How to protect your Romanian company against managerial abuse - OUTSOURCING-TODAY.RO
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
Ness Digital Development center in Iasi expands activity, creates new jobs

Ness Digital Engineering, one of the leading global providers of IT services, is consolidating the activities of its center based in Palas Iași, adding two major companies in the field of telecom, media & ente

 Read Full article »
BearingPoint expands its Security Advisory Center of Excellence in Romania

Technology consultancy company BearingPoint announced that it is expanding its Security Advisory Center of Excellence (CoE) in Romania.

 Read Full article »
Connections signs partnership with UiPath, aims 5 mln Euro from robots in 2019

Digital transformation company Connections, operating in Romania, Bulgaria and Serbia, has signed a partnership with UiPath, the Enterprise Robotic Process Automation (RPA) platform with the fastest acquisitio

 Read Full article »
Endava marks IPO and first day of trading on New York Stock Exchange

Endava opened for trading on the New York Stock Exchange (NYSE) under the ticker symbol "DAVA" following its initial public offering.

 Read Full article »
Colliers: Co-working changes Romanian office leasing data

The end of the first semester has brought into light great achievements from regional cities in all real estate segments. Bucharest has also performed well and, according to the real estate consultancy company

 Read Full article »
Atos, closer to acquire Syntel

Atos and Syntel have entered into a definitive merger agreement under which Atos will acquire Syntel for cash consideration of c. 3.4 billion US dollars, 41.0 Us dollars per share, representing apx. 14 per cent

 Read Full article »
Turkey's TotalSoft completes acquisition of Romania's Architected Business Solutions

Turkish-owned software company TotalSoft said on Monday it has completed the acquisition and merger of Romanian business management consultancy group Architected Business Solutions (ABS). The deal was announced

 Read Full article »
SAP and Lufthansa launch world's first "Aviation Blockchain Challenge"

The Lufthansa Innovation Hub and the SAP.iO Foundries program in Berlin launched the "Aviation Blockchain Challenge" to draw attention to the potential of blockchain technology in the aviation industry, uncover

 Read Full article »
Endava specialists put 3-month work in Via Transilvanica platform

The Via Transilvanica online platform, a concept initiated by the Tăşuleasa Social Association, was developed pro-bono by an Endava team in three months. A smartphone application, interactivity and tagging fu

 Read Full article »
ABSL Romania: school as abroad – the enrollments begin at the ABSL Master Program

Association of Business Service Leaders in Romania (ABSL) gives the start of enrollments to the Business Services (MBS) Master Program, one of the few in Romania that is designed on the model of successful inte

 Read Full article »
 
 
MOST READ ARTICLES
» ROMANIAN OUTSOURCING AWARDS FOR EXCELL...
» The Outsourcing industry announces its...
» Committed to growth
» Genpact's COO: Staying ahead of the cu...
» PwC: The competitive advantages of Rom...
» Luxoft expands Asia Pacific presence w...
» Olga Botusan, Stefanini: There is a hu...
» Zitec's digital marketing division reg...
» EXCLUSIVE: ABSL Timisoara - BPO and SS...
» How does leadership look today?
 
EDITOR CHOICE
Synergy of skills

There are over 250.000 employees only in the class A and B office buildings in Bucharest and around one million employees spread around the city. How does the office market cope with the need of companies to ac

 Read Full article »
Risk management in industry 4.0. The risks are new, how is the management?

The ink is not yet dry in terms of GDPR's EU compliance regulations and the last few months have been a very useful exercise for everybody, either vendor, producer or consumer to understand that rigid concepts

 Read Full article »
In the search of the best next available resource, human or not

With the work demand expressed for the "traditional" job openings in ITO, HRO, BPO or SSC, the question formulated by the industry stakeholders points to some concerns regarding the future availability of the s

 Read Full article »
Competing in outsourcing: racing of endurance and skills

As Romania's outsourcing sector is currently estimated to employ more than 100,000 people, a constant evolution in the past years (with 15.000 employees registered in 2007), the local market is a popular nearsh

 Read Full article »
How to become people savvy?

The discussions in the panel of this summer's OT Learning and Development's roundtable underlined the necessity of providing the learning and the knowledge transfer when the necessity occurs, customized and app

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