One of the least understood aspects of Romanian insolvency law is that the opening of insolvency proceedings does not automatically mean the end of problems for the company’s directors.
On the contrary for some directors, the company’s insolvency is the beginning of a significant personal problem.
Law 85/2014 allows that, under certain conditions, directors and managers of an insolvent company can be held personally liable patrimonially for the company’s liabilities. In other words, the company’s debt can become your personal debt.
This possibility exists precisely to discourage irresponsible or fraudulent conduct by those who manage a company. But in practice, liability actions are also brought against directors who acted in good faith, in difficult circumstances, without intending to harm anyone.
This article does not offer a complete legal defence every situation is different and requires specific analysis. It offers a map of the risks and the signals that indicate you urgently need specialist advice.
Who can be held liable and under what conditions
The patrimonial liability of directors in insolvency is governed by Article 169 of Law 85/2014. It is a special form of liability different from ordinary civil liability and has its own conditions of application.
Both de jure directors those formally registered at the Trade Register and de facto directors persons who effectively managed the company without being formally registered in that capacity can be held liable. This distinction is important you cannot avoid liability by simply not being formally registered as a director if in practice you managed the company.
The substantive conditions required are that the company must be in insolvency, that the director must have committed one or more of the acts provided by law, and that there must be a causal link between the director’s acts and the state of insolvency the acts must have contributed to the company reaching insolvency or to its aggravation.
Acts that can give rise to liability — the general picture
Without reproducing the legal text in detail that is your lawyer’s role the general picture of acts that can give rise to a director’s patrimonial liability includes several distinct categories.
The first category concerns using company assets or credit for personal benefit transactions through which the director extracted value from the company for their own benefit or that of related persons, to the detriment of creditors.
The second category concerns continuing a loss-making activity for personal benefit the situation where the director continued to run a company recording systematic losses, not because there was a realistic prospect of recovery, but to serve their own interests.
The third category concerns keeping fictitious accounting records or concealing documents manipulating accounting records or destroying documents that would have evidenced the company’s actual situation.
The fourth category concerns diverting or concealing assets disposing of company assets before or during insolvency, with the aim of removing them from creditor pursuit.
The fifth category concerns making preferential payments paying certain creditors to the detriment of others in the period preceding insolvency, in breach of the principle of creditor equality.
The sixth category frequently invoked in practice concerns failing to request the opening of insolvency proceedings in time when the director knew or should have known that the company was in a state of insolvency.
Who can bring the liability action
The action to engage the director’s patrimonial liability can be brought by the judicial administrator or judicial liquidator of their own motion or at the request of the creditors’ committee and by creditors holding at least 50% of the value of claims registered in the final table.
The fact that the action can be brought by the insolvency practitioner is particularly relevant the practitioner has access to all the company’s accounting and financial documents and can identify acts that the director considered forgotten or ignored.
The limitation period within which the action can be brought is 3 years from the date on which the entitled person knew or should have known of the act and the person who committed it, but no later than 5 years from the date the act occurred.
Why good-faith directors are also exposed
One aspect that many directors overlook is that liability actions do not target only flagrant fraud or obvious bad faith. There are situations where directors who acted in good faith but without adequate documentation of their decisions end up facing such actions.
This happens for several practical reasons.
Business decisions taken in difficult periods restructurings, abandonment of certain lines of activity, disadvantageous contracts signed under pressure can appear retrospectively as liability-generating acts, even if at the time they were made they were reasonable.
Insufficient documentation of the decision-making process makes it impossible to prove that you acted in an informed and reasonable manner. GAS resolutions, board reports, internal correspondence all of these are evidence of good faith that is frequently absent.
The line between continuing a loss-making activity in the hope of recovery and continuing it for personal benefit is sometimes difficult to draw retrospectively and the insolvency practitioner or creditors may choose to draw it to your disadvantage.
Mistakes that significantly increase the risk of liability
From over 20 years of experience as an insolvency practitioner, I have repeatedly seen the same patterns of behaviour that significantly increase the risk of engaging a director’s personal liability.
Mixing personal and company assets
Undocumented loans between the director and the company, personal expenses recorded as company expenses, company assets used for personal purposes without a contractual basis all of these create an image of patrimonial confusion that is extremely difficult to explain before a judge or an insolvency practitioner.
