notice of delay will suspend the term of limitations.

The formal procedure for receivables collection initiated by a creditor will be accepted provided that the receivables in question meet certain requirements, as follows. They must:

• Be certain (their existence should be legally unquestionable), liquid (their value should be accurately determined) and payable (should have become due).
• Represent a payment obligation.
• Be stated in a written document such as an agreement, by-laws, regulation or another similar document, signed or undertaken by the parties in another manner accepted by law
• Derive from the performance of services, works or other activities. 

This procedure is also applicable for receivables deriving from agreements concluded with consumers.

Source: KPMG - Investment in Romania report (May 2013)