Romania has not been immune from the beginning of the World Financial Crisis from the fall-out of the world financial problems. Many companies have failed and have entered into a form of reconstruction or have gone straight to closure and liquidation.
There are though a number of companies in the twilight world of suspension. Under Law 31/1990 Companies Law as amended there are provisions whereby a company can suspend its operations for a limited period of time for a period of up to three years. At the end of that three year period they have to make a decision – reopen or liquidate and dissolve.
Many companies (SMEs) took a decision to suspend their operations to see what the economic future would bring. By this step they were able to release their staff while at the same time remain in existence to see what would happen in Romania. Such companies still have to file financial returns and pay for a registered address but they did not have the on-going day to day costs of a running business.
It is true to say that the current economic climate in Romania is improving although in some areas there is still very slow progress. Whilst the Romanian Government will hail any advance as proof that its policies are working, this is often not being converted into actual business activity. With an election looming, one wonders if the economic improvement is illusionary and is only to influence voters to vote for the current Government.
Despite all of this many companies are now coming to an end of the three years permitted for suspension. We like all international law firms in Romania have received questions from head office legal department as to what now should be done. It is true to say that in many cases the head office has already taken the decision that in the absence of a major turnaround in the economy they wish to permanently close the business and with draw from Romania.
Any accumulated tax losses in the companies will be lost, but the management time in keeping open a business which may never recover outweighs this advantage. Romanian lawyers are therefore now involved in closing and liquidating companies when only a few years ago we were working hard to incorporate Romanian SRL companies.
Whilst there is an obvious downside to all of this activity of closure it does mean that the number of registered companies in Romania is decreasing. At least one hopes that those which are still registered are active and are producing for the Romanian economy. One would also expect that as the number of companies decreases then the number of employees in the Romanian Trade Registry will decrease as well, although this does not seem like a real possibility.
The final closing and liquidation of the company taking it out of the twilight zone is not difficult. The company needs to agree with the financial Authorities that there are no outstanding debts due to the State, and if they are they have to be paid. The debts of the company have to be paid or compromised. The final balance sheet and accounts need to be approved. Once this has been done then the shareholders of the company will need to pass the necessary resolutions to liquidate and dissolve the company.
An application is then made to the Romanian Trade Registry to dissolve and liquidate the company. If the resolutions are in order and the correct steps have been taken, then in a period of about fifty days the Company will be dissolved and liquidated. Any assets of the company will be distributed to the shareholders in specie unless they have been converted into cash.
All the above are the steps which should be taken, and are taken, by responsible investors who wish to properly close their operation and investment in Romania.
Some shareholders however just wait and allow the Trade Registry to close and liquidate the company at the State’s expense. This is not the correct way although it does not cost the shareholders directly any money. However, if there are debts to the Romanian State and Trade Creditors it can cause problems for the Administrators and shareholders in the future.
Our advice has always been to properly close any company as one does not know what will happen in the future.
:: The source: Romania Law Blog
Guest writer. Senior Partner of BWSP Hammond Bogaru & Associate