Recovering Your Romanian Investment

Companies have been formed in the past for many reasons in Romania. Over the past few years the Romanian Trade Registry has endeavoured to clean up the number of Romanian dormant or non-trading companies which had been set up in the first flush of a free trade economy as shown on the register. In many cases the owners have let these companies die as they had no interest in them or their assets.

We, as a law firm based in Romania are often asked our views from a Romanian practical legal perspective as to what clients should do with their Romanian companies. Just letting the company be struck off by doing nothing whilst this is a viable alternative, there is a way to close a company in Romania in accordance with the Romanian law. The legal advice will be given and will depend on why the company was formed in the first place – what trading it has done, and what assets are now left in the company. If the company was incorporated as a Romanian SPV to purchase land or property in Romania then letting the company be liquidated by the Trade Registry is not a real viable step as the asset will pass to the state and the shareholders will lose the asset. As mentioned previously we are often asked what to do in these circumstances.

The provisions concerning the closure of a company as set out in articles 227 to 270 of the Law 31/1990 (Companies Law) which deals with liquidation and dissolution. The Romanian Companies Law has been amended a number of times since 1990 but the basic provisions still apply. In addition Law 85/2014 (Bankruptcy Law) also applies to the closure of a Romanian company on a voluntary basis.

The first step in the process is for the company to pass a resolution at an extraordinary general meeting of the shareholders of the company whereby it is decided to liquidate the company – and subsequently apply for it to be dissolved and deleted from the Romanian Trade Registry. (Art. 231, and Art 232 Romanian Companies Law).

Once this resolution has been passed then in order for a company to apply for voluntary liquidation it is necessary for the company to prepare up to date accounts to show that it is not insolvent (art.260 Company Law). The question of insolvency has to be analysed especially where the company is indebted to its shareholders. Before a company can be liquidated it has to pay all its creditors. Should the company decide to write-off any loan from a shareholder this will be deemed to be an income of the company and taxed accordingly? A shareholder can though receive an in kind settlement to clear its debt.

Once a list of all the creditors has been prepared by the company and steps taken to pay off these creditors then it is necessary for the company to agree its tax liability (including VAT) with the tax authorities. There may be a liquidity issue which has to be addressed at this stage as whilst the company may be solvent technically it may not be in a position to actually pay its creditors as there is no money in the bank. If the shareholders decide to make funds available to the company to pay these debts care must be taken to ensure that no further income is credited to the company thereby triggering a further tax liability. The Finance Ministry will not agree the taxation liability until they are satisfied and evidence has been produced that all the debts of the company have been paid. There is no reason why an arrangement cannot be made with a creditor to accept a lesser amount but subject the question of income and profit as referred to above.

When all the financial formalities have been completed the Ministry of Finance will issue a certificate confirming all financial obligations have been fulfilled.

With this certificate the Company can then pass a resolution confirming that the company is to be liquidated and that on completion of the liquidation process that the company should be deleted from the register.
As part of the liquidation process the company will have to distribute the assets of the company to the shareholders. This can be done in cash or in kind. Art 235 (Company Law).

If there is a transfer of real estate and property the transfer will have to be done by a notary and the fees in connection with this will have to be considered in the overall budget of the transaction.

Once the assets have been transferred then the liquidation will be finalised by filing in the Trade Registry a declaration to this effect and then after two months the company will be deleted from the register.

As a law firm based in Romania we often advise clients that this is the way to close their company and whilst it takes time and expense it is the best way to proceed if the Romanian asset is to be preserved.

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 experience.

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