Bankruptcy

Bankruptcy

Bankruptcy is a special non-contentious procedure carried out with the aim to collectively settle all of the bankruptcy creditors by encashing the debtor’s assets and distributing the collected funds to the creditors. It usually results in cessation of the debtor as a legal entity (unless the creditors accept a bankruptcy plan agreed to by the debtor).

 

The debtor can be a legal entity or an individual debtor, i.e. a natural person (payer of tax on income from independent activities or a natural person who is a profit tax payer).

 

Reasons for bankruptcy are inability to pay and overindebtedness, if the debtor is unable to fulfil its financial obligations over an extended period of time.

 

It shall be deemed that the debtor is unable to pay:

  • If in the Payment Transaction Order Register kept by the Financial Agency the debtor has one or more registered outstanding payments over a period longer than 60 days that should have been, based on valid grounds for payment, without any further consent by the debtor, collected from any of the debtor’s accounts
  • If the debtor has failed to pay three consecutive salaries owed to the worker according to a labour agreement, labour regulation, collective agreement, special regulation or another bylaw regulating the employer’s obligations toward the worker

 

Overindebtedness exists if assets of a legal entity do not cover its current liabilities, unless:

  • according to the circumstances of a particular case (developmental programme, available funding sources, type of assets, insurances obtained etc.) it can be reasonably assumed that the legal entity will, by continuing to operate, keep regularly settling its liabilities as and when due
  • if a company member/natural person is jointly responsible for the company’s liabilities, provided that no bankruptcy procedure has been instituted or pending against such person’s assets.

 

Bankruptcy institution

Bankruptcy proceedings are instituted by submitting a proposal to a commercial court having subject matter and territorial jurisdiction (according to the seat of the debtor/legal entity or the seat of an individual debtor through the form.

 

Bankruptcy proceedings may be instituted by:

1) A creditor against the debtor/legal entity – if the creditor makes probable the existence of its claim and any of the reasons for bankruptcy

2) The debtor (a person authorised to represent the debtor under the law, a member of the management board of a public limited company, a member of the debtor’s supervisory board if there are no persons authorised to represent the debtor under the law, a member of a limited liability company if the debtor has no supervisory board and there are no persons authorised to represent the debtor under the law)

3) Individual debtor

 

The Financial Agency shall submit a proposal to institute bankruptcy proceedings if the legal entity has outstanding payments over an uninterrupted period of 120 days registered in the Payment Transactions Order Register, within eight days after the expiry of that period, unless prerequisites for summary bankruptcy proceedings have been met.

 

Bankruptcy information

All court documents (including court decisions, summons and the like) are delivered by posting the document on the website e-Court Notice Board (e-Oglasna ploča sudova),  unless otherwise stipulated by law. Delivery is deemed complete with the expiry of 8 days following the date of publication of the document on the website.

 

 

 

Course

Prior proceedings are a non-mandatory (optional) part of bankruptcy proceedings that precedes the decision on instituting bankruptcy proceedings and is carried out for the purpose of determining the prerequisites for instituting bankruptcy proceedings.

 

The court decides on instituting, conducting and closing the bankruptcy proceedings, appoints and supervises the bankruptcy manager and the board of creditors and carries out other activities to ensure that the bankruptcy is conducted according to law and that the creditors receive payment.

 

By instituting and conducting bankruptcy proceedings, all of the rights are transferred from the debtor’s bodies (e.g. management board) to the bankruptcy manager and during the bankruptcy proceedings the debtor may either continue or cease to operate.

The board of creditors has the duty to supervise the bankruptcy manager and assist him/her in managing operations and, in addition to its other powers, informs the court and creditors on the course of the proceedings and on the status of the bankruptcy estate.

 

An assembly of creditors decides on a series of issues that are relevant for the conduct and completion of bankruptcy proceedings, such as appointing a new bankruptcy manager, adopting a decision on continuation of operations or drafting a bankruptcy plan, and it is in particular entitled to request a report from the bankruptcy manager concerning the state and management of affairs.

