Practical Guide To International Debt Collection in Romania

Practical Guide

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Romania

Is there a minimum amount to start a legal action?

Debt collection in Romania, as in any other jurisdiction, can be done amicably, or if the debtor refuses to pay, the creditor may resort to the force of the state authorities (courts and bailiffs) in order to recover the debt.

With respect to the legal proceedings, two situations are possible, namely:

  • when the debt derives from a contract/decision, that is, a writ of execution under Romanian law, in which case the creditor only needs to enforce such writ of execution;
  • when the debt either derives from a relation between the parties that is not formalized in writing or when the contract between the parties is a not a writ of execution, in which case the creditor must obtain a court decision that they shall subsequently enforce;

With respect to the minimum amount required to start a judicial process, the law does not impose any threshold, and any claim can be brought to court irrespective of its value. However, a creditor must consider the opportunity costs, in the sense of not creating more costs during the legal proceedings than they could reasonably obtain from a debtor.

It is very important to underline that information regarding the accounts and assets of the debtor (with few exemptions) are not publicly available; hence the creditor does not have the possibility to assess, prior to commencing a legal procedure, if the debtor is solvable.

For the debtors that are legal entities, it is possible to obtain business intelligence reports that contain the risk of insolvency, the profit and loss statement for the previous fiscal year, the existence of any mortgage on their movable assets registered in the Public Archives, and whether the company is a shareholder in other companies. Also, in case the creditor has specific knowledge of real estate owned by the debtor, namely, the land book registration number of such assets, it is possible to see if the immovable asset still belongs to the debtor. For the debtors that are individuals, it is possible to find out whether they are shareholders in any company and if they have any mortgage on their movable assets registered in the Public Archives. However, information regarding the bank accounts of the debtors, movable assets that are not mortgaged, or real estate assets for which we do not have a land book registration number can be obtained only by the bailiff once they open a forced execution case file, based on a writ of execution.

Will the amount due condition the type of procedure?

The value of the claim, and the document from which it originates, are very relevant when choosing the type of legal proceeding to be initiated against the debtor, and when checking the competency of the courts, as we shall detail below.

Under Romanian rules of civil procedure, the creditor that does not have a writ of execution may opt for one of the following types of proceedings:

2.1. The simplified procedure for small value claims
2.2. The request for the issuance of a payment ordinance
2.3. The common procedure

2.1. The small value claim procedure

This type of procedure is applicable when the value of the debt (without taking into consideration the interest, the court expenses, or any other accessories) does not exceed €2,000 at the date of filing the request to the court.

This procedure, though, is not applicable for debts deriving from taxes, customs, or administrative matters, nor for insolvency or labor matters.

The competent court, in this case, is the court of first instance from the place of residence/headquarters of the debtor. The creditor shall file a request through a simplified and standard form to which they shall attach the evidence they shall use during the procedure.

The whole procedure is a written one, and the debtor shall submit a response to the creditor's form within 30 days of receiving it.

The court shall render a decision with respect to the claim based on the submitted documents, without the presence of the parties, but the judge may ask for their presence if they consider it to be necessary. Nevertheless, due to the fact that the hearing of the parties is the exception to the rule, and generally, the court decision is rendered solely based on the written documents submitted by the parties, it is to be underlined that no interrogations, expert evidence, or witness evidence are permitted.

Against the court's decision, the parties have the possibility of filing an appeal.

The main advantage of this type of procedure is the fact that the stamp duty is a reduced one, starting from €10 up to €50.

The final decision of the court through which the claim is approved is a writ of execution, and if the debtor does not apply it, the creditor may request a bailiff to enforce it.

2.2. The request for the issuance of a payment ordinance

This special procedure is applicable to debts that are uncontested, liquid, and enforceable against the debtor, and that result from a written document such as a contract or an invoice.

This procedure is not applicable to debts arising from bankruptcy or proceedings relating to the winding-up of insolvent companies or other legal persons.

