Debt Collection in Romania

• Although Romania's late payment laws are more strict than EU rules on this issue, domestic corporations payment activity remains an issue.

• Legal proceedings are long and expensive, so it is worth considering the use of arbitration or a foreign European forum.

• Moreover, it is important to perform comprehensive pre-legal action before commencing legal actions of any kind.

1. Summary

1.1. General financial information

1.1.1. Annual accounts of companies must be submitted to the Romanian Ministry of Finance within 120 to 150 days of the end of the financial year (depending on the size of the company), whereas the largest companies would also be required to submit half-year financial statements.

1.2. Key legal structures

1.2.1. Corporate debt responsibility is defined by legal structures, which are listed as follows:

• Sole proprietorship is possible for independently operated small businesses for which no contractual arrangement is needed. In this scenario, the claimant shall be held responsible for all contractual debts. Two or more people may also decide to share responsibility and obligations by alliances (societatea in number collectiv, SNC), in which case the spouses may be collectively and personally liable for the other partners ' acts. Conversely, limited liability agreements (Societate in comandita simpla, SCS) may offer limited liability to the participants.

• Limited liability corporations (societate cu răspundere limitată - SRL) and joint-stock firms (societate pe acțiuni, SA) make up the vast majority of Romanian enterprises. Srl companies require minimum capital funds (RON 200), while the responsibility of the investors is restricted to the donation. SA Companies are generally used for larger structures that are prepared to split their money into tradable securities (RON 90,000). Shareholders ' liability in these entities is limited to the value of their shares.

• Foreign companies can additionally settle in Romania by branch offices which do not provide the foreign parent company with any liability limits. Representative offices may also be formed but cash can not be produced by these. Joint ventures that take the form of any legal structure mentioned above, but incorporation is not mandatory, so a contract written for this reason would be adequate.

1.3. Regulatory framework

1.3.1. The legal system in Romania is focused on Civil Law, implying that the laws are codified whereas the rulings of the courts have only a limited effect on the law. As a general rule, commercial cases are brought before local courts (judecatoria) where the buyer has his offices, or before county courts (tribunalul) which have a broader authority to deal with lawsuits over RON 200,000.

1.3.2. A New Code of Civil Procedure has been in effect since February 2013 (in addition to the New Civil Code which entered into force in 2011) and substantially modifies the framework of courts in Romania, with a view to which the period within which decisions are rendered and aligning civil proceedings with the substantive law provided for in the New Civil Code.

1.3.3. Nevertheless, in January 2013, the European Commission highlighted a pervasive lack of confidence in the rule of law, with significant impacts on the capacity of companies to obtain fair and equitable justice.

2. Receiving payments

2.1. DSO - Days Sales Outstanding

2.1.1. Domestic firms' compensation actions may be troublesome although it may be justified by a lack of support from the banking sector. Payment will, in principle, take place within 30 to 40 days of the invoice remittance, although delays of up to 25 days may be anticipated. In reality, the current average DSO was about 69 days.

2.1.2. However, businesses are progressively utilizing promissory notes payable 15 to 30 days after the date of remittance as a way of further reducing payments.

2.2. Late interests

2.2.1. Recast Directive 2011/7/EU allowing payments to be rendered in the EU within 60 days was transposed into Romanian legislation by Legislation 72/2013 of 5 April 2013 (Act 72), thus amending Government Ordinance No 13/2011 (GO 13).

2.2.2. Romania's regulations are more restrictive than EU requirements: as a general rule, payment will take place within 30 calendar days from the date of issuance of the invoice, unless otherwise decided by the parties, as long as payment terms do not extend 60 calendar days. By law, abusive clauses would be considered null and void. Therefore, the parties are free to decide to specific interest on late payment. Nevertheless, these must be measured on the basis of a legitimate average (6 percent per year), which is raised by 8 percentage points or more.

2.2.3. As a general rule, interest on late payment is applied from the due date, and may escalate after 30 calendar days. Nonetheless, interest is often measured in reality when legal action occurs at trial or when a payment contract is agreed (especially if it is negotiated before the court).

2.2.4. Bank transfers are among the most common means of payment for international transactions, as they are fast, safe and sponsored internationally and domestically by an increasingly integrated banking network. Transfers are usually guaranteed for export transactions through an Export Credit Insurance policy which helps to minimize the risk of sudden or unforeseen insolvency of customers.