 

The bankruptcy manager represents the debtor and manages its operations in the event of their continuation, and he/she has the duty to encash the bankruptcy estate assets in line with the decisions of the assembly of creditors and the board of creditors.

 

Creditors submit their claims to the bankruptcy manager within 60 days of the date of publication of the decision. After examining the merits of submitted claims, assets are encashed and thus encashed assets are distributed, i.e. paid to creditors in corresponding percentages according to different payment orders of precedence, i.e. the course of the bankruptcy is carried out according to the accepted bankruptcy plan.

 

If the creditors fail to make a decision on the further manner and conditions of sale, the bankruptcy manager shall determine the manner and conditions of sale.

 

The settlement of creditors is carried out according to the inflow of cash. Distributions are carried out by the bankruptcy manager, and the final distribution commences as soon as bankruptcy asset encashment is complete.

 

The final hearing shall be determined no later than 18 months following the report hearing.

The court shall pass a decision on the conclusion of the bankruptcy proceedings immediately after the completion of the final distribution.

 

With the conclusion of the proceedings and its deletion from the register, the company ceases to exist.

 

Bankruptcy plan

After instituting the bankruptcy proceedings, a bankruptcy plan may be drafted and it may depart from the statutory provisions on bankruptcy estate encashment and distribution. The bankruptcy manager is entitled to submit the bankruptcy plan to the court up until the final hearing.

 

Summary bankruptcy proceedings

The court will conduct summary bankruptcy proceedings over a legal entity if the following prerequisites have been met:

  • If there are no employees
  • If the entity has outstanding payments registered in the Payment Transactions Order Register over an uninterrupted period of 120 days
  • If no prerequisites have been met to institute another procedure for deletion from the court register

 

Legal remedy

An appeal may be filed against decisions passed in bankruptcy proceedings within eight days following the date of delivery of the first-instance decision, unless otherwise stipulated by law.

 

PRE-BANKRUPTCY PROCEEDINGS

Pre-bankruptcy proceedings is a special type of non-contentious procedure carried out in order to regulate the legal position of the debtor and its relation toward creditors and to maintain its activity.

 

Pre-bankruptcy proceedings may be instituted if the court finds that there is a threat of inability to pay. The threat of inability to pay exists if the court becomes convinced that the debtor will not be able to settle its current liabilities when due.

 

It shall be deemed that there is a threat of inability to pay if no circumstances have arisen due to which it is deemed that the debtor has become unable to pay and if:

  • If the debtor has one or more outstanding payments registered in the Payment Transactions Order Register kept by the Financial Agency that should have been, based on valid grounds for payment, without any further consent by the debtor, collected from any of the debtor’s accounts, or
  • If the debtor has over a period longer than 30 days failed to pay a salary owed to the worker according to a labour agreement, labour regulation, collective agreement, special regulation or another bylaw regulating the employer’s obligations toward the worker, or
  • If the debtor has over a period longer than 30 days failed to pay salary contributions and taxes owed to the worker according to a labour agreement, labour regulation, collective agreement, special regulation or another bylaw regulating the employer’s obligations toward the worker, counting from the date when the payment of salary to the worker became due.

 

Pre-bankruptcy proceedings may be carried out over a legal entity and over the assets of an individual debtor (a natural person who is a payer of tax on income from independent activities according to the provisions of the Income Tax Act and a natural person who is a payer of profit tax according to the provisions of the Profit Tax Act.

 

In pre-bankruptcy proceedings, only the commercial court on the territory of which is the debtor’s seat located has the subject matter and territorial jurisdiction. Petitions to be filed in pre-bankruptcy proceedings on the website e-Court Notice Board (e-Oglasna ploča sudova).

