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Croatia: The New Bankruptcy Act Intends To Accelerate Bankruptcy Proceedings And …

The recently embraced Croatian Bankruptcy Act (SZ) [1] sets out a new incorporated pre-bankruptcy and bankruptcy regime.SZ has actually completely changed the previous bankruptcy act that was in force for 18 years, along with provisions regulating pre-bankruptcy settlement proceedings prescribed under the Act upon Financial Operations and Pre-bankruptcy Settlement [2]

It is anticipated that SZ will accelerate pre-bankruptcy and bankruptcy procedures and assist to slowly remove illiquid business from the market.

Modifications to Pre-Bankruptcy Procedures

  1. Modification of authority

One of the most vital modifications under SZ is that pre-bankruptcy procedures will no longer be carried out before the Financial Agency (FINA) but will fall under the business courts. FINA will still be present in the procedures, however it will now just supply some simply technical support to the courts.

  1. New grounds for initiation of pre-bankruptcy proceedings

A clear distinction between the premises for starting pre-bankruptcy and bankruptcy procedures has been stated. Pre-bankruptcy proceedings can be initiated only in the eventin case of the imminent insolvency of a debtor (prijeteca nesposobnost za placanje) which shall be presumed in the following cases:

  1. if a debtor has one or more due and uncertain obligations taped in the Register of Due Obligations kept by the FINA (Register) [3] or;
  2. if a debtor has actually cannot pay wages to its employees for more than 1 Month from the date when incomes were last due or;
  3. if a debtor has actually cannot pay contributions and taxes associated with wages of its workers for more than Thirty Days from the date when salaries were last due.
  1. Lenders right to initiate pre-bankruptcy procedures

Along with the debtor, a creditor can also start pre-bankruptcy proceedings (provided it has acquired the debtors consent).

Modifications to Bankruptcy Proceedings

  1. FINAs task to start bankruptcy proceedings

One of the most important recently introduced provisions by SZ is an ex officio initiation of bankruptcy proceedings against business whose accounts have actually been obstructed [4] for more than 120 days. Some stats reveal there are approx. 20,000 such companies in Croatia at the moment.

In the occasion where a business account has been blocked for more than 120 days continually, the FINA has a duty to start bankruptcy procedures within eight days from the expiry of this duration. According to the Croatian Ministry of Justice, the intention is to first of all start bankruptcy procedures versus business without workers and whose accounts have actually been blocked for more than a thousand days continually [5], and after that by June 2016, to initiate proceedings against all other candidates qualifyingreceiving bankruptcy under SZ.

  1. Modifications of the premises for initiating bankruptcy procedures

The grounds for starting bankruptcy procedures have been minimized to insolvency (nesposobnost za placanje) and over insolvency (prezaduzenost) (while illiquidity (nelikvidnost) has been neglected). Insolvency of a debtor is presumed in the following cases:

  1. if a debtor has several due and uncertain commitments tape-recorded in the Register for more than 60 days or;
  2. if a debtor has actually cannot pay three consecutive incomes to its employee/s.

Further, a company is considered to be over indebted when its liabilities surpass its assets.

  1. Possibility to carryperform company operations of the debtor

SZ has reestablished restructuring strategies and the possibility of the debtor remaining to operate its company throughout bankruptcy procedures (both which were abandoned in the previous act). The extension of debtors company operations is allowed for an optimum of one and a half years as of the day of the reporting hearing [6], unless the restructuring strategy has actually been submitted to the court.

  1. Rightful challenging of debtors actions

Under the old policies, the creditor who challenged a legal action of a debtor needed to bear all expenses of such procedures and after that would share the advantage with other lenders. Under SZ each lender has a right to contest legal actions of a debtor by itself account and at its own cost, and would then have top priority in the settlement order if the actions are effectively challenged and the financial benefit thereof is returned to the bankruptcy estate.

  1. Modifications to the sale of debtors assets

SZ brought more changes to the sale of debtors assets. Namely, unless decided otherwise by the lenders, debtors possessions will more than likely be sold within four rounds of an electronic public auction organized by FINA. At the first auction, debtors assets can not be sold listed below three-quarters of their approximated value, at the 2nd auction, debtors possessions can not be offered below one-half of their estimated value, and at the 3rd auction, debtors assets can not be offered listed below one-fourth of their approximated value. At the fourth and final auction, the starting price will be HRK 1.00 (approx. EUR 0,14).

Sale of genuinerealty, ships, aircrafts, or rights gone into in public records which are encumbered by a promise, can be conducted exclusively within the bankruptcy procedures, depriving the protected creditor of a possibility to initiate enforcement procedures (as was previously allowed).

  1. Changes to costs of the procedures

SZ specifies more changes to settlement of the costs of bankruptcy procedures. The court shall, inter alia, order the investors and the members of the debtors supervisory board who failed to properly start bankruptcy proceedings to pay up to HRK 20,000 (approx. EUR 2,650) in advance as expenses for the bankruptcy procedures.

  1. New statement and shipment routine

SZ abandons the practice of publicizing files in the Official Gazette replacing it with the announcement on the official site of the courts (e-Oglasna ploca). Delivery of documents in the proceedings is thought about to be refined upon the expiration of eight days from the statement of the documents on the respective site. Many of the files (eg, proposals for the initiation of the proceedings, alerts and reporting of claims and so on) are to be strictly sent in prescribed forms; otherwise, the court will reject them as being inadmissible.

  1. Bankruptcy of affiliated individuals

An additional fascinating advancement is the introduction of Chapter X of the SZ associating with the bankruptcy of affiliated persons. In bankruptcy proceedings against two or more affiliated persons where the debtor has a dominant impact, the following is specified: a) one bankruptcy administrator will be appointed for all affiliated persons, b) unified lenders bodies decidingpicking the result of the joint bankruptcy procedures will be developed (creditors assembly and committee), c) one joint bankruptcy estate for all affiliated persons will be considered to exist, d) the court of territorial jurisdiction for the debtor who has a dominant impact will be skilled for the bankruptcy procedures of all affiliated persons and e) all mutual claims in between affiliated individuals will stopdisappear.

  1. Lists of bankruptcy administrators

Bankruptcy administrators will be distributed into a list A and a list B. On list A, more seasoned bankruptcy administrators eligible for more complex bankruptcy proceedings will be noted, whereas on list B, less seasoned bankruptcy administrators eligible for dealing with bankrupt companies having up to two staff members will be listed.

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