2.2.5. Furthermore, Standby Letters of Credit (a bank guarantees the creditworthiness and repayment ability of the debtor) are often used in export shipping transactions because they provide secure assurances that can be enabled as a' payment of last resort' if the buyer fails to fulfill a contractual obligation. In fact, irrevocable and verified Documentary Letters of Credit (a debtor assurances that a certain amount of money will be made available to a borrower through a bank once certain requirements clearly decided by the parties have been met) are gradually being dependent upon.

2.2.6. Checks are often used as debt identification titles that allow fast track (executare silită) lawsuits to be launched in addition to being officially registered with the Centrala Incidentelor de Plăţi should they stay unpaid. Otherwise, promissory notes are the most commonly used bank guarantees, since they tend to be less restrictive (by law) than checks. In reality, promissory notes are the safest way of receiving payment, as they must be approved by the company's owner, who would then be held personally accountable. It's also best to offer down payments or arrange payments in advance.

2.3. Costs of debt collection

2.3.1. In turn, under Law 72/2013 modified by State Ordinance No 13/2011, borrowers are entitled to a fixed amount of EUR 40 to compensate 'initial additional damages' but are also entitled to claim reimbursement for all restitution charges (legal fees, rehabilitation agency fees, etc.) related to the debtor in trial. Practice has shown that the borrowers frequently consider this flat fee of EUR 40 tough to obtain and ultimately used as a negotiating tool.

2.4. Protecting ownership

2.4.1. Title preservation (RoT) arrangements meant to retain possession of property before full payment of the relevant invoice are permitted under Romanian law but remain largely uncommon. The clauses must be registered with a specialized agent and would be valid only for a limited period of time. Enforcement is expensive and time-consuming, but the transfer of title as security is attractive to creditors, particularly in the current economic context, as in the case of enforcement and insolvency of the grantor, a creditor often enjoys a better position as an owner rather than a holder of a security right.

2.5. Payments

2.5.1. The most common instruments of payment are often used complementarily and are described as follows:

2.5.2. Bank transfers are among the most common means of payment for international transactions, as they are fast, safe and sponsored internationally and domestically by an increasingly integrated banking network. Transfers are usually guaranteed for export transactions through an Export Credit Insurance policy which helps to minimize the risk of sudden or unforeseen insolvency of customers.

2.5.3. Additionally, Standby Letters of Credit (a bank guarantees the creditworthiness and repayment ability of the debtor) are often used in export shipping transactions because they provide secure assurances that can be enabled as a' payment of last resort' if the buyer fails to fulfill a contractual obligation. In fact, irrevocable and verified Documentary Letters of Credit (a debtor assurances that a certain amount of money will be made available to a borrower through a bank once certain terms clearly decided by the parties have been met) are gradually being dependent upon.

2.5.4. Checks are often used as debt identification titles that allow fast track (executare silită) lawsuits to be launched in addition to being officially registered with the Centrala Incidentelor de Plăţi should they stay unpaid. Generally, promissory notes are the most widely employed bank loans, as they appear to be less stringent (by law) than checks. Of reality, promissory notes are the safest way of receiving payment, as they must be approved by the company's owner, who would then be held personally accountable. It's also best to offer down payments or arrange payments in advance.

3. Collecting payments

3.1. Amicable action.

3.1.1. Amicable settlement opportunities is always a strong alternative to legal proceedings which tend to be excessively formal, slow and expensive when brought before Romanian courts. When launching legal proceedings against a debtor, asset appraisal is critical as it requires assurance of whether the business is still operating and whether chances of recovery are at best. Therefore, it is important to be mindful of the solvency condition of the debtor: once insolvency proceedings have been launched, the execution of a loan (see below) is indeed unlikely.

3.2. Legal proceedings

3.2.1. Ordinary proceedings. Any pre-lawful activity is enforced by law. Nonetheless, legal dunning will commence with a recorded Summons Letter recalling the duty of the debtor to pay the principal together with late payment interest (as decided by arrangement or as a reference) within 15 days. Payment instalments (authenticated by a notary) should be negotiated whenever possible, as these would give access to compulsory enforcement if the agreement were not respected.

3.2.2. After 2013, if the debtor fails to pay or respond to the Summons Letter and given that the debt is certain and unchallenged, the borrower may also appeal to the court for a fast-track payment order (ordonanța de plată), enforceable by mandatory proceedings (executare silită). In addition, a European Payment Order mechanism which enables the recovery of undisputed debts (under Regulation EC No 1896/2006) may be activated when the debtor entity has assets in other EU Member States. In this situation, the complaining party can order a domestic court to issue an Order to Pay which will then be enforceable in all countries of the European Union (except Denmark) without recourse to exequatur.

