In the context of a “tax rush” for budgetary resources, Romanian courts have been recently asked to rule on an increasing number of requests for the establishment of the former directors’ or shareholders’ joint and several liability.
Costaș, Negru și Asociații is firmly of the opinion – opposed to that of tax authorities – that personal patrimonial liability cannot be established in insolvency proceedings if there is no evidence proving the fulfilment of a case provided for by Law no. 85/2014 on insolvency prevention and insolvency proceedings.
Recently, the firm has successfully represented its clients in an issue of utmost interest in the practice of the tax authorities: that of seeking to establish the liability of the director/shareholder in insolvency proceedings.
In particular, we refer to the cases found in Art. 169 para. (1) of Law no. 85/2014 according to which:
(1) At the request of the insolvency administrator or of the judicial liquidator, the syndic judge may order that part or all of the liabilities of the debtor, a legal entity, which has reached a state of insolvency, without exceeding the damage causally connected with the act in question, be borne by the members of the management and/or supervisory bodies within the company, as well as by any other persons who have contributed to the debtor’s state of insolvency through one of the following acts:
a) they have used the assets or credits of the legal person for their own benefit or for the benefit of another person;
b) they have carried out production, commercial or service activities for their own benefit, under the cover of the legal person;
c) they have ordered, for their own benefit, the continuation of an activity which manifestly caused the legal person to cease payments;
d) kept fictitious accounts, caused accounting documents to disappear or failed to keep accounts in accordance with the law. In the event of failure to hand over accounting documents to the receiver or liquidator, both the fault and the causal link between the act and the damage shall be presumed. The presumption is relative;
e) misappropriated or concealed part of the assets of the legal person or fictitiously increased its liabilities;
f) have used fraudulent means to procure funds for the legal person in order to delay the cessation of payments;
g) in the month preceding the cessation of payments, they have paid or arranged to pay in preference to one creditor to the detriment of other creditors;
h) any other act committed with intent which contributed to the debtor’s insolvency ascertained in accordance with the provisions of this title.
Most of the time, the tax authorities do not have real grounds for classification in these cases expressly provided for by the Insolvency Act, so they classify their claim for personal liability under the provisions of letter h) of the aforementioned article.
We point out that legal doctrine, with particular reference to the provisions of Articles 998-999 of the previous Civil Code, which are also applicable in the context of the Civil Code in force, has held that the following conditions must be met in order to incur civil liability:
a) the existence of damage, in view of the fact that there can be no civil liability if no act constituting damage within the meaning of civil law has occurred;
b) the existence of a tort/delict, on the basis that only a tort/delict can give rise to civil liability;
c) the existence of a causal link between the wrongful act and the damage, it being argued that for a person to be liable it is not sufficient for there to be, simply and unconnected, a wrongful act and damage suffered by another person, but that there must be a causal link between the act and the damage, in the sense that the act caused the damage;
d) the existence of fault, it being stressed that it is not sufficient for there to have been an unlawful act causally connected with the damage caused, but it is necessary for that act to be attributable to the perpetrator.
In practice, however, there are frequent cases in which personal liability is sought on the ground that the company’s directors have not requested the opening of insolvency proceedings.
As we have rightly pointed out and supported by practical experience, the relevant doctrine holds that personal liability cannot be incurred for a mere failure to make an application for the opening of insolvency proceedings, even in the case of imminent insolvency, since the administrator has taken reasonable steps to avoid it.
Management errors cannot give rise to personal liability since the legal text limits the scope of wrongful acts by a subjective requirement relating to the form of fault: intent.
According to corporate standards, sanctioning directors in these circumstances needs to be approached with caution and remain an exceptional measure, as the legal environment must on the one hand allow directors to perform their duties at their own risk, without the constant fear that they will be personally liable to the company for any damages, and on the other hand protect them against the inherent risk of a business, such as the situation where even diligent choices may be wrong.
Accordingly, the test to be followed is as follows: whether the business decision taken by the director caused damage, its quality and consequences, analysed ex ante, by reference to the knowledge and information reasonably available to the director at the time the decision was taken, and not ex post, taking into account that available at the time of the judicial review.
Clearly, as long as no evidence is adduced to prove intent, the company’s liabilities do not and cannot amount to damage caused by the former administrator.
In this regard, we point to the findings of the Constitutional Court – Decision no. 17/2022, which states that: “In order for failure to comply with the provisions relating to accounting to give rise to liability for insolvency, the Court holds that it is necessary to prove the existence of damage, fault and the causal link between the act and the insolvency of the debtor. Since the action requires the establishment of a causal link between the administrator’s conduct and the insufficiency of the assets, it is not sufficient that there was a failure to keep regular accounts and failure to comply with the legal provisions without establishing how that conduct led to the insufficiency of the assets. Regardless of whether the presumption is established that the accounts were not kept in accordance with the law, it is necessary to prove that the failure to fulfil the obligations laid down by the law on accounting contributed to the state of insolvency in order to incur liability. Failure to submit the documents required by law is not the same as failure to prepare accounts or preparing them in breach of the law. In any event, it is first necessary to prove that the facts relating to the keeping of the accounts were committed and then to prove that they were unlawful, the application of the relative presumption of fault and causation being subsequent. However, the Court emphasises that these matters do not fall within the jurisdiction of the constitutional court, but remain at the discretion of the competent court, since the liquidator or, as the case may be, the judicial liquidator, whenever he identifies the persons responsible for the debtor’s state of insolvency, will bring an action to enforce financial liability” (paragraph 28).
As we have pointed out in numerous cases, liability for the debtor’s entry into insolvency is a subjective liability for his own act, and fault cannot be presumed.
In this matter, it is essential to be aware that the liability of the persons who contributed to the insolvency is conditional on the existence of a causal link between the wrongful act and the insolvency.
Of course, the courts have rightly sanctioned this abusive conduct, which is contrary to the rigours of Law No 85/2014, and have correctly established that the personal liability of former directors and partners must be rejected when the legal conditions are not met.
The Costaș, Negru și Asociații team has successfully represented clients in these categories of litigation, which ended with favourable solutions. We gladly share the orientation of the courts which have a clearer vision on the respect of procedural rights provided by national and European law for the benefit of the persons concerned.
This article was prepared, for the blog of the civil society of lawyers Costaș, Negru & Asociații, by Ms. Larisa Mărginean (Cluj Bar Association).
Costaș, Negru & Asociații is a civil society of lawyers with offices in Cluj-Napoca, Bucharest and Arad, which offers assistance, legal representation and consultancy in several practice areas through a team composed of 19 lawyers and consultants. Details regarding legal services and team composition can be found on the website https://www.costas-negru.ro. All rights for the materials published on the company’s website and through social networks belong to Costaș, Negru & Asociații, their reproduction being permitted only for informational purposes and with correct and complete citation of the source.