Issuing a payment ordinance involves a series of steps:

First, the creditor shall send the debtor a warning letter by bailiff, or by registered letter, making sure that the means of communication ensures a confirmation receipt. Through this warning letter, the creditor shall instruct the debtor to make the payment of the amount owed within 15 days of receiving it. Not observing this first step shall lead to the rejection of the court claim as inadmissible.

Although the law does not foresee the content of the warning letter, it should include a brief summary of the situation, the contractual relationship between the parties, and also the creditor's decision to initiate a court proceeding if the debt is not paid within a certain period (which cannot be under 15 days). The letter shall also include the calculation of the interest owed on the debt. It is recommended for this letter to be drafted by a lawyer in order to ensure a complete assessment of the situation and to respect certain requirements in order to send a fully comprehensible request to the debtor.

The purpose of the letter is twofold, namely to ensure that the precondition requested by the law is met, and secondly, to interrupt the statute of limitations, which, in Romania, is three years.

Last but not least, the letter shall be sent only after the creditor has prepared all the necessary documents needed in order to initiate the court proceeding so that after the expiration of the term indicated in the letter, the creditor can file the request with the court.

If the debtor does not comply with the demand, the creditor shall address the competent court with a request to issue an order for payment. The competence of the court shall be determined based on the value of the claim, like in an ordinary procedure, and on the residence/headquarters of the debtor.

To the request addressed to the court, the creditor shall attach invoices, delivery notes, or other documents that can usually prove the relationship between debtor and creditor and the existence of the debt. It is to be mentioned that in this procedure, the only evidence that the court shall approve and analyze is documentary evidence.

This procedure involves both a written and an oral stage. Based on the documentary evidence attached to the file by both the creditor and the debtor, the civil procedure code provides that court shall issue a decision within 45 days from the filing of the claim; however, it is not uncommon for the procedure to be prolonged due to procedural incidents, such as the need for the parties to supplement the evidence.

If the court claim is approved, the term that the court shall set for the debtor to pay the outstanding amount shall not be less than 10 days and not longer than 30 days from the date of the communication of the order of payment.

The court's decision can be challenged through a request for annulment. However, the advantage of this procedure is that the court's decision, although appealed, can be enforced from the date it was rendered.

Another advantage of this type of procedure is that the stamp duty paid by the creditor is not calculated based on the amount of the claim, but it has a fixed sum of approximately €40.

This procedure is suitable for debts deriving from unpaid invoices since it involves lower costs, and is a fast track. However, if the court considers that the solving of the claim implies administrating more evidence than documents, the request filed through an order payment procedure shall be dismissed.

2.3. The common procedure

The common procedure represents the standard recovery procedure in situations in which the debt is not certain, is liquid, and due, or if the creditor needs to administer more than documentary evidence.

The competent court is the one in the place of residence/headquarters of the debtor (if the contract does not provide otherwise), but the level of jurisdiction is determined based on the value of the claim. So, for claims up to approximately €45,000, the recovery claim shall be filed in a court of first instance, while for claims with a higher value, the competent court shall be the Tribunal Court.

Depending on the complexity of the file, this type of procedure can prove to be a long-lasting one given the fact that obtaining a solution may take up to one year from the moment of filing the claim. The decisions given by the first court can be appealed, and for claims larger than €45.000, Romanian law foresees an additional remedy, the recourse.

Proceeding with this type of request also implies the payment of a stamp duty. The stamp duty shall be calculated depending on the amount of the claim, as follows:

  • For claims up to approximately €100, the stamp duty shall represent 8% of the claim, but not less than €4.
  • For claims between approximately €100 and €1,000, the stamp duty shall represent €8, to which an amount of 7% of the total exceeding €100 shall be added
  • For claims between approximately €1,000 and €5,000, the stamp duty shall represent €70, to which an amount of % of the total exceeding €1000 shall be added
  • For claims between approximately €5,000 and €10,000, the stamp duty shall represent €280, to which an amount of 3% of the total exceeding €5,000 shall be added
  • For claims between approximately €10,000 and €50,000, the stamp duty shall represent €400, to which an amount of 2% of the total exceeding €10,000 shall be added
  • For claims larger than €50,000, the stamp duty shall represent €1,200, to which an amount of 1% of the total exceeding €50,000 shall be added.

