As part of the natural order of commercial life there may come a time when it is necessary to close and liquidate a company in Romania. Romanian law has allowed for this eventuality and like most Romanian law firms we continually advise on this.
A business can be closed by the active participation of the shareholders and management, or it can be closed by law. Many companies initially formed in the 1990s have been closed in Romania by the law as the first rush of enthusiasm for corporate structures has been tempered with a more balanced view.
The reason for the closure of a company are manifold. Originally many people formed companies without understanding the business or commercial reasons for their formation. As a result some companies ceased to trade because the owners decided not to proceed with the venture; the business for which the company was set up was unsuccessful and the shareholders are no longer prepared to support it, or indeed the shareholders have died and there is no-one willing to continue with the company.
Before a decision is taken to close a company and for it to be dissolved, the financial position of the company needs to be examined. Many owners take the position that as their business has failed they see no reason to pay the company’s creditors. Whilst legally correct it can cause problems in the future for the administrators of the company. If on the liquidation of a company there are debts due to the state then the liquidator can write a report concerning this and then if the courts agree, the administrators can be subject to criminal proceedings and banned from being an administrator in another Romanian company for a period of time.
Once the decision has been made to close the company there are two ways in which this can be done. Under law 31/1990 – the Companies Law, the Trade Registry has an inherent right to dissolve a company and remove it from the register of companies. This will happen if a company has not filed all the necessary returns; the registered address is no longer valid or financial returns have not been filed. There is nothing wrong in allowing this to happen and sometimes we advise it provided that the company has no debts and has paid all its taxes. This means that the costs of dissolving the company are borne by the Romanian Trade Registry.
The Company can also apply to have itself deleted from the Romanian Trade Registry. This is done after all the debts have been paid and all taxes calculated and paid to the authorities. The members of the company then pass a resolution that the company should be dissolved and deleted from the Trade Registry. A simple way although time consuming and expensive – this is often the route chosen by foreign investors.
Apart from the above the company can also be liquidated and removed from the Trade Registry by the effects of law 85/2006 – the Bankruptcy Law. In this case either a creditor or the company itself can apply to the courts for the company to be liquidated and then dissolved. This only happens if the company is unable or unwilling to pay its debts and there are not sufficient funds to pay all creditors.
As mentioned above there is a risk here that the liquidator will consider that the actions of the administrators is such that the administrators who caused the demise of the company should not be allowed to be administrators in another Romanian company. This is not a decision taken by the liquidator, but is taken by the judge based on the liquidators report who can then consider criminal proceedings against the administrator.
These are all questions that Romanian lawyers will face from time to time. Before giving a quick opinion or advice it is important that the position of the company be properly examined and the correct advice given not only to the shareholders but also the administrators. There are also questions of taxation and losses which may be able to be off-set.
As to the companies themselves, they need to be careful as their business develops. For foreign investors often their reputation is more important and they will seek to close the company in an orderly fashion.
With the proper advice the closure of a company can be done with the minimum of problems provided the whole procedure is fully understood.
I read your article on Romanian Companies with interest. My wife and I set up a romanian company around 5 yrs ago to purchase an off plan property. After paying around 80% of the cost, some 60,000 euros, the development went bust and we have lost those funds. Everyone we turned to in Romania appeared to be corrupt. We have not closed the company as it was effectively inactive and we have to pay off the 60,000 euros. We have now received a letter in Romanian, appearing to ask for all accounts and returns for the company stating legal action. Your advise on next steps would be apprecited.