Methods of debt recovery – 8. Holding management responsible for insolvency
When attempting to recover a debt from a company, it enters insolvency. Is this the end, or are there still chances? Can money still be recovered through other means?
Even though the conditions are restrictive, and only if it can be proven that there is fault in generating the state of insolvency, individuals who have caused (either through fault or intention), contributed to, facilitated the insolvency can be held accountable.
The court may order that a portion or the entire liability of the debtor, a legal entity, that has entered insolvency, be borne by the members of the management and/or supervisory bodies within the company, as well as any other individuals who have contributed to the debtor’s insolvency state, through one of the following acts:
a) Used the assets or credits of the legal entity for their own benefit or that of another person;
b) Engaged in production, trade, or service provision for personal interest, under the guise of the legal entity;
c) Continued an activity that clearly led the legal entity to default, for personal interest;
d) Kept fictitious accounting records, made certain accounting documents disappear, or did not keep accounts in accordance with the law. In case of failure to deliver accounting documents to the judicial administrator or liquidator, both the fault and the causal link between the act and the damage are presumed. The presumption is relative;
e) Diverted or concealed a portion of the legal entity’s assets or artificially increased its liabilities;
f) Used ruinous means to procure funds for the legal entity, with the aim of delaying the default;
g) In the month preceding the default, paid or ordered payment to be made preferentially to one creditor, to the detriment of others;
h) Any other intentional act that contributed to the debtor’s insolvency state, as determined under the provisions of this title.
Depending on the information the creditor has about the debtor, the request may be based on one of the 8 reasons provided by law. Even if some of them seem minor (not keeping accounts in accordance with the law; any other act contributing to the debtor’s insolvency state), the court will conduct a thorough examination of the reasons presented and will only admit the request for well-founded reasons.
The action is subject to a limitation period of 3 years. The limitation period begins from the date when the person who contributed to the occurrence of the insolvency state became aware or should have become aware, but no later than 2 years from the date of the court decision opening the insolvency proceedings.
With the filed request, the judicial administrator or liquidator, or as the case may be, the creditors’ committee may request the syndic judge to institute precautionary measures over the assets of the persons suspected in accordance with the above.
For further information or any additional inquiries, please do not hesitate to contact us:
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We are here to assist and provide legal support for all your needs. We look forward to discussing with you.
Vladimir Catargiu – Attorney at Law