If the claim is approved, the creditor is also entitled to recover the costs they incurred with the stamp duty, lawyers fees (which can be reduced if the judge considers they are too high), the fees of the experts (if any), etc.

It is common practice for creditors whose debt is certain to be liquid and due, and that derives from a written document, to first file a request for issuance of a payment ordinance. If the court rejects such a request, they should subsequently file a common procedure claim, since the decision of the court in the payment ordinance procedure does not constitute res judicata for the common procedure court.

Is it mandatory to send a warning letter before taking legal action to collect a debt?

Warning letters are common both in amicable debt collection as well as in judicial proceedings, and, in practice, they have proved to be very effective considering the low cost incurred by the creditor. Hence, they are recommended in most collection cases. Statistically, letters sent by a law office or bailiff office have proven to have a higher success rate.

With the exception of the claim for the issuance of a payment order, in which, as mentioned above, sending a warning letter is a precondition, for all other legal proceedings, there is no such a requirement.

From a practical point of view, if the parties have attempted to settle the matter before becoming contentious without involving their lawyers/legal departments, and if the creditor wants to apply for interim measures, sending a warning letter would not be advisable because it might trigger an avoidance response of the debtor, such as the mortgaging of their assets in favor of an affiliated third party, the emptying of their bank accounts, etc.

On the other hand, if the creditor does not have information regarding the solvency of the debtor, nor the resources to initiate interim measures (which are quite costly), then a warning letter is welcomed.

What are the best practices for creditors to increase the possibility of recovering the debt?

The most important recommendation is to make sure everything is in writing.

Creditors are advised to keep evidence of all the documents regarding business relationships with debtors, such as contracts, invoices, orders, agreements, correspondences, messages, third-party documents, delivery notes, and any other possible evidence that can prove the debt and the relationship between the parties.

Secondly, in any commercial relationship, the party that is to receive the price of the contract should make sure that the contract is regulated by the law most favorable to them.

If the applicable law provides for certain formalities that would transform the contract into a writ of execution, the creditor should make sure that it observes them. For example, a lease contract registered with the tax authorities is a writ of execution for the rent. Also, the creditor could request the debtor to provide, as a guarantee, blank promissory payment notes, which are also writs of execution, once they are refused by the bank when introduced at the expiry of the payment due date.

Another relevant aspect would be to exclude from the contract the possibility for the parties to set off of the claims they have against each other because, generally, debtors that want to delay payment invoke fictitious claims in an attempt to block creditor from being able to resort to a payment ordinance procedure. In the same line of thought, it is to be mentioned that under Romanian law, as an enactment of the civil law principle "Exceptio non adimpleti contractus," a party may refuse to execute its obligations if it argues that the other party was in default first. The parties must clearly derogate from this principle in the contract in order to impede a party from relying on it, and from attempting, for example, to avoid the payment of the contractual price due to a minor breach of the other party.

If the contract is a complex one, and the contractual language is English, the creditor should consider the fact that, in Romania, all court proceedings are held in Romanian, and all documents must be translated, and, hence, including an arbitral clause with proceedings conducted in English could be a reasonable precaution, as it would eliminate translation costs, and shorten the proceedings, as it is known that arbitration is far more expeditious than court litigation.

Additionally, it is to be mentioned that the parties could derogate from the general statute of limitations of 3 years, and in the case of the contracts that are executed throughout several years and are not uno ictu it is advisable to extend the statute of limitation.

Last but not least, the creditor should monitor their debtors and should be alerted in case of:

  • The occurrence of an insolvency proceeding against a debtor;
  • Change of headquarters of the debtor – especially if the change is in another city or country;
  • Change of control of the company;
  • Decrease of solvency etc.;

Such information could be obtained by monitoring the public databases (i.e., the Trade registry, national court websites, insolvency bulletins) or by requesting a third party (the lawyer included) to insert automatic alerts.

