Expediting debt recovery in commercial transactions

Introduction

In Romania’s rapid and increasingly active business market, the fast and efficient recovery of debt has become extremely significant for creditors. Delays in payment can markedly obstruct their business and the opportunities to develop it further. In the fast-moving world of business, Romania’s market must have all the elements required to be a worthwhile place to invest for foreigners, and that requires an efficient procedure for debt recovery.

Government Emergency Ordinance no.119/2007 concerning measures to combat late payments in commercial transactions (hereinafter referred to as the “GEO no.119”), published in the Official Gazette no.738/31.10.2007, was presented by the Romanian authorities as a significant step-forward in solving the problem of recovering debts by creditors. By adopting GEO no.119, the Romanian government fulfilled its obligations as a European Union (“EU”) member, by transposing into judicial procedures the provisions of the Directive no.2000/35/CE issued by the European Parliament and the Council in the same area.

Transposing the legislation at the EU level into Romania’s national order and fulfilling its obligations as an EU member state are positive aspects attesting Romania’s commitment to EU objectives. Of course, what business needs is the mechanism to overcome the practical obstacles it faces daily, among them being able to swiftly recover commercial debt.

Debt recovery in Romania

Debt recovery in Romania is basically achieved utilizing the procedures set forth in the Romanian Civil Procedural Code. However, as a result of the substantial increase in business transactions in Romania, such routine procedures have become burdensome for creditors, who actually waste a lot of time and money in a long and often non-rewarding process.

According to the usual procedures, creditors have to pay a stamp tax representing a certain percentage of the debt amount; therefore, the higher the amount of the claimed payment obligation, the higher the tax to be paid to the court. This procedure has also proven to be extremely long and, in the end, creditors’ face losses, even after having succeeded at trial.

For instance, creditors are bound to use a preliminary conciliation procedure in accordance with article 7201 of the Romanian Civil Procedural Code. Thus, in commercial matters regarding pecuniary requests, the claimant must apply the direct conciliation procedure before submitting a petition to the competent court. Under these conciliation procedures, creditors must serve conciliation invitations on debtors, stating therein their claims, the applicable legal provisions and the proof attesting to such claim. The date for such conciliation must be settled at least 15 days after the debtor receives all of the aforementioned documents. Also, in case the debtor is not present at the conciliation, the creditor must attest to this before the court to the effect that 30 days have passed since the date of receiving the conciliation invitation and the debtor has failed to appear.

These procedures have become burdensome to the courts as well as to creditors. Consequently, the Romanian authorities developed a more speedy procedure for debt recovery through the adoption of Ordinance no.5/2001 regarding the summons procedure (“GO no.5”), referring to actual, liquid and matured claims. Since its adoption, creditors have increasingly used GO no.5, undoubtedly preferring this procedure to the cumbersome procedures of the Romanian Civil Procedural Code.

When GEO no.119 came into force in October 2007, none of its provisions cancelled GO no.5, and, consequently, as of today the two ordinances co-exist, granting two different options to creditors to pursue their claims for debt recovery. Although many of the provisions of the two ordinances are similar or even identical, there also are certain sections which turn GEO no.119 into a more advantageous piece of legislation for creditors. However, GEO no.119 only applies to claims resulting from commercial contracts, while GO no.5 is more comprehensive, covering other types of claims as well.

As expressly stated therein, the object of GEO no.119 is represented by actual, liquid and matured claims, which are monetary payment obligations resulting from commercial contracts, which are defined as those contracts concluded between traders or between the latter and a contracting authority. GEO no.119 expressly states that it does not apply to debts registered in the creedal table in the insolvency procedure and to contracts concluded between traders and consumers. In short, other claims beside the ones resulting from commercial contracts are governed by GO no.5, according to its specific provisions.

While GO no.5 restricts the proof of the debt attesting to the payment obligation only to written deeds undertaken by the parties’ signature or in other similar legal manner, GEO no.119 grants the possibility to pursue the existence of the claim in any legal way, which is a great advantage for creditors. In practice, courts commonly accept, according to the provisions of GO no.5, only invoices signed by debtors as basic proof attesting to the payment obligation. Of course, that limits creditors’ options to prove that they had an actual, liquid and matured claim against the debtor, and could easily render the summons procedure inefficient.

