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Romania: Longstanding Legal Debate Over Improper Bookkeeping Settled by High Court

Romania: Longstanding Legal Debate Over Improper Bookkeeping Settled by High Court

Issue 10.12
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The Romanian High Court has recently settled a long-standing legal debate over the conditions for holding administrators personally liable in cases of improper bookkeeping of an insolvent company. This issue has been a point of contention within the legal system since 1995, creating divergence in jurisprudence that required resolution.

One of the primary challenges in insolvency proceedings is to maximize the value of the debtor’s assets and facilitate debt recovery. When traditional methods prove insufficient, insolvency practitioners and creditors often explore alternative avenues, such as pursuing claims to hold a company’s administrators or directors personally liable for the debtor’s insolvency.

Some unscrupulous administrators attempt to obscure the company’s financial trail and impede the identification and liquidation of all debtor assets through improper bookkeeping practices. Recognizing this, the Romanian insolvency rules, initially outlined in Law no. 64/1995 and then updated in Law no. 85/2006 and the current Law no. 85/2014 on insolvency prevention and insolvency proceedings, penalize administrators or directors who maintain fictitious accounts, conceal accounting documents, or fail to adhere to lawful accounting practices.

A significant point of contention in jurisprudence revolved around whether liability could be established when administrators or directors failed (or refused) to comply with the legal obligation of providing accounting documents to the insolvency practitioner. This handover is crucial for analyzing the debtor’s economic situation and identifying the root causes of insolvency.

Law no. 85/2014 aimed to enhance existing legislation and harmonize conflicting case law by simplifying the task for judicial practitioners handling liability claims related to the failure to provide accounting documents. The law introduced a relative legal presumption that, in the event of such a failure, both fault and the causal link between the act and the damage would be presumed. Prior to this presumption, plaintiffs often faced the daunting task of proving that accounting records, which were unavailable, were not maintained according to the law (probatio diabolica). Despite this legislative effort, a complete unification of case law has not been achieved. The law addressed the presumption of fault and the causal link between the act and the damage but did not specify the link between the failure to keep accounting records in accordance with the law and the company’s insolvency, considering that the liability established by the judge cannot exceed the damage causally linked to the act in question. 

Some have argued that the law established a relative legal presumption regarding the conditions of tort liability. In their view, if the defendant did not hand over the accounting documents, the plaintiff’s claim should be admitted without the need to prove an additional causal link between the act and the state of insolvency. Others have argued that the mere failure to provide accounting documentation could not lead to personal liability. According to this perspective, the plaintiff must present evidence of the act’s existence, of the damage, and evidence substantiating a second causal link, namely the fact that the failure to fulfill the obligations laid down in the accounting regulations contributed to the insolvency. In a recent landmark decision, the Romanian High Court addressed this protracted legal debate through Decision No. 14/June 27, 2022, an interpretative appeal for the unification of the law.

The High Court ruled that the first judicial opinion was the correct one and affirmed/explained that the legal presumption relieved the plaintiff of the obligation to prove the conditions for patrimonial liability. In their deliberation, the judges highlighted that the violation of the legal obligation to provide accounting documents cannot be construed as a defense for individuals whose legal responsibility is to hand over such documents, as allowing such an assumption could potentially incentivize them to refrain from submitting the required accounting documentation and would be contrary to the intention of the law. Furthermore, the High Court clarified that the defendant could challenge the presumption by providing evidence that they were not notified that they had to deliver accounting documents, or that non-delivery resulted from circumstances beyond their control.

The decision not only clarifies a long-standing legal ambiguity but also underscores the importance of complying with accounting regulations to avoid personal liability in cases of insolvency. Administrators and directors should take heed of this ruling, ensuring transparency in accounting practices and cooperation with insolvency practitioners to mitigate legal risks. The decision marks a significant step toward a more coherent legal framework in Romania’s insolvency landscape, providing clarity for practitioners, creditors, and stakeholders involved in the intricate process of insolvency proceedings.

By Sorina Olaru, Partner, and Razvan Savin, Managing Associate, NNDKP

This article was originally published in Issue 10.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.