 

The proposal for instituting pre-bankruptcy proceedings may be filed by the debtor or a creditor, if the debtor agrees to such proposal. The creditor shall deliver the debtor’s consent along with the proposal to institute pre-bankruptcy proceedings.

 

Pre-bankruptcy proceedings are urgent. The law stipulates that pre-bankruptcy proceedings must be completed within 120 days following the date of filing of the proposal. As an exception, the court may, at the debtor’s proposal, allow for an extension of the time limit for further 90 days if it deems this serves the purpose of entering into a pre-bankruptcy agreement.

 

All court documents (including court decisions, summons and the like) are delivered by posting the document on the website e-Court Notice Board (e-Oglasna ploča sudova), unless otherwise stipulated by law. Delivery is deemed complete with the expiry of 8 days following the date of publication of the document on the website e-Court Notice Board (e-Oglasna ploča sudova).

 

The court shall decide on the proposal to institute pre-bankruptcy proceedings within eight days as of the date of filing of the full proposal.

 

The filing of a claim is carried out on a prescribed form to the competent unit of the Financial Agency within 15 days as of the date of publication of the decision to institute pre-bankruptcy proceedings on the website e-Court Notice Board (e-Oglasna ploča sudova).

 

The creditors of an individual debtor file only those claims arising from or related to the performance of the debtor’s activities.

 

A filled-out form for voting on a reorganisation plan may be enclosed to the claim form.

 

If a creditor has not filed its claim, and the claim is listed in the proposal to institute pre-bankruptcy proceedings, the claim listed in the proposal to institute pre-bankruptcy proceedings shall be deemed filed.

 

The Financial Agency (FINA) shall, on a prescribed form, create a table of filed claims and a table of disputed claims. The Financial Agency shall publish on the website e-Court Notice Board (e-Oglasna ploča sudova):

  • A table of claims filed along with the respective claim forms and documents
  • A statement on the claims filed or the information that the statement has not been delivered
  • A table of disputed claims

 

The Financial Agency shall provide to the debtor and creditor a full insight into the received documentation before its delivery to the court.

 

Creditors are classified into groups on the basis of their claims. Each group of creditors with the voting right votes separately on the reorganisation plan. The rules for classifying participants in the bankruptcy plan shall correspondingly apply to the classification of creditors in pre-bankruptcy proceedings.

 

It shall be deemed that the creditors have accepted the reorganisation plan if a majority of all the creditors has voted for it and if in each group the sum of claims of the creditors who have voted for the plan exceeds the sum of claims of the creditors who have voted against the plan by double.

 

The right of vote is held by creditors whose claims have been established, creditors who can prove their claims by an enforcement document, unless a public or publicly certified document proves the cessation of a claim, a secured creditor for a part of its claim secured by the right to separate satisfaction which it filed as a creditor, if it is secured by the right to separate satisfaction registered in a public record, unless the debtor proves the cessation of the claim via a public or publicly certified document, and creditors of disputed claims who have been granted the right of vote by agreement.

 

A confirmed pre-bankruptcy agreement has a legal effect both toward those creditors who did not participate in the proceedings and toward those creditors who did participate in the proceedings and their disputed claims have been subsequently established.

 

Pre-bankruptcy proceedings do not affect:

  • The right to separate satisfaction of secured creditors and creditors with the right of separation
  • Claims of workers and previous workers of the debtor arising from a labour relation in a gross amount, severance payments up to the amount prescribed by the law or a collective agreement and claims on the basis of damage compensation due to work-related injury or illness
  • Security measures in criminal proceedings
  • Tax procedures for determining abuse of rights

 

Bankruptcy costs

The costs and duration of bankruptcy proceedings, like in any other court proceedings, cannot be specified in advance as they depend on a number of factors relating to the bankruptcy debtor and the procedure itself.

