Restructuring and insolvency law in Serbia

1. What is the primary legislation governing insolvency and restructuring proceedings in your jurisdiction?

The primary piece of legislation governing insolvency in Serbia is the Serbian Insolvency Act (Official Gazette of the Republic of Serbia nos. 104/2009, 99/2011, 71/2012, 83/2014, 113/2017, 44/2018 and 95/2018). In addition, please note that preliminary insolvency proceedings involving restructuring, i.e. reorganisation proceedings, are regulated by the same Act. Restructuring proceedings outside of insolvency proceedings are governed by Serbian corporate and labor law regulations.

2. How are insolvency proceedings or restructuring proceedings initiated?

After filing of the insolvency petition, the court firstly examines whether the conditions for opening insolvency proceedings are met. These so-called preliminary insolvency proceedings may last for a maximum of 30 days from the date of filing of the insolvency petition by an authorised petitioner. The petitioner (i.e. the entity that filed the insolvency petition) is obliged to make an advance payment of costs. The amount of the advance payment is determined depending on the classification/size of the legal entity. 

Afterwards, the court deliberates as to whether the company’s assets will at least cover the costs of insolvency proceedings. If the company has enough assets, the court will proceed with the opening of insolvency proceedings and appoint an insolvency administrator (a preliminary administrator may be appointed while examining the existence of grounds for insolvency, to protect the insolvency estate). If the court establishes that the company has only one creditor, the proceedings will be terminated without delay.

Insolvency proceedings are conducted by several bodies that have various competencies in terms of conduct of the proceedings, but specifically the insolvency judge, the insolvency administrator, the assembly of creditors and the board of creditors. However, the main authority in terms of the statutory issues lies with the judge (such as opening the proceedings, appointing the administrator, issuing a resolution on division of assets and concluding the proceedings) as well as the insolvency administrator, who administers the proceedings.

Under Serbian insolvency law, the company (i.e. insolvency debtor) itself or any creditor can file an insolvency petition before the competent court, whereas insolvency proceeding must be opened if at least one of the following grounds exists:

  • Permanent insolvency – the company is unable to pay its debts within 45 days of the date they become due or it has completely ceased all payments for a consecutive period of 30 days. Permanent insolvency is presumed where the petition opening insolvency proceedings was filed by a creditor who was unable to obtain satisfaction of his monetary claim by any of the means of enforcement in a judicial or tax enforcement proceeding available in the Republic of Serbia
  • Imminent insolvency – it is apparent that the company will not be able to pay its debts as they become due
  • Overindebtedness – the liabilities of the company exceed its assets
  • Failure to comply with the adopted reorganisation plan or if the reorganisation plan was put into effect in a fraudulent or unlawful manner.

4. Which different types of restructuring / insolvency proceedings exist and what are their characteristics?

Pursuant to the Insolvency Act, insolvency proceedings are split into two phases – preliminary insolvency proceedings and the main insolvency proceedings (please see answer no. 2 for more details).

The Act also recognises restructuring by means of a regular reorganisation plan or a pre-prepared reorganisation plan (please see answer no. 12 for more details).

5. Are there several types of creditors and what is the effect of a difference?

Yes, the Insolvency Act recognises several types of creditors, namely:

  1. Secured creditors (in Serbian: “razlučni poverilac”)
  2. Lien creditors (in Serbian: “založni poverilac”)
  3. Creditors with a right of separation (in Serbian: “izlučni poverilac”)
  4. (Non-secured) insolvency creditors (in Serbian: “stečajni poverilac”)

Secured creditors are creditors that have a security, statutory retention right, or a right of settlement on assets and rights that are recorded in public records or registers, and have the right of primary settlement from the proceeds of the sale of such assets, or from collection of claims on which they have gained that right. 

Lien creditors are creditors that have security on the property or rights of the company (i.e. insolvency debtor) registered in public records or registers and who, unlike secured creditors, do not have a monetary claim against the company (i.e. insolvency debtor) that is secured by such security interest.

Creditors with a right of separation are creditors entitled to request that a certain asset be excluded from the insolvency estate (e.g. since they have ownership rights over such asset etc.).

The claims of (non-secured) insolvency creditors are divided into four ranks, based on priority of their claims in terms of settlement out of the insolvency estate.

6. Is there any obligation to initiate restructuring / insolvency proceedings? For whom does this obligation exist and under what conditions? What are the consequences if this obligation is violated?

