Private placement rules and law in Croatia

1. 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, given to professional and qualified investors, which contains enough information about the conditions of the shares offered in AIF, based on which the investor can decide to subscribe to those shares, whereas such notice is conditioned by certain items, for example, the minimum investment amount; target group of investors; or by the number of investors.

Type of funds subject to private placement provisions

AIF subject to private placement 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 or a limited partnership (Cro. komanditno društvo).

Type of investors in scope of private placement exemptions

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

  1. qualified investors; 
  2. professional investors and persons treated as such at their own request under the Croatian Capital Markets Act (“CMA”); and 
  3. management board members and employees of AIFM managing the respective AIF, provided that such an employee is either directly included in investment activities of the respective AIF, or in a senior position in the respective AIFM with experience in providing asset management services. To rely on this exemption, such employees need to sign a statement in writing confirming the use of the respective exemption and acknowledging the fact that private placement AIFs are usually offered exclusively to qualified or professional investors. AIFM needs to inform the Croatian Financial Services Supervisory Agency (“HANFA”) of its intention to use this exemption. 

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

  1. possess sufficient experience and expertise for understanding the AIF investment risks and provided that the AIF investment is in line with their investment objectives; and 
  2. for the purpose of AIF investment, are willing to contribute the minimum payment of EUR 53,080 or equivalent in another currency, in accordance with such AIF's rules, satisfying at least one of the following two conditions: 
  • the value of investor's net assets is at least EUR 265,440 or the equivalent in another currency;
  • the investor works or has worked in the financial sector for at least one year in professional activities that require investment knowledge comparable to investments in the AIFM, or its operations, either for investor's own account or for the account of others, including management, acquisition or disposal of assets of the same type as the assets of AIF.

According to the CMA, professional investors are defined as clients who possess sufficient experience, knowledge and expertise to make their own investment decisions and can properly assess the risks that these incur (such clients include, subject to relevant approval or oversight of the national regulator: 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 pursuant to the Regulation (EU) No 575/2013).

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: 

  1. total assets of at least EUR 20,000,000; 
  2. net income of at least EUR 40,000,000; or 
  3. own funds of at least EUR 2,000,000. 

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 as professional investors upon their request, if they meet two out of three prescribed conditions: 

  1. the client has carried out ten transactions of significant value on the relevant market at an average frequency of ten per quarter over the previous 12 months; 
  2. the size of the client’s financial instrument portfolio exceeds EUR 500,000; or 
  3. 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. 

2. Potential changes of private placement rules

On a national level there is no planned changes of private placement rules in the near future. Other forms of possible placement options for fund interests outside fund regulations .

EEA AIFMs are authorised to conduct pre-marketing activities in Croatia, unless the information provided to professional investors: 

  1. are sufficient for investors to commit to acquiring units of a certain AIF 
  2. have features of forms for registration of units or similar documents, whether in draft or final form or 
  3. have the features of a prospectus, rules, AIF’s articles of association or offer documents of an AIF that has not yet been established, in its final form. 

When a draft of prospectus or offer documents are made available to potential professional investors, those documents must not contain information which would enable the potential professional investor to make an investment decision, and it must be clearly stated in them that documents do not represent an offer or an invitation to subscribe to AIF shares and that the information provided in them cannot be considered reliable because the document is not complete and is subject to change. 

All units of an existing AIF in relation to which the AIFM carried out pre-marketing activities or of an AIF that was established as a result of pre-marketing activities, and which were subscribed or acquired by professional investors within 18 months after the AIFM started with pre-marketing activities, are considered the result of trading and are subject to the notification requirements. 

On behalf of AIFMs pre-marketing activities may be conducted by: 

  1. investment firm 
  2. credit institution 
  3. UCITS management company 
  4. another AIFM 
  5. tied agent 

In the period of 36 months from the date of withdrawal of the marketing notification in the Republic of Croatia, AIFM is prohibited from conducting pre-marketing activities in relation to the shares of the AIF for which the notification was withdrawn, as well as in relation to a comparable investment strategy or idea. 

Under the CMA, reverse solicitation is allowed if the investment is exercised upon the exclusive initiative of the professional investor. However, it should be noted that the CMA does not define reverse solicitation expressly. 

3. 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. AIFM might also be held liable for damages arising from the breach of the AAIF and ordinances. 

Regulatory sanctions 

According to the AAIF, HANFA may impose the following sanctions on the AIFM: 

  1. a warning; 
  2. an order to eliminate illegalities and/or irregularities; 
  3. specific supervision measures; and 
  4. revocation of licence for all or for individual activities to manage all or a certain AIF. 

Penal sanctions 

Depending on the type of violation of the AAIF (i.e. gravity of misdemeanour), the AIFM may be ordered to pay a fine in the amount of EUR 6,630 – 66,360.00 of revenue in the year when the misdemeanour was conducted. Natural persons responsible in AIFM may be fined EUR 2,650 – 700,000. 

According to the CMA, a fine of EUR 6,630 – 26,540 is prescribed for a legal person (issuer) if, among others, it: 

  1. fails to notify the HANFA of the use of the exception from the obligation to publish the prospectus regarding a public offer; 
  2. submits notification with missing information prescribed under the CMA;
  3. fails to provide required documents or information document. 

For other violations concerning prospectus requirements and offers of securities to the public, the CMA prescribes fines of up to the 3% of the total revenue and or a fine of up to EUR 132,720 depending on the type of violation. Natural persons may be fined EUR 1,320 – 700,000. 

4. 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 in accordance with the Article 3(2) and Article 1(4) of the European Prospectus Regulation (EU) 2017/1129 (the “Prospectus Regulation”). In relation to the investors utilising the prospectus exemption, the CMA further imposes an obligation of issuing an information document in Croatian language and make it available to investors/public in the event such placement satisfies the following requirements: (i) total consideration for the securities in the EU ranges below EUR8,000,000 calculated over a period of 12 months and (ii) the exemption is not captured under Article 1 (4) of the Prospectus Regulation. 

Notification to HANFA is required in all cases of using the exemptions to the obligation of prospectus requirement prescribed under Article 1(4) and (5) and Article 3(2) of the Prospectus Regulation. The notification needs to include basic information of offeror, securities to be offered and, if possible, the total consideration for the securities and state the exemption the offeror is referring to and describe circumstances regarding the use of exemption. 

Type of non-funds subject to private placement provisions 

The private placement regime for non fund is not defined by CMA. In line with the CMA, the following entities are exempted and thus subject to the private placement provisions: 

  1. supranational institutions such as World Bank, the European Central bank, the European Investment Bank; 
  2. the national central banks; 
  3. national, regional or local authorities or other institutions which manage funds and invest in securities; 
  4. securitisation vehicles etc. 

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: 

  1. qualified investors (e.g. professional investors, persons treated as such at their own request under prescribed conditions); and 
  2. 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”.