December 2017 – On 14 December 2017, the Serbian Parliament adopted amendments to the Bankruptcy Law aimed at, among other things, shortening the bankruptcy procedure and improving settlement of the bankruptcy and secured creditors’ claims. The relevant novelties are harmonized with the Strategy for Resolving Non-Performing Loans, which was adopted by the Serbian Government back in 2015. The amendments came into force on 25 December 2017.
The position of secured creditors has been further improved. Namely, they now have the right to appoint one representative onto the board of creditors. The representative is chosen at a separate meeting attended solely by secured creditors, which voting power is determined by presumed degree of collection of their receivables from the value of the pledged property (i.e. secured creditors which receivables are more probable to be collected through the sale of pledged property, will have higher voting power). In addition, certain actions that used to be frequently undertaken, in practice, by bankruptcy administrators in their sole discretion while the bankruptcy procedure is still pending can now only be undertaken with a prior consent of the relevant secured creditor (e.g. leasing of mortgaged property or its sale by the method of direct bargaining).
Furthermore, in case of sale of pledged assets through direct sale, the relevant secured creditor will now have a right of first refusal and the right to set-off its secured receivable with the amount of the purchase price achieved for such asset, if the secured creditor purchases it. Also, the sale of the bankruptcy debtor as a legal entity or all of its assets, in most cases, will be subject to an additional approval of the relevant secured creditor holding security over such assets, which has to be obtained in addition to the already required approval of the board of creditors, in case the offered purchase price is below 50 per cent. of the estimated market value.
Also, certain new instruments for speeding up of the secured property sale process were introduced. Accordingly, the bankruptcy administrator now has a duty to offer pledged property for sale within six (6) months from the date when the decision of the bankruptcy liquidation process becomes final. In addition, upon a request of the bankruptcy administrator or the secured creditor who proves that its receivable is secured by the property in question, the bankruptcy judge may grant a secured creditor a nine-month period for the latter to try to sell such property outside the bankruptcy procedure. Such option is possible in case the property in question is not properly protected by the bankruptcy administrator, or if value of such property is diminishing without a possibility to prevent further depreciation, or if such property is not critical for the reorganization or sale of the debtor as a legal person. Granted period can be extended only once, for an additional period of three (3) months, if the secured creditor proves that a sale notice has already been published. In case that secured creditor fails to sell the secured property within the initial or extended period of time, such property will be returned to the bankruptcy estate, and the bankruptcy administrator will be authorized to sell it.
A significant novelty that is not related to the status and rights of secured creditors is that the unsecured creditors who make a prima facie case that they hold 50 per cent. or more of the value of all the claims of bankruptcy creditors are authorized to decide that the bankruptcy process should immediately continue as the liquidation of the bankruptcy debtor. This is expected to result in further expediting of the bankruptcy process. In addition, the status of licensed appraisers in the context of the bankruptcy procedure has now been regulated, opening way for the full implementation of the relevant aspects of the Law on the Real Estate Appraisers in the context of bankruptcy procedures.
Another important amendment is that bankruptcy rules now specifically provide that only one modification of the draft reorganization plan is possible prior to its adoption (both in case of reorganization plans adopted in the course of bankruptcy procedure and the so-called pre-packaged reorganization plans). This is in contrast to the previous situation where there was no formal limitation on the number of amendments to the draft reorganization plans, which was sometimes abused in practice for the purpose of prolongation of the status quo.
For further information, please contact, Nikola Stojiljković, Senior Associate, at , and Ksenija Sorajić Baković, Associate, at , Zajednička advokatska kancelarija Marić & Mujezinović in cooperation with Kinstellar.