Cosmin Vasile of Zamfirescu Racoti & Partners advises parties to a dispute to pay close attention to the varied demands of insolvency and criminal law

There has been a common trend in the legal profession to try to anticipate all the issues that could arise in the development of a complex contract (such as M&A and construction contracts) and to establish clear mechanisms for solving them. Over recent years, in Romania, due to the increasing interference of insolvency and criminal law in most commercial disputes, the effects of their mandatory provisions should be closely heeded.

It is a well-known fact that considerable efforts from legal consultants and from the parties themselves focus on ways in which disputes can be solved. This process starts when the contract is negotiated and the parties try to anticipate the potential causes of litigation and their effects. Apart from clauses that establish alternative dispute resolution methods (such as the Dispute Adjudication Board, arbitration, and mediation), new tendencies in resolution are being observed. For example, in light of the latest changes brought about by the Romanian Code of Civil Procedure, parties are able to insert clauses to establish certain rules on the evidence produced. For instance, when the contract is concluded, the parties can establish that their claims in a certain area can be proven exclusively by means of a technical report made by an expert in that area (parties could also provide a list of the experts to be selected in case of a dispute).

There is a continuous trend between the parties to complicated contracts to try and predict all the possible situations in the development of a contract. To this end, complex mechanisms are established by the parties in order to regulate issues that could emerge, and the way in which they are resolved.

Despite the efforts diligent parties are making in trying to foresee all the possible problems that could affect the development of the project, reality shows that their expectations with respect to solving disputes are actually confused by insolvency and criminal laws. Therefore, while the economic crisis has had a big impact in terms of the increasing number of firms entering into insolvency, many more companies have been affected by the collateral effects of insolvency law.

In this respect, it is worth mentioning that when one of the parties to a contract enters into insolvency, the clauses relating to the choice of jurisdiction can no longer be applicable, and certain inequities occur. Therefore, while you may not submit a contractual arbitration claim against an insolvent debtor, the debtor may submit an arbitration claim against you. Moreover, the insolvent debtor enjoys the benefit of certain facilities, such as the payment of arbitral fees in installments. Further, the only way to recover money (debts or damages) from an insolvent debtor is by submitting a claim to a syndic judge within the deadline and observing the severe limitations stipulated under the Insolvency Law. In these circumstances, neither conventions on producing evidence are applicable; the legal regime for pieces of evidence is stipulated under the Insolvency Law.

The situation is similar when commercial disputes interfere with the Criminal Law. In such cases, commercial disputes are usually stayed (depending on their connection with the criminal case) and all the pieces of evidence are produced before the criminal investigation authorities.

Usually, only one of the above-mentioned situations can occur in the development of a contract. However, lately, we have experienced cases in which interferences with both the Insolvency Law and the Criminal Law appeared. In such cases, certain new issues occur with respect to the prevalence of the Criminal Law provisions over the Insolvency Law. The initial volition of the parties has no influence over the manner in which disputes can be solved. Similarly, those interferences have triggered a chain of uncertainties, which have had a serious impact on the parties' expectations in terms of their ability to recover the amounts due by insolvent companies.

However, there are mechanisms that can protect the parties, or, at least diminish the exposure of the company dealing with a partner in insolvency or under a criminal investigation. For example, the parties can establish that in the case of a dispute, the contract is suspended until the dispute is settled. This should help the parties keep their financial exposure to a minimum.

In conclusion, one should bear in mind that the interference of insolvency and criminal law cannot be avoided, nor the impact of those laws over disputes between the parties, as they comprise mandatory regulations. Therefore, considering that both the Insolvency Law and the Criminal Law are permanent and unavoidable, their impact on the development of a contract should be thoroughly anticipated by the parties when negotiating contractual clauses. When a contract is negotiated, each party should bear in mind that, throughout the development of the contract, its partner could enter into insolvency or could be under criminal investigation. It is therefore imperative to try and identify methods of protection from the effects of such events.


  First published by our sister publication IFLR magazine. Take your free trial today.


Cosmin Vasile
Zamfirescu Racoti & Partners

About the author

Cosmin Vasile is the managing partner at Zamfirescu Racoti & Partners and head of the arbitration department. He is an exceptional legal strategist and negotiator, advising clients on arbitration and litigation. He has served as counsel in complex international arbitration proceedings held under the auspices of the International Chamber of Commerce, the London Court of International Arbitration, the Vienna International Arbitration Centre, the Court of International Commercial Arbitration (Bucharest) and under the Uncitral arbitration rules in ad hoc arbitration. He is one of the most experienced experts in the Romanian market.

Vasile also provides clients with consulting services and representation in civil and commercial litigation, intellectual property, administrative and procurement, and debt collection.

Vasile has been awarded a diploma in international arbitration by the Chartered Institute of Arbitrators and is a fellow member of this institute (2012). He has a PhD in law from the University of Bucharest Faculty of Law (2011), and his thesis examined The applicable Law in the ad-hoc Commercial Arbitration.