Serbia: Insolvency Act Amendments Adopted

As of 13 August 2014, the amendments and supplements to the Insolvency Act [Zakon o stečaju] are in force, published in the Official Gazette of RS no. 83/2014 ("New IA").

The New IA shall not be implemented retroactively, and those insolvency proceedings that were ongoing on the day the New IA entered into force will be continued under the previously valid rules.

In general, the New IA has not introduced fundamental changes in the field of insolvency law.

Certain rules that had already been followed in practice gained legal form under the New IA. It remains to be seen whether the New IA shall expedite the completion of insolvency proceedings in Serbia, thus eliminating one of the greatest problems of the insolvency practice. It should be noted that - according to the data from the Insolvency Supervision Agency for a total of 3,595 cases initiated under the earlier Insolvency Act as of 23 January 2010 - the average duration of insolvency proceedings in Serbia amounted to approx. 1 year and 10 months.

Among the significant changes introduced by the new IA, we would like to highlight the following:

1. Insolvency receiver

  • The legal status and the process of appointing an insolvency receiver are made more clear-cut by the New IA. The insolvency receiver is now appointed solely under the random appointment method with the specification of new negative and positive conditions for appointments. Deadlines for the insolvency receiver to set certain acts have been placed in concrete terms, as have the provisions for the professional supervision of the receiver's work.
  • The competencies of the insolvency receiver have been extended, inter alia, by imposing a duty upon him to challenge legal actions if a successful challenge would result in increasing the insolvency estate. Also, the insolvency receiver is obliged to deliver a list of affiliated persons' claims at the beginning of the first creditors' hearing.

2. Fourth payment priority rank - Affiliated persons

  • The New IA has established fourth payment priority rank (final payment priority rank) for affiliates of the insolvency debtor. The aim of this novelty is to eliminate certain elements which may cause abuses in practice and be the possible source of corruption. Under the new IA, the acts of affiliated persons can be more easily challenged; at the same time, they are not entitled to be members of creditors' committee.
  • The New IA repealed the provisions of Article 181 of the Companies Act (Official Gazette of RS no. 36/11, 99/11), which had regulated the insolvency ranking of secured loans extended by company's shareholders. Therefore, equitable subordination rules are now regulated under the New IA.

3. Transparency of proceedings

  • The New IA introduces as legal categories the (i) insolvency court's electronic notice board (for the publication of all court-rendered legal acts), (ii) the insolvency court's public portal (for the publication of insolvency proceedings filings made by all participants of the proceedings), and (iii) the obligation of authorised agency to publicise insolvency receiver's quarterly reports on its web presence.

4. Creditors' bodies

  • The New IA places in concrete terms that the creditors' assembly and creditors' committee are to be formed at the first creditors' hearing. Scheduling the creditors' committee meeting is now more certain for members of such committee as, now, any member may schedule such meeting if the chairman of the committee does not do so within 15 days of receiving a request for a meeting date. Further, the New IA provides that the insolvency receiver is to inform each and every member of the creditors' committee about "action of significant importance" prior to undertaking it, rather than generally informing creditors' committee, an approach that in practice had resulted in informing only the chairman of creditors' committee

5. Collateralized creditors

  • The New IA has introduced the category of collateralized creditors. It is provided that the collateralized creditors are those creditors who do not hold a monetary claim towards insolvency debtor, but rather are secured by security interests provided by insolvency debtor. The New IA explicitly provides that they are not deemed as insolvency creditors. However, it fails to comprehensively regulate rights of this category of creditors and certain issues may be expected in practice.

6. Other amendments and supplements

  • The Assignment of insolvency claims is now expressly allowed. The insolvency claims may be assigned by way of an assignment agreement concluded until a decision on the main distribution of insolvency estate is rendered. The insolvency debtor must be provided a written notification on its assignment.
  • Reorganization plan's content and the procedure for voting for it have also been amended by the New IA.
  • Cross-border insolvency has been amended through the introduction of new primary criteria for establishing the exclusive cross-border jurisdiction. Namely, the centre of the insolvency debtor's main interests (COMI) is now a criterion for establishing a Serbian court's exclusive jurisdiction over a specific insolvency case.

*This text has been provided by Moravcevic Vojnovic and Partners in cooperation with Schoenherr

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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