Latest News  

How to protect your Romanian company against managerial abuse

About 4 in 100 companies registered in Romania filed for insolvency in 2015. Concurrently, the insolvency rate in Romania is the highest in Eastern Europe, with an increasing number of companies of 1 mil. EUR and above (in revenue) undergoing such procedures, says Horatiu Brisc, Associate, ONV LAW.

2016-01-18 15:52:10 - by Horatiu Brisc

While management errors and abuse are one of the main causes of insolvency, company owners have limited means to mitigate such risks as long as art 55 of Companies' Law (CL no. 31/1990) protects the third parties involved, when administrators breach their mandate, at the expense of company owners. In these circumstances, how can owners protect themselves from the negligence and abuse of administrators?

Art 70 of CL states that administrators are entitled to perform all necessary operations for meeting the company's statement of objects (i.e. the NACE codes). However, this mandate is limited to what is set forth within the articles of incorporation (AOI). Therefore, administrators are bound both by a contractual mandate (see art. 70) as well as by the legal provisions regulating companies' interests for public order purposes, according to art. 72 of CL.

Art 55 of CL takes a different stance on the actual extent to which a company is engaged by its administrator if he/she exceeds his/her mandate. Based on art 55 the company is liable for the administrators' actions in relation to third parties acting in good faith. This stands even if the administrator's powers have been restricted within the AOI and even if these restrictions have been made public with the Romanian Trade Register. What is the reasoning behind this? The authorities explain that it would be excessive and inappropriate for the third party involved to verify the administrator's mandate every time they do business together.

Legally speaking, art 55 transposes the provisions of art 10 of Directive 2009/101/EC. The rationale behind the European provisions is to primarily protect third parties. Thus, the regulation aims at limiting as much as possible the circumstances where the actions performed on behalf of the company are not valid. This is why mandate restrictions for administrators set by company owners to mitigate their own risks are overruled by art 55.

Various rulings on this matter show that the rationale behind art 55 prevailed in court. For instance, in the case of a limited liability company (SRL) where the two administrators were managing based on dual signature, the court ruled that the company was still liable for the administrator's actions in relation to third parties, even if in this particular case only one administrator signed off the papers. That was because the liability for breaching mandate restrictions set by company owners is of secondary importance: what comes first is protecting the interests of the third party involved, provided that the latter acted in good faith. Another ruling had a similar outcome.

When the owners of a company capped the value of the contracts that the administrator could sign (through an addendum to the AOI), the court ruled that the publishing of the addendum does not imply that the third party is automatically informed of it . Therefore, even if the restrictions upon the administrator's mandate have been made public, they do not safeguard owners' interests.
What can the company owners do then?

One of the few ways in which company owners can protect themselves against the negligence and abuse of administrators is to have the administrator introduce a clause in any contract that he/she signs off, stating the limitations of his/her mandate. This should prove that the third party was properly informed of the extent of the administrator's mandate. However it is unlikely that such clauses will be introduced in all agreements concluded by an administrator acting in bad faith.

Another solution would be for the company to purchase a Directors & Officers (D&O) insurance policy. Such policies cover the liability of company managers who wish to be protected from claims which may arise from the decisions and actions taken within the scope of their regular duties. Should a company go bankrupt, D&O may often be one of its few assets, providing the shareholders have a way to recover a part of the loss. However, a D&O policies do not cover fraudulent, criminal or intentional non-compliant acts.


1 COMMENTS ^ Go back to Top

Nikolas Rufus: on 2016-01-26 21:10:22
Great Article. Where can I contact you ?
WRITE A COMMENT ^ Go back to Top
 
Your email address will not be published.
Nickname
Email
Comment
Validation Code
   
 
 
NEWS
Cushman & Wakefield Echinox: StreamWIDE joins the new IT hub created in the Timpuri Noi Square project

StreamWIDE, a company specialized in the software and telecommunications industry, realocates its office in Bucharest in the Timpuri Noi Square project, joining the new IT hub created in the business park devel

 Read Full article »
CBRE: Office deliveries expected to bring new stock of 635.00 sqm, Bucharest to reach 3.9 mln sqm modern office spaces