 

The costs of bankruptcy proceedings include:

  1. Court costs of bankruptcy proceedings
  2. Claims of unpaid salaries to workers in gross amounts as determined in the bankruptcy proceedings and exceeding three unpaid salaries realised by the worker according to a special regulation, up to a maximum of three unpaid minimum salaries in Croatia. The provisions of this item do not apply to persons who were authorised to manage the company’s operations
  3. Remunerations and expenses of the interim bankruptcy manager, bankruptcy manager and members of the board of creditors
  4. Other costs that this or another act stipulates to be settled as costs of bankruptcy proceedings

 

In bankruptcy proceedings, each creditor bears its own costs of proceedings, whereas costs of the court and other bodies in the proceedings, i.e. participants in the proceedings shall be settled from sources that are prescribed by the law.

 

The costs of proceedings may be settled from the debtor’s assets. To settle the costs of proceedings, funds that have been collected by encashing the debtor’s assets may be used, as well as funds that have been collected for that purpose prior to instituting the bankruptcy proceedings.

 

An advance for covering the costs of bankruptcy proceedings prior to the commencement of the bankruptcy proceedings shall be collected upon order by the Financial Agency. FINA shall, after it determines the inability to execute a payment transaction due to a lack of funds on the accounts of the legal entity, order the bank to seize funds from the debtor’s account in the amount of 5,000.00 HRK. The costs of proceedings may also be settled from the advance payment that the party submitting the proposal to institute bankruptcy proceedings is obliged to pay.

 

The party submitting the proposal to institute bankruptcy proceedings shall, upon order by the court, within eight days pay the advance sum which may not exceed 20,000.00 HRK.

 

No advance payment shall be paid by:

  • Workers and previous workers of the debtor if they have filed a proposal to institute bankruptcy proceedings in order to collect their due claim from the basis of labour
  • Financial Agency if it has submitted a proposal to institute bankruptcy proceedings by official duty Republic of Croatia

 

To settle the cost of proceedings that cannot be settled from the debtor’s assets and advance payment, a Fund for Settlement of Bankruptcy Proceedings Costs shall be established at every court. The assets of the Fund for Settlement of Bankruptcy Proceedings Costs shall be provided from assets obtained on the basis of law.

 

The party submitting the proposal to institute bankruptcy proceedings shall pay an advance payment of 1,000 HRK into the Fund for Settlement of Bankruptcy Proceedings Costs. A court fee amounting to 100 HRK shall be paid for the proposal to institute bankruptcy proceedings.

 

A court fee amounting to 2% of the value of claim shall be paid by the creditor for filing each individual claim, but no more than 500 HRK.

 

After issuing the decision on principal distribution, the bankruptcy manager shall deposit a flat fee. The flat fee shall be paid from the sum of amounts that have been used or are available for the settlement of debts of the bankruptcy estate in the amount of 2% of the distributed estate, but no more than 2,000 HRK. The flat fee is regarded as a debt of the bankruptcy estate.

 

Competent body and regulations

Ministry of Justice

Ulica grada Vukovara 49

10 000 Zagreb

gradjansko.pravo@pravosudje.hr

 

Bankruptcy Act (OG 71/15)

Ordinance on the content and layout of forms for filing submissions in pre-bankruptcy and bankruptcy proceedings (OG 107/15)

Ordinance on the taking of professional examination, training and professional development of bankruptcy managers (OG 104/15)

Ordinance on determining the lists of bankruptcy managers (OG 104/15)

Regulation on the criteria and manner of calculation and payment of remuneration to bankruptcy managers (OG 105/15)

Ordinance on the prerequisites and manner of appointing a bankruptcy manager by the random choice method (OG 106/15)

Ordinance on the list of Financial Agency units and fields of their competence in pre-bankruptcy proceedings (OG 106/15)

Ordinance on the type and amount of the reimbursement of costs of Financial Agency in pre-bankruptcy proceedings and on the amount of reimbursement of costs of Financial Agency for filing the proposal to institute bankruptcy proceedings (OG 106/15)

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