How can a foreign creditor start a procedure for international debt collection in Romania?

In order to start a judicial process, it is advisable to appoint a lawyer to liaise with the creditor on the specifics of court proceedings in Romania. Romanian law does not foresee the obligation for a plaintiff to be represented by a lawyer, but considering the differences between legal systems and procedures, in this case, starting a court proceeding without a lawyer might lead to unwanted results.

When parties are represented by a lawyer, special power of attorney shall be granted based on the legal representation contract concluded between the creditor and the lawyer, free of any additional charge, other than the ones agreed in the contract, as a fee for the lawyer's services.

The contract between the lawyer and the client can be signed electronically, or via email, and should foresee the specific type of procedure that the lawyer shall follow for the recovery of the debt, as well as if the court representation shall be pursued only when the merits of the case are discussed, or also during the appeal/recourse.

Depending on the type of proceedings, the creditor might be requested to provide the lawyer some of the original documents, such as in the case of the recognition of an arbitral award, in the absence of which the claim cannot be approved.

All court claims are subject to the payment of the stamp duty, which is calculated either as a fixed fee or pro-rata with the value of the claim, as indicated above.

Aside from the procedures indicated above, which are foreseen by the Romanian Civil Procedure Code, the creditors could also have, in specific cases, the option to file a claim as foreseen by Regulation no. 1896/2005 regarding the European order for payment procedure.

This procedure is applicable to cross-border disputes in cases concerning uncontested civil and commercial matters. This procedure cannot be used in applications related to tax and administrative law, labor, or insolvency law.

The procedure is similar to the ones presented above (2.1), as the plaintiff shall have to complete a standard form and to outline a brief summary of the situation, the request, and the evidence proposed.

The decision issued in this case is also an enforceable one, and the debtor cannot oppose its recognition.

Which documents are necessary for the debt collection in Romania?

For most contracts, Romanian law does not request a specific form, although some require, for example, to be concluded in front of a Public Notary (such as a donation or a property sales purchase agreement).

As indicated above, it is important for the creditor to keep a record of all the documents that prove the contractual relationship with the creditor, such as invoices, correspondences, addendums, etc.

The simplified procedures, as already outlined, are procedures based solely on documentary evidence. However, during an ordinary proceeding, other types of evidence can be administered as well, if the documentary evidence is missing or it has not been concluded.

As for how the judge shall review the evidence submitted, they shall be analyzed one-by-one, and all as a whole, in order for a decision to be made.

Documents submitted during court legal proceedings in Romania:

  • Must be translated into Romanian;
  • The creditor must write on each document that is not an original, that it is "according to the original," and the name of the person signing;
  • Must be readable and not altered/redacted etc. If, for example, a party submits as evidence an email, and only files part of the email, it must inform the court;
  • If the other party contests the content of a document, the party that filed it must present the original to the court;
  • As indicated above, in some cases, the existence of the original is a precondition for the admissibility of the claim;
  • Must be indicated and filed in the case file, together with the claim or the statement of defense, and evidence may be supplemented during the trial with additional evidence, only if the need of new evidence occurred during the debates, and could not have been anticipated at the moment the claim/statement of defense was filed.

What happens after the first demand for payment?

When the creditor opts initially to send a warning letter, the debtor's behavior following the receipt of the letter shall determine the course of the situation, as they can refuse to pay, or contest the commercial relationship, or the amount, or they could include some other counterclaims, or they might simply not answer.

If the debtor agrees to pay, generally, the costs that either party incurred during the negotiations (with lawyers, translations, postal services, etc.) are born by each party, respectively. However, according to the civil code, the party that initiates, continues, or breaks the negotiations in bad faith shall be liable to pay the damages suffered by the other party, including the costs deriving from the negotiation.

What happens after a debt enforcement request has been filed?

As mentioned above in point 1, forced execution can be initiated based on a writ of execution, which is either a contract to which the law gives such power or a court/arbitral decision.