Asset transfers without commercial justification
Selling company assets below market value, transferring assets to related parties, assigning valuable contracts all of these, if carried out in the period preceding insolvency, can be challenged as fraudulent transfers and can form the basis of a liability action.
Selective payment of creditors
Paying certain creditors particularly affiliated creditors or creditors with whom the director has a personal relationship to the detriment of others, in the period preceding insolvency, is an act that can attract both annulment of the payments and personal liability.
Inadequate or absent accounting records
The absence of accounting records, incomplete or contradictory entries, missing supporting documents these are red flags for any insolvency practitioner. They do not automatically prove bad faith, but they create a negative presumption against the director that is difficult to overturn.
Delaying the insolvency application
A director who knew or should have known that the company was in a state of insolvency and did not request the opening of proceedings in time allowing new debts to accumulate against creditors can be held personally responsible for the liabilities accumulated during this period.
Signals that you are exposed to the risk of a liability action
Not every director of an insolvent company will face a liability action. But there are clear signals that indicate an increased risk.
Signal 1: There are transactions between you personally and the company that are not fully documented. Any transfer of money or assets between you and the company loans, rents, consultancy fees that is not supported by clear contracts and market-rate pricing is a vulnerability.
Signal 2: The company continued to accumulate debts after you knew it was in difficulty. If there is evidence emails, financial reports, bank correspondence that you knew of the difficult situation and continued to enter into new obligations, the risk of liability is real.
Signal 3: The accounting documentation is incomplete or missing. If the insolvency practitioner cannot find complete accounting documents or finds them in disorder, the first suspect is the director.
Signal 4:There were asset transfers or selective payments in the period preceding insolvency. Any transaction carried out in the 2 years preceding the opening of insolvency will be carefully analysed by the insolvency practitioner.
Signal 5: The insolvency practitioner has already requested additional documents or explanations. Information requests from the judicial administrator are often the first sign that they are analysing the possibility of bringing a liability action.
What to do if you are targeted by a liability action
If you have received a statement of claim for engaging patrimonial liability or if you anticipate that one will be filed, the first steps are critical.
Do not ignore the situation and do not assume it will resolve itself. A liability action can lead to pursuit of your personal assets not just the company’s.
Collect all documents that record the decision-making process during the relevant period GAS resolutions, reports, correspondence, contracts. These are the evidence of good faith.
Contact a lawyer specialising in insolvency law immediately not a general practitioner. Defending against a director liability action requires detailed knowledge of Law 85/2014 and the judicial practice specific to this type of action.
This article is for general informational purposes only and does not constitute legal advice. Director liability in insolvency is a technical area with significant particularities every situation requires specific analysis. Contact a specialist lawyer before making any decision.
Frequently Asked Questions
Can I be held liable if I was a nominal director and someone else actually ran the company? This is one of the most frequent situations and one of the most dangerous for nominal directors. If you are registered as director at the Trade Register, you are legally responsible for acts of management regardless of whether in practice someone else ran the company. Informal delegation of management does not exonerate you from liability. On the contrary the absence of oversight can itself constitute a liability-generating act.
Is my liability limited to the value of my contribution to the share capital? No. The director’s patrimonial liability under Article 169 of Law 85/2014 can cover the entire liability of the company or that portion of the liability corresponding to the damage caused by the director’s acts. There is no limitation to the value of the share capital or the contribution.
If the company entered insolvency due to external factors economic crisis, loss of a major client can I still be held liable? External factors can constitute a relevant defence but not an absolute one. The key is whether the director acted reasonably in the face of these factors or whether they aggravated the situation through their own acts. Documenting decisions taken during difficult periods is essential to demonstrate that you acted in an informed and good-faith manner.
Can a liability action affect my spouse? If the personal assets pursued are jointly owned with your spouse, enforcement proceedings can indirectly affect jointly owned assets. There are protective mechanisms but they require specific legal analysis of your concrete patrimonial situation.
Can I negotiate with creditors or the insolvency practitioner to avoid or limit the liability action? In certain circumstances, yes. There are situations where an amicable arrangement for example, a voluntary contribution to the creditor body can prevent or limit a formal liability action. Whether this is a viable option in your situation depends on the specifics of the case and the relationship with the practitioner and creditors. A specialist lawyer can assess this possibility.
Are you a director of a company that has entered or is about to enter insolvency and want to understand the personal risks you are exposed to?
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