CMS Expert Guide for taking security in Croatia

Yes, in the form of suretyship, which is a secondary obligation dependant on the validity of the principal obligation.

Yes

No.

Yes, but please see the comments in section 4.

Yes, but please see the comments in section 4.

Yes, but please see the comments in section 4.

Corporate benefit: The concept of corporate benefit applies to upstream guarantees and security instruments (and possibly also to lateral ones).

In the case of upstream (and lateral) guarantees or security instruments, some things that need to be considered are the commercial aspects of the relationship, is it detrimental to the guarantor/security provider, what benefits are there for the provider, are there sufficient assets backing the nominal share capital amount of the issuer, has it been issued under the influence of the controlling company, etc. 

Financial assistance: A joint stock company is prohibited from granting security to secure the obligations of its shareholders related to the acquisition of its own shares. This prohibition is not expressly prescribed for LLCs. 

Transfer pricing rules: These require that transactions between related parties be conducted on arm’s-length terms, i.e. consistent with what unrelated parties would agree to in a similar transaction. Non-compliance with transfer pricing regulations can lead to tax adjustments and penalties. 

Related parties’ transactions: These transactions should either be approved by the company’s general assembly, or should alternatively be approved by the supervisory board and accordingly published, if they go over certain value.

The written form is mandatory, otherwise a suretyship agreement or a guarantee is void, i.e. invalid from the moment of execution.  

Yes, provided that the amount of the future obligations is determined or at least determinable.

Yes, the validity of a suretyship/security is dependent on the validity of the principal obligation, except for bank guarantees, to which this analysis does not apply. 

The indemnity (naknada štete) is foreseen in legislation. If the debtor's obligation to indemnify the creditor is set out in an agreement, the creditor may claim if the conditions of the agreement are met; otherwise, the creditor would have to prove that the general conditions for indemnification set by the law have been met.

Yes.

Yes. Note that, when issuing a guarantee to a non-resident, certain currency control limitations may apply to a Croatian resident.

These structures are not regulated by law and not expressly recognised, but are commonly used in cross-border transactions, where the same are established under foreign law governed documents, but so far have not been challenged and tested before the local courts.

A general rule is that security follows the principal obligations and, unless otherwise provided in the relevant security agreement, no consent of the debtor is required for a change of the creditor. 

It is recommended that a new creditor is registered with the relevant registries, with the most common ones being the land registry and FINA registry. 

Registration is made on the basis of an assignment agreement where the old creditor assigns the relevant security to the new one.

Secured obligations increase:

General changes to guaranteed/secured obligations, whether or not amendments to or confirmation of guarantee/security is needed depends on scope and nature of changes to the principal obligation and on terms of guarantee/security, including on how broad or specific the description the guaranteed/secured obligations is and what “savings” the provisions state. 

Amendments resulting in an increase of a surety’s liability require the surety’s consent, otherwise are not covered by the suretyship. 

If security is provided, generally an amendment agreement to the relevant security agreement reflecting the increase needs to be made and registered with the relevant register. However, there are some registers where an increase based on an amendment to the already existing security cannot be registered. In such case, a new agreement establishing a new security for the increased amount needs to be made and registered. Generally, the priority ranking of the increased claims (the amount exceeding the amount of secured obligations already registered in the registers) will be determined when the application to register the increase is submitted, based on the then existing records in the relevant register. 

Amendments to a notarised security agreement must be also notarised.

Changes to the obligors:

If a principal obligor is changed, suretyship/security granted by a third party terminates unless agreed by it, but security granted by a principal obligor stands. 

Additional remarks:

Novation of the principal obligation leads to the termination of surety/security, unless agreed otherwise.

Mortgages must be governed by Croatian law. 

Other security documents (including guarantees) may be governed by a foreign law, observing general restrictions under mandatory provisions. 

However, in practice, security documents over assets in Croatia are almost exclusively governed by Croatian law, as in practice such documents are made in the form of a notarial deed, which requires that the document is governed by Croatian law. 

Foreign courts: The submission of such disputes to foreign courts is generally allowed and should be enforceable. 

However, Croatian court jurisdiction is compulsory when the dispute falls under the exclusive jurisdiction of Croatian courts, e.g. cases involving real estate property. 

Arbitration: Submission to foreign arbitration is valid and enforceable, unless the law stipulates the exclusive jurisdiction of Croatian courts.

There are no such restrictions. However, it is worth noting that, when providing surety or issuing a guarantee or security securing the obligations of a non-resident, a Croatian resident would need to acquire appropriate security instruments.