A creditor that has a writ of execution against a debtor can initiate the enforcement procedure by addressing a request to a bailiff, together with the original writ of execution. The creditor has the freedom to choose any bailiff from the place of residence/headquarters of the debtor. The stamp duty for initiating the enforcement procedure is approximately €5.

The forced execution request, filed by the creditor, must indicate the types of measures that the bailiff may take, such as garnishment, seizing of movable and immovable assets, entering onto the premises, etc., or it can simply mention that the forced execution can be conducted through all means necessary, without detailing them, which is advisable.

For debts under 10,000 LEI (approx. €2,066), forced execution of the debtor's real estate assets can be initiated only if the latter does not have any other assets that can be sold.

The debtor may challenge any of the acts of the bailiff, or even the writ of execution itself (with the exemption of court or arbitral decisions), within 15 days from the date that the act of procedure was communicated to them.

The bailiff fees are calculated as an aggregate between a fixed fee and a percentage of the amount recovered. These amounts are generally recovered from the debtor. However, in practice, the creditor usually pays the amount as advance payment so that the bailiff has the amounts necessary to send requests to public authorities or banks.

In practice, from the moment the creditor files the forced execution request, up to the moment the bailiff garnishes the accounts of the debtor and/or seizes their assets, takes around 2-4 weeks.

Can interim measures be taken?

Under Romanian law, interim measures can be applied in any of the following cases:

  • The creditor, who does not have a writ of execution, but whose claim derives from a written document and that is due, may request to set up an insurance attachment on the debtor's movable and immovable property, if they prove that they filed a court claim to obtain a writ of execution. They may be required to pay bail in an amount fixed by the court.
  • The creditor, whose claim does not derive from a written document, has the same right if they prove that they filed an action, and submits, together with the request for seizure, a bail of half the amount claimed.

Since the legal proceedings for applying for an interim measure implies stamp duty, lawyer fees, and most importantly, a bail whose value is often significant, generally, only creditors with specific knowledge regarding the accounts/assets of the debtor choose to file such a request.

If, for any reason, the recovery was not possible, is there any other action that the creditor could take to write off such debt in its accountancy?

The adjustment of the taxable base (for corporate tax and for VAT) can be made based on the legislation governing the creditor's activity. Hence, only domestic creditors can rely on Romanian legislation in order to adjust their taxable base.

  • In this sense, the Romanian fiscal code provides that the adjustments can be made in the following cases: the implementation of a reorganization plan confirmed by a court sentence, in accordance with the provisions of Law no. 85/2014;
  • the bankruptcy procedure of the debtors was closed based on the court decision;
  • the debtor has died, and the claim cannot be recovered from the heirs;
  • the debtor is dissolved, in the case of the limited liability company with a sole partner, or liquidated, without a successor; 
  • the debtor registers major financial difficulties that affect their entire patrimony.

Consequently, a creditor that intends to write off their debts should initiate the insolvency proceedings against their debtor, and based on the final decision and report, the creditor shall proceed to the write off the debt in their accountancy.

Nevertheless, in the light of the recent decision of the CJUE rendered in case C146/19 SCT d.d., in bankruptcy, against the Republic of Slovenia, the court has held that:

"Article 90 (1) and Article 273 of Council Directive 2006/112 / EC of 28 November 2006 on the common system of value-added tax must be interpreted as precluding regulation by a Member State under which the right to the adjustment of value-added tax paid and related to a bad debt is refused to a taxable person when he failed to declare that claim in the bankruptcy proceedings initiated against his debtor, even if that taxable person proves that, if he had declared that claim, it would not have been recovered.

2. Article 90 (1) of Directive 2006/112 must be interpreted as meaning that the national court must, by virtue of its obligation to take all appropriate measures to ensure the application of that provision, interpret national law in accordance with that provision. Or, if such a consistent interpretation is not possible, to leave unenforceable any national rules, the application of which would lead to a result contrary to that provision."

Therefore, Romanian companies could, from now on, be able to adjust the collected VAT even in the event they have not been registered as a creditor in the insolvency proceeding of their debtor.

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