3.2.3. If the claimant contests the debt before the judge through the Payment Order process, the petition will be withdrawn, and the borrower has the option to take ordinary legal action. Nevertheless, a borrower able to begin domestic litigation must file a claim with the appropriate judge, which would then enforce the allegation with the debtor. The debtor is normally given 25 days to file a defense (the word may be simplified by the judge), although failure to do so would be deemed an acknowledgment of the creditor's argument (the debtor would then no longer be allowed to file proof or make legal exceptions) and the appeal of the creditor would be assessed in the absence of the debtor.

3.2.4. By comparison, if the defendant presents a claim, the court must schedule hearings so that the claims and testimony of the plaintiffs can be weighed before a verdict is made. The courts should, in principle, allow the parties to reach a compromise, but such hearings do not seem to be successfully taking place.

3.2.5. Usually Romanian courts will award relief in the form of compensatory damages or injunctions. In fact, administrative errors are penalized in fixed amounts (rather than daily rates) in civil penalties, paid in reimbursement for the damages caused by the error. The sum of the penalties is determined through the Civil Procedure Code (between RON 50 and RON 1,000) while the claimant would have to show the value of the settlement.

3.2.6. Required documents:  After receipt of the required documents, an attorney can review them, file a legal report and begin legal action after orders to proceed are issued by the creditor.

3.2.7. To establish judicial debt recovery, the following documentation must be sent:

• Copies: approved by the borrower (meaning that all papers must be in the original form in the hands of the creditor)
• Trade arrangement (signed by the parties)
• Invoices (signed and authorized by the debtor)
• Payment instructions issued by the debtor
• Expedition reports.

3.2.8. Precautionary measures. Pending a final decision, precautionary measures can help to protect the interests of the creditor. On appeal, the courts will usually require steps aimed at preventing irreparable damage (attachment, injunction to do something or stop doing something, preservation of freedoms, etc.) or protecting facts.

3.2.9. As a general rule, interim orders would be issued only if the applicant had shown the absolute need to do so. In extraordinary emergency situations, the court may make its judgment through the order procedure of the presiding judge (ordonanta presedintiala)-ex parte (i.e., in the absence of the debtor), without serving the parties and without placing a duty on the borrower to pay bail. Moreover, if the claimant chooses to delay the ruling of the relevant judge until the verdict of the proposed request, they may be obliged to pay bailment.

3.2.10. Appeal lodging. Cases related to labour, expropriation or transportation, as well as cases affecting less than RON 500,000, may only be taken to appeal once, within 30 days of the parties being handed over the ruling. The Court of Appeal would have jurisdiction to deal with matters of fact and law. Outside of these situations, the parties would normally be entitled to bring before the High Court of Cassation and Justice (Înalta Curte de Casație ibi Justiie) decisions rendered in second instance which have sole jurisdiction to consider legal incoherence (improper interpretation of the law, failure to state reasons, failure to abide by procedural rules, etc.).

3.2.11. Enforcing court decisions. A court decision may be enforced in civil cases even if it has not yet been definitive (the judgment is valid only after the appeal is concluded or no appeal has been filed). The civil procedure code describes the following compliance means: immediate execution (forced distribution of merchandise and prosecution of certain obligations), execution of debtor properties (seizure of immovable property and securities, attachment to debtor's bank accounts, garnishee requests, winding-up). The suspension of the compliance process based on a report certified and validated by a bailiff due to a lack of compensation or properties would also allow the borrower the right to apply against the debtor for the insolvency proceedings.

3.2.12. Duration of legal action. By general, petitions for reimbursement orders are settled within 90 days, although that time depends on whether the debtor files a counterclaim or not, whether the Court extends postponements or not, or whether the debtor challenges the court's decision.

3.2.13. Enforcement processes can take from three and six months but in fact require more time (in some situations, more than a year). In transnational cases in which the applicable law is Romanian, the conditions may be longer, specifically as regards enforcement: as previously described, the international decision must first be accepted as domestic before a bailiff is enforceable.

3.2.14. Costs of legal action.  By practice, the losing party will generally be required to pay the expenses of the successful party, although sums are at the discretion of the judge. The costs for the trial will vary depending on the case started.

3.2.15. For example: a) Judicial taxes: initiating insolvency proceedings or seeking action in one's own benefit, in the case of summons for prosecution (200 lei) b) Legal costs and advance payments for the law enforcement officer based on the debt to be received c) Of ordinary cases (common law), judicial tax will be charged according to the amount of debt to be obtained) Contingent fees Recourse to alternate dispute resolution approaches has recently increased because, although costly, these provide a substantial means of avoiding protracted litigation while preserving confidentiality.