If the appointed administrator determines during winding-up proceedings (i.e. voluntary liquidation proceedings) that the company does not have enough assets to settle all its liabilities, said administrator is obliged to initiate insolvency proceedings against the company before the competent court. The consequences of violation of this obligation are not explicitly regulated in law.

7. What are the main duties of the representative bodies in connection with restructuring / insolvency proceedings?

Under the Serbian Companies Act, the representative bodies have a general duty to act diligently, showing the care of a prudent businessperson, and with a reasonable belief that they are acting in the company’s best interest. This provision can be applied to restructuring and insolvency proceedings in the sense that the company’s representative bodies should refrain from any action which could decrease the value of the insolvent company, i.e. its assets, or in any other way prevent successful completion of the insolvency proceedings. 

The representative bodies are thus bound to refrain from entering into agreements and taking part in legal transactions after illiquidity or overindebtedness of the company with the purpose of decreasing the future insolvency estate or putting some creditors in a more favourable position by providing security or settlement to them. 

Also, after the opening of insolvency proceedings, the former representative bodies (after the commencement of insolvency proceedings the insolvency administrator is the sole representative of the insolvent company) are bound to hand over the accounting documents, business books, stamps and any other data or information needed for conducting the insolvency proceedings. They may be held liable for any damages caused to the creditors by withholding or providing incorrect data or information.

When it comes to restructuring (preliminary insolvency proceedings) the representative bodies of a legal entity are usually involved in the preparation of the reorganisation plan (pre-prepared reorganisation plan) as well as in implementation of the adopted reorganisation plan under the supervision of an independent expert/panel of experts. The task of the independent expert is to monitor implementation of the plan and report to the creditors.

On the other hand, once insolvency proceedings have been formally opened the representative bodies have far fewer powers. They are involved only with respect to initiating the insolvency proceedings – e.g. the company’s assembly decides on filing an insolvency petition. 

Other than this, they have duties of disclosure and cooperation with the insolvency administrator and to provide adequate protection of the property (see above under 7). This is due to the fact that after the opening of the insolvency proceedings the insolvency administrator becomes the new legal/statutory representative of the insolvent company and is the sole person authorised to manage the business of the insolvent company and manage its assets.

9. What are the main duties of shareholders in connection with restructuring / insolvency proceedings?

Other than the general duty to act diligently and in the best interest of the company (see above under 8), the shareholders have no specific duties in connection with the restructuring and insolvency proceedings.

10. Are the shareholders of a company involved in restructuring / insolvency proceedings?

The Insolvency Act specifically entitles shareholders who own at least 30% of the shares to submit a reorganisation plan. Additionally, when it comes to the insolvency proceedings, the shareholders may decide on the commencement of the insolvency proceedings via the company’s assembly.

11. Is a solvent liquidation of the company an alternative to regular insolvency proceedings?

Under Serbian law, the liquidation (winding up) of a company may be conducted only when the company has enough assets to settle all of its liabilities. 

By contrast, insolvency proceedings are commenced and conducted in the event of permanent insolvency, imminent insolvency, overindebtedness or a failure to comply with the adopted reorganisation plan (see above under 3). 
Therefore, under Serbian law solvent liquidation of the company is highly unlikely to be an alternative to regular insolvency proceedings.

Yes. Under the Serbian Insolvency Act there is a legal framework for reorganisation, the purpose of which is to enable companies in financial difficulties to continue trading in whole or in part, for example by changing the composition, conditions or structure of assets and liabilities or of their capital structure, including by sales of assets or parts of the business.

The law provides for two types of reorganisation – a regular reorganisation and a reorganisation where an authorised petitioner files a pre-prepared reorganisation plan, the difference being the point in time when the reorganisation plan is filed with the court (i.e. after insolvency proceedings have been opened or before).

In the case of a regular reorganisation, the plan is filed within 90 days from the opening of insolvency proceedings, whereas with a reorganisation filed by an authorised petitioner using a pre-prepared reorganisation plan, the plan is filed concurrently with the insolvency petition.

In both cases, adoption of the reorganisation plan leads to termination of insolvency proceedings. 

13. What is the average success rate after completed restructuring / insolvency proceedings?

Statistically, the average insolvency payout to non-secured creditors lies between 5 and 10%. 

It should be noted, however, that quite often no monies will be distributed due to a lack of assets. This is because in some insolvency proceedings all funds available in the insolvency estate are needed to pay court fees and privileged/secured claims.

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Nedeljko Velisavljević
CEE Partner I Belgrade
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Nenad Kovačević
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Igor Đorđević
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Milica Tomić
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