During 2020–2021 to approx. 635,000 sqm of modern office space are expected to be delivered on market, increasing the Bucharest modern stock at approx. 3.9 million sq m, a step closer to a new a threshold and

 Read Full article »
Uber opens at Bucharest the largest support center to drivers and business partners in CEE

Uber company launched this week in Bucharest the largest center in Central and Eastern Europe that offers assistance to drivers and business partners in Romania, a center where they can contact directly Uber re

 Read Full article »
Samsung and Orange Romania activated the 5G VR Live streaming at Untold Music Festival in Romania

Samsung Electronics and Orange Romania have successfully deployed a 5G New Radio (NR) network to demonstrate a series of 5G use cases at Untold Festival 2019, the largest annual dance music festival in Romania,

 Read Full article »
MVP Lab in Sibiu named as one of Europe's best in the "Ones to Watch" list at European Business Awards

Ropardo MVP Lab has been named as ‘One to Watch' in Europe in a list of business excellence published by the European Business Awards, one of world's largest and longest running business competitions.

 Read Full article »
Endava marks one year since IPO

Endava, one of the most important software companies, present on the local market with 7 delivery centers, reaches an almost double capitalization, 2.07 billion USD, on July 26, 2019, one year after listing. Th

 Read Full article »
Infosys opens cyber defence centre in Bucharest

Infosys, a global leader in next-generation digital services and consulting, announced the launch of its Cyber Defence Centre in Bucharest, Romania. The Defence Centre is an expansion of services delivered thro

 Read Full article »
QuEST Global completes integration of IT Six Global Services

QuEST Global, a global product engineering and lifecycle services company, has successfully completed the integration of IT Six Global Services SRL. QuEST Global acquired IT Six, a software engineering services

 Read Full article »
RE MAX Romania opens three more offices

RE/MAX Romania has expanded its network, adding three new offices – RE/MAX Partners in Cluj, RE/MAX Quality in Sibiu and RE/MAX Prestige in Targu Mures.

 Read Full article »
Microsoft and OpenAI form exclusive computing partnership to build new Azure AI supercomputing technologies

Microsoft Corp. and OpenAI have partnered to further extend Microsoft Azure's capabilities in large-scale AI systems, according to a release of Microsoft.

 Read Full article »
 
 
 
MOST READ ARTICLES
» US: IT outsourcing for healthcare sect...
» Meet the winners of ROMANIAN BUSINESS ...
» CBRE: Office deliveries expected to br...
» Workplace of the Future conference to ...
» Bombardier: from Bucharest subway to t...
» Genpact's COO: Staying ahead of the cu...
» From a Romanian business venture to a ...
» Omnichannel: 4 pillars of a purposeful...
» Elena Calin, CEO UP! Your Service Roma...
» Bosch Service Solutions to grow 20% Ti...
 
EDITOR CHOICE
Workplace of the Future conference to take place on November 20th at Bucharest

The Diplomat-Bucharest together with Outsourcing Today organize the 3rd Edition of WORKPLACE OF THE FUTURE, on 20th of November 2019, in Bucharest, at Capital Plaza Hotel.

 Read Full article »
Strategic Talent Acquisition at People Empowering Business Forum on October 30 in Bucharest

Latest trends like demographic upheaval, globalization, digital technology, and changing social values and worker expectations, are disrupting business models and radically changing the workplace. These are req

 Read Full article »
Informal IT School and UiPath launch an educational program for RPA development to start in October

Informal IT School announced a partnership with UiPath to launch an RPA development educational program of five months, 100 hours of courses, five days a week. The program will run in Cluj-Napoca.

 Read Full article »
Impact Hub Bucharest joins 3house to manage three coworking spaces in the city

Impact Hub Bucharest, a coworking spaces manager and developer of accelerator programs and events merged with 3house, a new concept of workplace launched in 2018. By this, Impact Hub reaches 3 locations and 6.7

 Read Full article »
JLL: Total office space in Bucharest to reach 3 million sqm

The second quarter of 2019 reconfirmed the increased interest for the office market in Romania. Over 115,000 square meters of office space were leased over this period at the national level, a value similar wit

 Read Full article »
Latest News  
 
about us | newsletter | contact | members area | GDPR policy
Copyright © 2015 by Diplomat Media Events Design by Diplomat Media Events