Bankruptcy - What is new?

The long-awaited changes tothe regulations governing bankruptcy have been introduced under the Law on Amendmentsto the Bankruptcy Law.

In cooperation with theLegal office Tomic Sindjelic Groza, eKapija is presenting new solutions thatwill have the greatest practical impact on the bankruptcy and reorganisationproceedings cover the following areas:

Secured creditors and pledge creditors

The amendments introduce anew category of creditor in the bankruptcy proceedings – the pledge creditor.

A pledge creditor is definedas creditor “holding a security interestover the assets or rights of the bankruptcy debtor registered in public registers or books,however not having any monetary claims against the bankruptcy debtor securedunder such security interest”.

In spite of the obvioussimilarity between the secured creditor and pledge creditor, the difference isfundamental – the pledge creditor does not have a monetary claim against thebankruptcy debtor, but only the right of pledge over a certain asset or rightthat is part of the bankruptcy estate.

A pledge creditor wouldexist in case of agreements creating a pledge to the benefit of a third party, i.e. in cases where the bankruptcydebtor (as pledgor) has pledged any of its assets or rights to serve assecurity for a claim which the pledge creditor (pledgee) has against a thirdparty (as principal debtor), rather than against the bankruptcy debtor.

Neither secured nor pledgecreditors are deemed to be bankruptcy creditors.

Forth-rank creditor claims

The number of ranks ofpriority for claim recovery has been increased from three to four byintroducing the last – forth rank, which comprises the creditors having: “claims arising two years before the date ofopening bankruptcy proceedings based on loans, as well as other legaltransactions that correspond to granting loans for accounting purposes, to theextent such loans are not secured, and were granted to the bankruptcy debtor bypersons affiliated with the bankruptcy debtor, within the meaning of this law,excluding the persons whose business activities normally include lendingtransactions“.

Advance payment of the costsof bankruptcy proceedings

This is the first time thatthe law has provided (to an extent) for an objective criterion in determiningthe amount of advance payment of the costs of initiating bankruptcyproceedings, which are borne by the petitioner (i.e. the person filing the petition to initiate bankruptcy with thecourt).

Thus, provisions have beenmade that the court may not determine an advance payment exceeding 50.000 RSD,where the bankruptcy debtor is classified as a micro entity under theregulations governing criteria for classification of legal entities.

However, in this matter, theLaw remains silent in respect of other classes of bankruptcy debtors.

Filing of claims bybankruptcy creditors and bankruptcy debtor’s guarantors

When filing the claim inbankruptcy proceedings, the bankruptcy creditor is obliged to:

1. state in the claim if there are any guarantors for the bankruptcy debtor’s liabilities,
2. to timely inform the bankruptcy debtor’s guarantors of the claim filed.

Consequently, should thebankruptcy creditor collect its registered claim from the bankruptcy debtor’sguarantor (in part or in full), it is obliged to notify the bankruptcyadministrator of such collection within 8 days thereof.

A creditor who fails tonotify the bankruptcy administrator of collection of claim from the principaldebtor of guarantor is punishable by a fine ranging between 500.000 and10.000.000 RSD.

Assignment of claims in bankruptcy proceedings

The Law explicitly providesthat the claims registered in the bankruptcy (and reorganisation) proceedings,whether accepted or disputed, may be subject to assignment.

The assignment of claims ispossible until the decision on the main distribution of assets is issued.

Disputed claims – deadline for initiating a lawsuit and preclusion

The deadline for initiatinga lawsuit to establish a disputed claim has been extended from 8 to 15 days,from the day of receipt of the bankruptcy administrator’s decision about thelist of accepted and disputed claims.

The law introduces preclusionagainst the bankruptcy creditor who has failed to initiate a lawsuit toestablish a disputed claim within the prescribed deadline – upon expiry of the15 day period, such creditor’s right to initiate a lawsuit, as well as itsstatus of the bankruptcy creditor, shall be forfeited.
Affiliated persons have noright to vote on the reorganisation plan

The most important amendmentrelating to the reorganisation procedure (and the most important amendment tothe Law in the opinion of legal community) is introduced under Article 165Paragraph 7 of the Bankruptcy Law.

This provision classifiesthe affiliated persons (within the meaning of Article 125 of the BankruptcyLaw), apart from the persons whose business activities normally include lendingtransactions, as a separate class of creditors who have no right to vote on thereorganisation plan. Their claims are recovered according to the rank ofpriority for claim recovery into which they have been classified.

To underline the practicalimport of this amendment, we need to look up Article 125 of the Bankruptcy Law,defining the persons affiliated with the bankruptcy debtor as:

a) general manager, or any member of a managing or a supervisory body of the bankruptcy debtor;

b) any shareholder in the bankruptcy debtor with unlimited liability for company debts;

c) any shareholder with a significant share in the bankruptcy debtor;

d) a legal entity controlled by the bankruptcy debtor within the meaning of the law governing companies;

e) any person having access to confidential information or having the opportunity to become acquainted with the data on financial status of the bankruptcy debtor by virtue of his/her special position in the company;

f) any person de facto able to exert a significant influence on the business of the bankruptcy debtor;

g) The bankruptcy debtor’s blood relatives in direct line regardless of the degree of kinship, or in lateral line up to the fourth degree of kinship, relations by marriage up to the second degree of kinship, or spouse of any of the persons referred to in Items a), b), c), e), and f).

Exclusive international jurisdiction of Serbian courts

Another amendment wasintroduced to Chapter XII of the Bankruptcy Law (Cross-border bankruptcy),providing that the courts of the Republic of Serbia shall be exclusivelycompetent to initiate, open and conduct bankruptcy proceedings where Serbia isthe main centre of bankruptcy debtor’s interest (the so-called main bankruptcyproceedings), and for any disputes that may arise from such bankruptcyproceedings.

The centre of main interestis defined as a location recognised by third parties as the place from whichthe debtor regularly manages its interests, and in the absence of evidence tothe contrary, the debtor’s registered office is deemed to be the centre ofdebtor’s main interest.

The main bankruptcyproceedings are conducted with respect to all assets of the bankruptcy debtor,regardless of whether they are located in the Republic of Serbia or abroad.

Exclusive jurisdiction ofSerbian courts also applies to cases where:

1. the bankruptcy debtor’s registered office is in Serbia while its main centre of interests is in another country, if under the laws of such country the bankruptcy proceedings cannot be initiated based on the centre of main interests,
2. the bankruptcy debtor’s main centre of interests is in Serbia while its registered office is in another country.

For any further information do not hesitate to contact:

Rajko Krejovic, the lawyer
[email protected]