Why a Mandate Contract

Since 1989 Romania has passed from the command economy of socialism to commerce based on the free market and capitalism. Romanian commercial development really started with the passing of the Company Law (Law 30/1990) which enabled the formation of limited liability companies as well as joint stock companies. This was a first step in the formation of an economy based on the individual and their endeavours.

Since 1990 whilst there have been a number of amendments to the law there has not been any move to draft a new Companies law. This is a credit to the original draftsmen as the law has stood the test of time and Romania’s experience with the new economic reality.

A number of amendments have been made to the original law to ensure that it has kept pace with changes in the economy both at the macro and micro level. As time has passed a number of practical errors and changes have been required as the basis of the economy has changed and more capitalistic values have emerged. One thinks of the protection of minority interests, liquidation and bankruptcy rights, an area of legal practise which now has it’s own laws and body of practitioners.

Another area has been the role and powers of administrators in a company. I have written in the past about the confusion surrounding the role of administrators from the legal perspective for a foreign investor.

Law 30/1990 has also been amended to bring it into line with the fiscal realities and the Financial Code has often been ahead in this regard. The Romanian financial authorities have always seen the role of an administrator as a quasi-employment position, although the law has fought against this.

This concept of legal ownership rather than a fiduciary position has led to conflict not only at the legal level but also at the practical level. Administrators under Romanian law are not seen as being in a fiduciary position but in a quasi-employee position. This was acceptable in the beginning but as business has changed and it has become more sophisticated then the role between the shareholders of the company, the company, and the administrators needs to become more defined.

An area where the legislators and the business community have has sought to bring some semblance of clarity is in relation to administrators and their mandate with the company. Under Romanian law the position of the administrator is subservient to the general meeting of the shareholders of the company. As we have explained in previous blogs the role of the administrator is to implement the decision of the shareholders. They do not have the decision making powers of a western director.

When originally drafted Law 30/1990 did not allow administrators to be employees of the company. Thus although they were appointed to implement the decision of the shareholders their position was ambiguous. This meant that as they were not employees they fell into a black hole so far as the tax authorities were concerned. As they could not be employees of the company they did not have to pay tax and the company did not have to pay Romanian social security for them on any monies they received.

In the early days there was also a debate as to whether or not they could receive money from the company. They were therefore in an area of possibly being a social strain on the economy. They did however draw money from the companies for which they worked often by way of inflated expenses again not taxable.

To reconcile this position Law 30/1990 was amended over a period of time to allow the administrators to have a mandate contract. Although the administrator was appointed by the general meeting of the shareholders and their rights and liabilities are set out in the statute of the company the law required that they also entered into a mandate contract with the company.

These mandate contracts are now an important contract for the company. The mandate contract allows the company to arrange its relationship with the administrator outside the terms of the statutes of the company. Whilst so far as third parties re concerned they only need to look at the statutes for the powers and authorities of the administrator but the company can limit the powers of the administrator outside the statutes by the mandate agreement. Such limitations can for example be signing authority at the bank; signing contracts; employee relations etc.

If the administrator breaches the contract then he will be liable under the law for breach of contract rather than his position as an administrator. This means that the company will have a greater chance of recovery of any damages should he exceed his powers and liabilities under the mandate contract.

Shareholders therefore need to examine their contracts with the administrators and see if there are areas where they can improve their control over the management of their company. All of this will help the expansion of business in Romania.

About Nicholas S Hammond

Nicholas is an English solicitor who has been practising in Romania since 1990. He has been a partner in a number of law firms in Romania as the principal partner. Hammond and Associates trading as Hammond Partnership is the culmination of many years experiance.

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