Also, accurately characterized as a special and emergency procedure, GEO no.119 states that shorter terms for delivery of services are instituted, and also that the debtor’s statement of defense must be submitted no later than the day of the trial, under the sanction of losing the right to submit evidence and to invoke exceptions. As GEO no.119 expressly states, not filling the statement of defense may be regarded as the debtor’s recognition of the creditor’s claim. As provided within GEO no.119, the entire procedure may not exceed 90 days, except in the case that the delay is the creditor’s fault. Stating such a term for finishing the entire procedure is extremely positive for creditors, who may take real advantage of this emergency procedure.

Furthermore, the opportunity granted to creditors by GEO no.119 to submit further evidence in court, comparative to the procedure governed by GO no.5, and also the judges’ ability to actually analyze the contestation of the claim, in case the debtor has introduced such a contestation, strengthens creditors’ chances to recover their debts, in case they are actual, liquid and matured.

In case the judge has deemed only a part of the claim as being actual, liquid and matured, he may issue only a partial payment ordinance, the creditor having then the possibility to sue the debtor for the rest of the claim based on the existing procedures in the Civil Procedural Code.

Although GEO no.119 envisages certain positive aspects as emphasized above, and as compared to both the customary and summons procedures, it does not represent a huge step-forward in debt recovery, as it unfortunately entails specific legal faults generating procedural problems in practice. As GEO no.119 expressly states, the payment ordinance issued by the competent court may be appealed by the debtor by submitting an annulment request to the same court which has rendered the payment ordinance in the first place. However, GEO no.119 never defines the term in which such annulment request must be filed, which leads to confusion and inefficiency. Furthermore, GEO no.119 states that the payment ordinance becomes irrevocable if the annulment request has not been introduced or if it has been rejected. The non-statement of a term is a fault that has already generated confusion in courts and will undoubtedly hinder a procedure whose purpose has been to facilitate and improve the existing debt recovery procedures.

Regulations at the European Union level

Debt recovery proceedings have been a key issue for European Union (“EU”) decision-makers, because efficient procedures in this area represent a significant factor for developing the EU internal market. Also, the free movement of judgments has been deemed as the fifth freedom of the EU market, along the free movement of goods, persons, services and capital. As enforceability of money judgments represented a big step within the EU, secondary legislation has been adopted in this area.

Regulation no.805/2004 (“Regulation 805”) creating an European enforcement order for uncontested claims was perceived as a great success of the past, as it settled minimum standards regarding the enforcement procedure of uncontested claims, with no need to use an intermediary procedure. Consequently, creditors who have obtained a European enforcement order, which is a judgment attesting to the enforceability of a payment obligation in any EU member state, are entitled to enforce such a judgment in Romania, with no further requirements to be met. For further details regarding the provisions of Regulation 805, please visit the Romanian Digest Archive (http://www.hr.ro/digest_archive.htm), the June 2007 article named “After EU Accession: Recognition and Enforcement of Foreign Judgments in Romania”.

Furthermore, the European Parliament and the Council adopted in 2006 Regulation no.1896 (“Regulation 1896”) establishing a European summons procedure. The purpose of such a regulation is to simplify, accelerate and reduce procedural costs related to such a procedure and it has as an object the uncontested claims resulting from over-the-border litigation within the EU.

According to Regulation 1896, a payment summons issued in one EU member state and enforceable according to the legislation in force in that state shall be deemed as enforceable in any EU country, as if it had been issued in that country. Regulation 1896 governs civil and commercial matters and establishes the form of the summons in one of its annexes for a unitary and more efficient application of the procedure. The provisions of Regulation 1896 further detail different aspects regarding their proper application.

Conclusion

Debt recovery procedures still remain a key issue in the Romanian market, as efficient proceedings may facilitate such debt recovery and overcome late payment obstacles. Eager to accomplish their obligations as an EU member state, and also slightly pressured by their commitment towards EU governing bodies and policies, Romanian authorities have transposed secondary legislation into national pieces of law, sometimes without turning such endeavor into a significant success for the intended beneficiaries on the Romanian market.

However, even if it still contains a few procedural faults, GEO no.119 certainly has positive aspects in favor of creditors of actual, liquid and matured claims. Hopefully, such creditors will be able to benefit from the provisions of GEO no.119, and not be inordinately obstructed by the faults noted above. Also, participants in Romania’s burgeoning business life nevertheless always benefit from the provisions of the regulations adopted at the EU level, because those regulations represent EU secondary legislation which is directly applicable in Romania, as in any other EU member state.

The article was published based upon approval of:

Rubin Meyer Doru & Trandafir

SOCIETATE CIVILA DE AVOCATI / LAWYERS PROFESSIONAL CORPORATION

IN ASOCIERE CU / AFFILIATED WITH HERZFELD & RUBIN, P.C.

http://www.hr.ro