On October 1 2012, a previously non-existent restructuring law, the Pre-bankruptcy Settlement Agreement Act (Official Gazette No. NN 108/12, 144/12, 81/13, 112/13) came into force.

The purpose of the new law is to achieve two goals:

  • Business turnaround of insolvent debtors, and
     
  • More favourable settlement of creditors than in bankruptcy proceedings.


The debtor is obligated to file a motion for restructuring if it meets one of the insolvency tests:  illiquidity, incapacity to pay and over-indebtedness. Pre-bankruptcy settlement agreement proceedings cannot be initiated at a creditor’s request. A creditor’s only option, in case a debtor fails to initiate the pre-bankruptcy proceedings, is to file a request for the debtor’s bankruptcy proceeding. In the bankruptcy proceedings, restructuring is possible under a very limited framework so ''survival'' of the debtor is an exception.

The restructuring proceeding is partly administrative and partly court proceeding. The first part of the proceedings, in which creditors register their claims and vote on the debtor's restructuring plan, is conducted before the Croatian Financial Agency (FINA).  If the restructuring plan is accepted and the debtor and creditors reach a pre-bankruptcy settlement agreement, the agreement is concluded before a competent commercial court.

Up to the end of year 2013, approximatelly 5.800 Croatian companies initiated pre-bankruptcy settlement agreement proceedings.  These companies have more than 52 billion kuna (approx. Eur 6,8bn) of outstanding obligations towards their suppliers and/or state. The Government puts a lot of hope into pre-bankruptcy restructuring proceedings as one of its anti-recession measures which should contribute to the recovery of Croatian economy.

Authors:
Ivana Manovelo
manovelo@macesic.hr

Anita Krizmanic
krizmanic@macesic.hr