There are several bases for claw-back claims and several different hardening periods, ranging from 1 month to up to 10 years before the opening of bankruptcy proceedings (in some cases where a voidable action is undertaken after bankruptcy has been opened, hardening periods are not time limited). 

By way of an example, the most common grounds for the avoidance of guarantee/security (and their applicable hardening periods) are the following: 

• a guarantee/security granted to a creditor in a manner and at a time according to the creditor’s right. Such security may be contested if it was entered into within 3 months before the opening of bankruptcy proceedings (but only if the debtor was unable to perform its obligations at the time when security was entered into and if the debtor was aware of its inability); 
• a guarantee/security granted to the creditor which the creditor had no right to demand or had no right to demand in that manner or at that time. Such security may be contested if it was entered into (i) within 1 month before the opening of bankruptcy proceedings (no additional conditions apply for such period); or (ii) during the third or second month before the proposal for the opening of bankruptcy proceedings was submitted, if the debtor was at that time unable to meet its obligations, or if the creditor was aware that the security would harm other bankruptcy creditors; 
• a guarantee/security by which the bankruptcy creditors are directly harmed. It may be contested if it was entered into 3 months before the opening of bankruptcy proceedings (but only if the debtor was unable to pay at the time the guarantee/security was entered into and if the Bank was aware of such inability of the participant); 
• a guarantee/security that was entered into in order to wilfully cause damage to other creditors. Such security may be contested if it was entered into within 10 years before opening of bankruptcy proceedings, if the creditor was aware of such intention of the debtor at that time.

The description of collateral must be sufficient for its clear identification. A mortgage is a pledge over immovable property.

Yes, provided that formalisation/perfection requirements mandatory for the assets within the collateral are fulfilled. 

Yes, subject to same considerations as discussed in section 4 above.

Notarisation is not required for all types of security, however in practice the security agreements are made in the form of a notarial deed, which is a requirement for the security to be directly enforceable.

Registration is mandatory for mortgages and for most of the commonly seen security instruments, especially those in the form of a notarial deed.

Any notarised security agreement must be executed in Croatian and may be executed in any other language. 

Executed in writing and contain mandatory terms provided by law. 

Yes. 

The priory of registered encumbrances is determined by the date/time of the receipt of motion for registration.

Establishment of security and level of security regulation is generally:

Security easily established and encumbrances easily checked, except for certain types of assets registered with FINA registry. 

Generally yes, unless other forms are required (please see above for details).

Yes.

A security holder, and in some cases also a security provider. 

Quick:

• mortgage: quick (via the Land Registry, publicly available online); and
• pledge: quick (by online FINA Registry) 

Low:

Up to EUR 3.33 per sheet for the extract from the Land Registry and EUR 3.33 for the full extract from the FINA Registry.

Quick:

Within a few business days. 

Low:

• mortgage: approx. EUR 32.50 (or EUR 16.25 if the application is submitted via the dedicated e-system by an attorney at law or notary public); and
• pledge: approx. EUR 33.00 if there are up to 20 pledged assets, and approx. EUR 37.00 if there are 20 such assets or more. 

In any case, such state fees are to be increased by the notarisation costs (section 27.3 below). 

Registration / amendments:

Low to medium depending on the secured claim amount; in any case not exceeding approx. EUR 5,165 (prescribed fees). 

Deregistration:

Low, approx. EUR 7.00.

N/A

Yes, if agreed by the parties in the relevant agreement.

Yes, if agreed by the parties in the relevant agreement.  

Yes, if agreed by the parties in the relevant agreement. 

Yes, if agreed by the parties in the relevant agreement. or on the opening of bankruptcy proceedings by virtue of the law. 

Yes, if any other grounds agreed on by the parties.

No, however for agreements in the form of notarial deed, the first step is obtaining an enforcement confirmation clause from the notary public.

Mortgage:

No, out-of-court enforcement is not available regarding real estate; 

Pledge:

Yes. No additional instrument or court involvement for direct enforcement is required.

No.

Yes, if agreed by the parties in the relevant agreement. 

No.

For bank account pledges, enforcement can be done by a servicing bank contractually debiting the funds; and the same goes for receivables/insurance assignment where the payments would be made by the relevant counterparties/insurers.

No.

Fairly easy, average length in terms of timing but quick for some types of security, e.g. bank account and receivables pledges;  more debtor friendly; average in terms of timing.

No, major changes in this area of law are rare.