The Criteria for Determining the Business Failure

• Author: Luminita Tuleasca
• Position: Senior Lecturer, PhD., Faculty of Law, Romanian-American University, 1B Expozitiei Blvd., Sector 1, Bucharest 012101, Romania
• Pages: 14-33

ACTA UNIVERSITAT

14

Abstract:

The business failu

for this

reason, the legislator

accurately determine the fail

sheet test, or the insolvency

usually materialized by u nd

another of these criteria rep

however, consid

ering the eco

to remove the unilateral, ex

between the criteria for deter

which is the most used cri

insurance sector. Last bu t no

in different matters a

nd dif

doctrine manifests towards th

Keywords:

insolvability; ins

1. Introduction

1.1.

The evolution o

transformation of this p

substitute for the bankr

connotations.

For determining the bus

different criteria: i) the

1

Senior Lecturer,

PhD., Facu

1, Bucharest

012101, Roma

author e-mail:

luminita.tuleas

ATIS DANUBIUS

Vol. 8, n

The Criteria for Determining t

he B

Failure

Luminia TULEAC

1

ilure represents a current problem in any economic and socia

tor has been concerned with the regulation of the criteria based

failure of a business man when the case. The liquidity test an

ncy and insolvability are the cri

teria for determining the bu

ndergoing the bankruptcy procedure. The legislator’s optio

epresents a structural option depending on the legal culture

economic causes and effects of the in solvability and insolven

exclusivist options. This paper illustrates significant optio

termining the business failure in the memb

er states of the Eur

criterion and, if these criteria can be equally used in the

not least, th e paper illustrates the meanings of insolvency and

different laws and the need to eliminate the reserve that t

s the insolvability concept as a cause for bankruptcy.

insolvency; liquidity test; balance sheet test; bank; insurance u

of the business failure conception has deter

is phrase from an economic concept, into a legal

nkruptcy notion, considered as having negative an

business failure, as a cause for bankruptcy, there ar

he available funds (liquidities) test, i.e the capacity

aculty of Law, Romanian

-

American University, 1B Expozitiei

mania, tel.: +4(0) 212 029 510, fax:+4(0) 213 183 5

66

, Co

easca@tuleasca.com

.

AUDJ, Vol. 8, no

8, no

. 1/2012

e Business

cial context and,

sed on which to

and the balance

business failure

tion for one or

re o f each state

ency, that tends

tion differences

uropean Union,

he banking and

and insolvability

t the Romanian

e undertaking

termined the

al concept as

and sensitive

are used two

ity to pay the

iei Blvd., Sector

, Corresponding

no. 1, pp. 14

-33

JURIDICA

15

debts upon their maturity; ii) the balance sheet test, i.e. the surplus of liabilities by

reference to the assets, insolvency and insolvability.

The available funds (liquidities) test is the one indicating the existence of

insolvency state and the balance sheet test determines the existence of the

insolvability state, provided that the business has failed in both situations.

We will further analyze the causes for the business failure and for the bankruptcy,

from the perspective of both these notions: insolvency and insolvability,

considering the meaning of such notions, as provided in the general and special

corporate law.

We intend to establish whether there are significant option differences between the

criteria for determining the business failure in the member states of the European

Union, which is the most used criterion and if such criteria can be equally used in

the banking and insurance sector. And, last but not least, we will illustrate the

meanings of insolvency and insolvability in different matters and different laws

and the need to eliminate the reserve that the Romanian doctrine manifests towards

the insolvability concept as a cause for bankruptcy.

2. Conceptual Disclaimer

2.1. The general bankruptcy cause for any trade company regulated under the

Romanian law is the state of insolvency, the stoppage of payments, the lack of

available funds, of available amounts for paying the outstanding debts (Crpenaru,

2001, pp. 733- 734; Turcu, 2000, pp. 193; Ripert et al. 2000, pp.836; Guyon, 1999,

pp. 132) no collective procedure being opened before the moment of payments

stoppage.

The difficulty of adapting the legal definition of insolvency as regulated under the

substantive law to credit institutions, respectively to banks, has determined the

specific approach of banking insolvency.

Thus, Government Ordinance no. 10 on 2004 regarding the failure of credit

institutions

1

, the special Romanian regulation of banks’ failure, establishes as

bankruptcy cause for this special commercial companies, the generic insolvency

1

Romanian l aw - Government Ordinance no. 10 on 22.01.2004 on the credit institutions failure, Of.

Gazette., Part I, no. 85 on 30.01.2004.