Bankruptcy is a special non-contentious procedure carried out with an aim to collectively settle all of the bankruptcy creditors by encashing the debtor’s assets and distributing the collected funds to the creditors.
Bankruptcy 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 may be a legal person or an individual debtor, i.e. a natural person (payer of income tax from independent activities or a natural person who is a profit tax payer).
Reasons for bankruptcy are insolvency and excessive indebtedness. The debtor may propose institution of bankruptcy proceedings if it is probable that the debtor will not be able to fulfil the existing and immediate liabilities (debtor’s ability to fulfil due liabilities is threatened).
It is considered that the debtor is insolvent in following cases:
Excessive indebtedness exists if assets of a legal entity do not cover its current liabilities, unless:
Bankruptcy proceedings are instituted by submitting a proposal to a commercial court having real competence and territorial jurisdiction (in accordance with the head office of the legal person of the debtor, i.e. the head office of an individual debtor) via selected form.
If the debtor has no head office, a commercial court having real competence and territorial jurisdiction is the one located in the area of the debtor’s permanent residence.
If the debtor has no permanent residence, a commercial court having real competence and territorial jurisdiction is the one located in the area of the debtor’s temporary residence.
Pre-bankruptcy proceedings may not be instituted if the bankruptcy proceedings have already been instituted.
Bankruptcy proceedings may be instituted by:
1) A creditor against the legal person of the debtor – 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, liquidator of the debtor, 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) The individual debtor.
The Financial Agency has to submit a proposal to institute bankruptcy proceedings if the legal person 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.
All court documents (including court decisions, summons and the like) are delivered by posting the document on the website e-Court Notice Board, unless otherwise stipulated by law. The delivery is deemed complete with the expiry of 8 days following the date of publication of the document on the mentioned website.
Course of bankruptcy proceedings
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 in accordance with the 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 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 will 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 will be determined no later than 18 months following the report hearing.
The court will 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.
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 person if the following prerequisites have been met:
An appeal may be filed against decisions passed in bankruptcy proceedings to a commercial court within eight days from the date of delivery of the first-instance decision, unless otherwise stipulated by law.
Pre-bankruptcy proceedings are 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 insolvency. The threat of insolvency, i.e. inability to pay, exists if the court becomes convinced that the debtor will not be able to settle its current liabilities when due.
It will be considered that there is a threat of insolvency if no circumstances have arisen due to which it is deemed that the debtor has become insolvent and:
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 income tax from independent activities in accordance with the provisions of the Income Tax Act and a natural person who is a payer of profit tax in accordance with the provisions of the Profit Tax Act).
In pre-bankruptcy proceedings, only the commercial court on the territory of which is the debtor’s head office located has the real competence and territorial jurisdiction. If the individual debtor has no head office, a commercial court having real competence and territorial jurisdiction is the one located in the area of the debtor’s permanent residence. If the individual debtor has no permanent residence, a commercial court having real competence and territorial jurisdiction is the one located in the area of the debtor’s temporary residence.
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 has to deliver the debtor’s consent along with the proposal to institute pre-bankruptcy proceedings.
Pre-bankruptcy proceedings are urgent. The law stipulates that the pre-bankruptcy proceedings have to be completed within 300 days from the date of instituting the pre-bankruptcy proceedings. As an exception, the court may, at the debtor’s proposal, allow an extension of the time limit for additional 60 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, unless otherwise stipulated by law. The 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.
The court has to decide on the proposal to institute pre-bankruptcy proceedings within eight days from 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 from the date of publication of the decision to institute pre-bankruptcy proceedings on the e-Court Notice Board website.
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 is deemed filed.
The Financial Agency (FINA) has to, on a prescribed form, create a table of filed claims and a table of disputed claims. The Financial Agency has to publish on the e-Court Notice Board website as follows:
The Financial Agency has to 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 correspondingly apply to the classification of creditors in pre-bankruptcy proceedings.
It will be considered 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 settlement which it filed as a creditor, if it is secured by the right to separate settlement registered in a public record, unless the debtor proves the cessation of the claim via 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 not participate in the proceedings and their disputed claims have been subsequently established.
Pre-bankruptcy proceedings do not affect as follows:
Institution of pre-bankruptcy proceedings does not affect qualified financial agreements subject to provisions of Article 182, paragraphs 6 and 7 of the Bankruptcy Act.
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 as follows:
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 are settled from the sources as provided by 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.
The party submitting the proposal to institute bankruptcy proceedings has to pay an advance payment of HRK 1 000.00 to the Fund for Settlement of Bankruptcy Proceedings Costs and, upon order by the court, within eight days pay the advance sum which may not exceed HRK 20 000.00.
No advance payment is to be paid by:
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 has to be established at every court. The assets of the Fund for Settlement of Bankruptcy Proceedings Costs are provided from assets obtained as stipulated by law.
A court fee amounting to HRK 100 is to be paid for the proposal to institute bankruptcy proceedings.
A court fee amounting to 2% of the value of claim is to be paid by the creditor for filing each individual claim, but no more than HRK 500.
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Ordinance on the contents and type of the form for submitting applications in pre-bankruptcy and bankruptcy proceedings (OG 67/19)
Updated on 30 September 2020