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New Bankruptcy Act

2015-11

New Bankruptcy Act, which entered into force on 1 September 2015, introduced many novelties in relation to bankruptcy proceedings, but also in relation to pre-bankruptcy proceedings, which were previously regulated by the Act on Financial Operations and Pre-Bankruptcy Settlement. Although the emphasis is placed on key changes introduced by the new Bankruptcy Act – which apply to all pre-bankruptcy and bankruptcy proceedings initiated after 1 September 2015 – it is important to bear in mind that certain provisions of the new Bankruptcy Act also apply to the proceedings initiated before 1 September 2015.
Some of the key changes introduced by the new Bankruptcy Act are as follows:

  • Pre-bankruptcy proceedings ceased to be under the jurisdiction of Croatian Financial Agency (FINA) and they are now under jurisdiction of commercial courts. Also, it is no longer obligatory, but only optional to initiate pre-bankruptcy proceedings if the requirements laid down by the law are met;
  • Reasons for pre-bankruptcy and bankruptcy proceedings are now differently regulated. Pre-bankruptcy proceedings may be initiated only in case of the so-called imminent insolvency, while insolvency and overindebtedness are the only reasons for bankruptcy. 
    As pre-bankruptcy proceedings may not be initiated in case there is a reason for bankruptcy, it is important to distinguish between them (e.g. if the company is “blocked”, this suggests that pre-bankruptcy proceedings are to be initiated, but if the company is “blocked” for more than 60 days, then bankruptcy proceedings should be initiated due to insolvency, etc.);
  • List of persons obliged to file for bankruptcy has been extended (e.g. supervisory board members or shareholders of a limited liability company may be obliged to file the respective motion in certain cases). Also, the act prescribes the cases when FINA is obliged to file a motion for opening of bankruptcy proceedings;
  • Responsible persons of the company may be held liable for the advance payment of the costs of bankruptcy proceedings in certain cases;
  • Court documents are now delivered via publication on the court website (“e-Oglasna ploča“) and the time framework of the proceedings is (more strictly) defined (e.g. the act sets limits to duration of the court proceedings in which the debtor is one of the parties; it is no longer possible to register a claim in the bankruptcy proceedings after the deadline for submission of applications has expired, etc.);
  • Secured creditors are no longer authorized to initiate a separate enforcement or security proceedings – instead, rules on collection of collaterals in the bankruptcy proceedings shall apply.. In addition, specific rules have been introduced for collection of collaterals (e.g. minimum values applicable in case of sale of real property, including HRK 1.00 as a starting price at fourth public bid);
  • It is again possible to adopt a bankruptcy (restructuring) plan in the bankruptcy proceedings;
  • Single proceedings for the affiliated companies have been introduced. 
    The following applies to the proceedings initiated before the new Bankruptcy Act entered into force:
  • Pre-bankruptcy proceedings, which started before 1 September 2015, shall be completed in accordance with provisions of the Act on Financial Operations and Pre-Bankruptcy Settlement. There are, however, certain special rules which apply to the pre-bankruptcy settlements adopted thereunder (e.g. it is not possible to initiate pre-bankruptcy proceedings under the new Bankruptcy Act before two years after the deadline for fulfilment of obligations under the confirmed pre-bankruptcy settlement have expired);
  • Bankruptcy proceedings, which started before 1 September 2015, shall also be completed in accordance with provisions of the old Bankruptcy Act. However, there are many exceptions to this rule. For example, provisions on delivery of court decision via court website, provisions on bankruptcy (restructuring) plan (which make it possible for a debtor to continue with its business operations even in the “old” bankruptcy proceedings), provisions on collection of collaterals, etc. 
    However, it is important to be careful when establishing which rules apply to the “old” bankruptcy proceedings. This is because the new Bankruptcy Act prescribes that a list of provisions applicable to the “old” bankruptcy proceedings shall not apply if the action to which the respective provision applies has already started. This means, for example, that the aforementioned specific rules for collection of collaterals (including the starting price of HRK 1.00 for the sale of real property at fourth public bid) apply to the “old” bankruptcy proceedings, unless the sale of property in certain bankruptcy proceedings had already started before 1 September 2015.

Authors

Picture of Marija Zrno
Marija Zrno Prošić
Partner
Zagreb
Matija Grabar