3.2.16. Mediation proceedings (as codified in 2006) were significantly encouraged by the New Code of Civil Procedure, as they help parties reach a compromise through a mediator who, however, has no authority to decide on behalf of the parties and does not make binding decisions.

3.3. Alternatives to legal action

3.3.1. Arbitration in Romania is governed under Book IV of the New Code of Civil Procedure, focused on the UNCITRAL model legislation. It is a better way to settle a conflict insofar as the parties agree to rely on an independent and impartial third-party arbitrator, allowed to settle the dispute on their behalf.

3.3.2. As an out-of-court settlement method, ADR can be cost-effective, generally reduces delays, allows confidentiality to be preserved and offers a binding decision that can then be enforced before the courts if necessary, but if the amounts involved are not sufficiently significant, this dispute settlement method may become excessively expensive.

3.3.3. The resort to international arbitration may also be contemplated when including international transactions (Book IV of the Revised Code of Civil Procedure). Proceedings would be taken before the International Commercial Arbitration Tribunal.

Under Romanian law, arbitrators are entitled to award provisional measures during the proceedings in order to preserve the interests of the creditors.

3.3.4. Foreign forums. However, when depending on foreign law or judge, the parties may also agree to escape domestic tribunals. Romania is indeed a signatory to the Rome I Regulation on the law applicable to contractual obligations, which provides that the parties to a contract may, by mutual agreement, select the law applicable to their contract and select the court which will have jurisdiction over disputes.

3.3.5. Nevertheless, it must be remembered that national courts will usually hold exclusive authority over statutory domestic law laws (insolvency law, property law, competition law, corporate law, etc.). It is also necessary that the arrangement be distinguished by an external relation (for example, one party is chosen domicile in another country, or the place of execution is situated abroad), and that a provision of jurisdiction be drawn up specifically for that purpose.

3.3.6. Enforcement of international awards. International rulings are enforceable in Romania against Romanian debtors–or against international debtors holding properties in Romania–however caution may be needed because different circumstances may apply. On the one side, decisions made in an EU country will profit from the especially favorable circumstances for compliance.

3.3.7. Apart from EU enforcement judgments, which are usually enforceable exclusively in domestic courts, the two primary ways of imposing an EU judgment in Romania are the use of a European Compliance Order (EEO, as provided for in Regulation EC No 805/2004) where the argument is uncontested or the declaration of the judgment under the terms of the Brussels I Regulation (44/2001).

3.3.8. If the judgment applies as an uncontested assertion, it can be strictly implemented (i.e. without registration) through the use of an EEO given the debtor has established properties in the nation. Likewise, a European Small Claims Process (as provided for in Regulation EC 861/2007) aimed at removing intermediate steps can be counted on while implementing judgments of up to EUR 2000.

3.3.9. The process for filing an EU decision with domestic courts is relatively simple, if the argument is contested. To order for the judgment to be recognized, the judgment holder will appeal to the court involved and provide the court with, among other records, an approved copy of the judgment, a validated transcript and, if interest is asserted, a letter stating the amount and interest rate at the time of the application and forwards. Once the judgment has been published, the judgment can be applied as if it were given by domestic courts (such an exequatur process is no longer required since January 2015, according to Recast Regulation EC1215/2012,).

3.3.10. On the other hand, decisions made outside the EU in foreign countries will generally be accepted and applied, as long as the originating country is a party to a bilateral or multilateral arrangement with Romania. Exequatur prosecutions will take place in domestic courts, in the absence of equitable agreements.

3.3.11. As a general rule, international judgments can not be challenged on the merits of the case, but courts may reject admissibility where the foreign judgment is neither definitive nor enforceable in the issuing region, where it is considered inconsistent with domestic public policy or with rulings of domestic courts, where the applicant has not benefited from due process of law, where the foreign court has granted the judgment Reciprocity would also be taken into consideration and international judgments would only be accepted if Romanian decisions are equally acknowledged in the issuing country despite lack of agreement.

3.3.12. Romania is a signatory of the 1958 New York Convention on the Recognition and Compliance of International Arbitral Awards, and its national courts should therefore accept and uphold awards given by international arbitration proceedings.

4. Managing insolvent debtors

4.1. Insolvency in Romania

4.1.1. The handling of insolvent debtors In Romania, insolvency refers to the debtor's inability to fulfill his present and future obligations to his creditors.

