Croatia

Summary of private placement provisions for fund interests (if applicable)

Definition of a “private placement”

According to the Croatian Act on Alternative Investment Funds (“AAIF”), the term “private placement” is defined as any notice in any given form and by any means, which contains enough information about the conditions of the offer and about offered shares in AIFs, based on which the investor can decide to subscribe to those shares, and which is according to some of its characteristics conditioned by, for example, the minimum investment amount; target group of investors; or by the number of investors.

Type of funds subject to private placement provisions

Alternative investment funds which can be established as an open-ended or close-ended fund without legal personality or as a close-ended fund in the form of a joint-stock company or a limited-liability company.

Type of investors in scope of private placement exemptions

According to the AAIF, the following investors fall within the scope of private placement exemptions:

• qualified investors; and
•  professional investors and persons treated as such at their own request under the Croatian Capital Market Act (“CMA”).

According to the AAIF, qualified investors are defined as investors which:

• undertake to pay a minimum one-time payment of HRK 400,000 or the equivalent in another currency for the purpose of investing in the units of one AIF;
• the value of their net assets is at least HRK 3,000,000 or the equivalent in another currency; and
• the AIFM estimates to have sufficient experience and expertise to be able to understand the risks involved and that the investment in the AIF is in line with their investment objectives.

According to the CMA, professional investors are defined as clients who possess the experience, knowledge and expertise to make their own investment decisions and properly assess the risks that these incur (such clients include: investment companies, credit institutions, insurance companies, collective investment schemes and management companies of such schemes, pension funds and management companies of such funds, pension insurance companies, commodity and commodity derivatives dealers, and local firms).

The following legal persons are also considered professional investors if they, in relation to the previous financial year, meet at least two of the following requirements:

• total assets of at least HRK 150,000,000;
• net income of at least HRK 300,000,000; or
• own funds of at least HRK 15,000,000.

The following entities are also considered professional investors: national and regional governments, public bodies that manage public debt, central banks, international and supranational institutions such as the World Bank, the International Monetary Fund, the European Central bank, the European Investment Bank and similar international organisations as well as other institutional investors whose main activity is investing in financial instruments without any need for obtaining relevant approvals or supervision of their activities, including entities incorporated for the purposes of securitization of assets or other finance transactions.

There are clients (including public institutions, local and regional municipalities, legal and natural persons) which can be considered professional investors upon their request, if they meet two out of three prescribed conditions, such as:

• the client has carried out transactions of significant value on the relevant market at an average frequency of ten per quarter over the previous 12 months;
• the size of the client’s financial instrument portfolio exceeds HRK 4,000,000; or
• the client works or has worked in the financial sector for at least one year, on the position which requires knowledge of the transactions or services envisaged.

Potential changes of private placement rules

AIFMD is implemented in Croatia through the AAIF. The AAIF, enacted in January 2013 was replaced with the new AAIF that came into force on 10 March 2018 and sets out additional rules for the private placement. Amendments to the AAIF to align it with subsequently adopted EU Regulations and Directives, are currently undergoing legislative procedure which may change the rules of private placement further.

Other forms of possible placement options for fund interests outside fund regulations

Under the CMA, reverse solicitation is allowed. However, the CMA does not define reverse solicitation.

Consequences of non-compliance with placement regimes for fund interests

Mandatory contractual consequences

The AAIF does not explicitly provide for mandatory contractual consequences but does provide that, without prejudice to the possibility of resolving disputes before a court or other competent authority, an AIFM has to provide the conditions for out-of-court settlement of disputes through arbitration between the AIFM and investors in the AIF, which are managed by the AIFM. AIFM might also be held liable for damages arising from the breach of AAIF and ordinances.

Regulatory sanctions

According to the AAIF, the Croatian Financial Services Supervisory Agency may impose the following sanctions on the UAIF:

• recommendation to the management board;
• a warning;
• an order to eliminate irregularities;
• specific supervision measures; and
• revocation of licence for all or for individual activities to manage all or certain AIF’s.

Penal sanctions

Depending on the type of violation of the AAIF, the UAIF may be ordered to pay a fine in the amount of HRK 50,000 – 500,000. Natural persons may be fined HRK 10,000 – 100,000.

According to the CMA, a fine of HRK 50,000 – 1,000,000 is prescribed for a legal person where it:

• fails to notify the Croatian Financial Services Supervisory Agency of the use of the exception from the obligation to publish the prospectus regarding a public offer;
• fails to submit the prospectus to the Croatian Financial Services Supervisory Agency in the prescribed form within the prescribed period or ensure compliance with prospectus requirements; or
• offers securities to the public without having published a valid prospectus before such public offering, and the publication of prospectus was required under the CMA.

Private placement rules for non-fund investments available

Non-fund investments subject to private placement opportunities outside fund regulation

The CMA does not recognise the term “private placement”.

According to the CMA, a public placement will be exempted from the prospectus requirement if, among others, (i) it is addressed solely to qualified investors (e.g. professional entities), (ii) addressed to fewer than 150 natural or legal persons per Member State, other than qualified investors, (iii) addressed to investors who acquire securities for a total consideration of at least EUR 100,000 per investor (in Croatian Kuna), for each separate offer, (iv) an offer of securities whose denomination per unit amounts to at least EUR 100,000 (in Croatian Kuna), (v) an offer of securities with a total consideration in the EU of less than EUR 100,000 (in Croatian Kuna), which is calculated over a period of 12 months, (vi) in case of an offer with the total consideration for the securities in the EU of less than EUR 5,000,000 (in Croatian Kuna), which is calculated over a period of 12 months in accordance with the Directive 2017/1129; (viii) an offer of shares issued in substitution for shares of the same class already issued, if the issuing of such new shares does not involve any increase in the share capital of the company, (vii) an offer of securities in connection with a takeover by means of an exchange offer, under certain conditions, (viii) an offer of securities which shall be allotted in connection with a merger or division under certain conditions, (ix) shares which are issued to the existing shareholders, based on an increase in the share capital from the company’s assets, or shares issued to existing shareholders instead of remuneration or dividend paid in the form of shares, (x) securities offered to former or existing members of the board or employees, or executive directors under certain conditions and (xi) shares of the company in the pre-bankruptcy and bankruptcy proceeding offered to creditors under certain conditions as well as financial restructuring under certain conditions. 

Generally, the private / public placement distinction is applicable to securities issued by any entity. They may include:

• shares or other securities equivalent to shares which represent a share in capital or in shareholders’ rights in a company, as well as the certificates on shares deposited;
• bonds and other types of securitised debts, also including a certificate of deposit related to such securities;
• any other security that gives the right to its holder to: acquire or sell negotiable securities by a unilateral declaration of will; or to demand a cash payment in an amount which is determined in view of the value of negotiable securities, foreign currency exchange rate, interest rates or yield, commodity, or in view of any other index or factor.

Type of non-funds subject to private placement provisions

Generally, the private / public placement distinction is applicable to all existing and former issuers of securities. All tradable non-funds interests (such as shares, bonds etc.) may be subject to private placement rules.

Type of investor in scope of private placement exemptions

According to the CMA, the following investors, among others, fall within the scope of exemptions from the prospectus requirement:

• qualified investors (e.g. professional investors and persons treated as such at their own request under prescribed conditions); and
• investors in an offer to less than 150 natural or legal persons per Member State (not including qualified investors).

Definition of a “private placement” in respect of non-fund investment

Unlike the AAIF, the CMA does not recognise the term “private placement”.