4.1.2. Insolvency proceedings are governed by Law85/2014 which replaced the previous Law 85/2006 on judicial reorganization and insolvency proceedings. Insolvency proceedings may be initiated by one or more creditors holding debts of a value greater than RON 45,000, provided that the debts are certain, liquid, due and have passed at least 90 days from the due date. The debtor's excuse for not paying must also be a lack of liquidity (the settlement offer may be denied if the debtor may show the supply of cash or the loan is uncertain, contingent or due).

4.2. Insolvency proceedings

4.2.1. Out-of-Court proceedings. Where the parties seek to maintain secrecy, Law 85/2014 on protective agreements (concordat preventiv) requires the rehabilitation of a debtor corporation beyond insolvency proceedings, with the agreement of its shareholders, under the conditions stated above. Negotiations may be started by the creditors and may not run more than 60 days (to which may be attached another 60 days to vote on the bid for preventive arrangement). Creditors holding at least 75 per cent of the cases will agree on the solution.

4.2.2. Debt restructuring. Judicial reorganization proceedings is to rescue viable debtor companies facing temporary financial problems. The reorganization plan must first be voted by the creditors and then confirmed by a judge, whereas the debtor company's activity will be managed by a special administrator, under the supervision of a judicial administrator (appointed by the court or requested either by the debtor himself or by the creditor who initiated the insolvency proceedings). The investors will then have to notify the judicial administrator.

4.2.3. To be admitted, either the claimant, the investors (holding at least 20 percent of the total debt) or the judicial administrator would I present the proposal, given that the proposing group stated its purpose at the outset of the proceedings. If the debtor initiates the motion, there are certain requirements to be fulfilled: the debtor must not have been the victim of another insolvency action five years before the case and its members must not have been convicted for economic offenses.

4.2.4. The proposal must also (ii) be presented within 30 days of the final debt table being issued, (iii) include the debt payment timeline, (iv) be met in at most three years, with the option of increasing it for another year. Finally, the plan must (v) contain the categories of favored debts, unfavorable debts and unfavorable debt handling and (vi) be recognized by the creditors and confirmed by a judge.

4.2.5. The proposal will be voted through by the investors, grouped into five debt groups (guaranteed, wage, discretionary, unsecured and unsecured subordinate) and deemed by at least half + 1 of the current categories as approved. Failure to follow the reorganization agreement, as accepted by the shareholders and verified by the judge, contributes to bankruptcy proceedings being launched and the delinquent business being liquidated.

4.2.6. Winding up proceedings. If no reorganization proposal is presented or approved or if the arrangement could not be executed, the court must initiate the insolvency proceedings by naming a judicial liquidator (usually the previously confirmed judicial administrator).

4.2.7. The liquidator shall inform the creditor(s) of the start of the bankruptcy and of the date by which their liability declarations must be reported (this deadline must be established at most 45 days after bankruptcy initiation). The judicial liquidator must clear all the debtor's properties, and the sums collected will be allocated to the investors on the basis of the priority rating as listed in the final aggregate indebtedness chart.

4.2.8. Priority rules. Secured loans are secured obligations for which the debtor submits different guarantees or promises of immovable property or security. Additionally, certain debts that are considered preferred, including wage debts, financial debts and debts that arose through insolvency proceedings–these will be compensated before the other debts listed in the table. The unsecured debts are the ones for which no other assurances exist, and therefore they have no hope for recovery.

4.2.9. Cancelation of suspicious transactions. Judicial authorities and the creditors ' committee are usually entitled to ask the court to cancel such transactions completed within 16 months of commencement of the insolvency case. In fact, any action taken by the debtor will usually be invalid, considered dishonest or adverse to the creditors. A suspect three year duration can apply.

4.2.10. Duration of insolvency process. Reorganization processes that last up to three years from the date the reorganization agreement is approved, while investors sometimes wait a year before the bankruptcy proceedings are terminated and some liability can be recouped.

4.2.11. Necessary documents. The following documents must be submitted in order to initiate judicial debt recovery:

• Copies: certified by the creditor (meaning that all documents must be in the original form in the possession of the creditor)
• Trade contract (signed by the parties• Invoices (signed and stamped by the debtor) Delivery orders submitted by the debtor
• Originals:
• Review papers and promissory notes issued by the debtor in order to secure reimbursement
• Financial documentation sent by the debtor
• Debt collection company agent's representative in the initial signed in front of the notary public
• Proof of judicial payment.

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