The Southeast Europe Restructuring & Insolvency Guide 2016polenak.com/wp-content/uploads/2015/04/SEE-Legal... · 2018. 4. 5. · KALO & ASSOCIATES Kavaja Avenue G-KAM Business Centre

The Southeast Europe Restructuring & Insolvency Guide 2016

SeeLegal_R&I_2016.qxp_Layout 1 6/13/16 3:31 PM Page 1

3SEE LEGAL GROUP RESTRUCTURING & INSOLVENCY HANDBOOK 2016

CONTENTS


4 SEE LEGAL GROUP

“THE SOUTH EAST EUROPE LEGAL GROUP (SEE Legal) IS AN ORGANISATIONOF TEN LEADING NATIONAL LAW FIRMS FROM 12 SOUTH EAST EUROPEANCOUNTRIES AND IS THE LARGEST PROVIDER OF LEGAL SERVICES THROUGHTHE SEE REGION. OUR COMMITMENT REMAINS TO BE YOUR LEADINGSOURCE FOR BUSINESS SUPPORT IN THE REGION.”



KALO & ASSOCIATESKavaja AvenueG-KAM Business Centre4th Floor, Tirana, AlbaniaP.O. Box No. 235 T: +355 4 2233 532 [email protected]

Albania

BOYANOV & Co.Attorneys at Law82, Patriarch Evtimii Blvd.1463 Sofia, BulgariaT: +359 2 8 055 [email protected]

Bulgaria

Maric & CoMehmeda Spahe 2671000 SarajevoBosnia and HerzegovinaT: +387 33 566 [email protected]

Bosnia and Herzegovina

Divjak, Topic & BahtijarevicEUROTOWER, 18th FloorIvana Lucica 2A10000 Zagreb, CroatiaT: +385 1 5391 [email protected]

Croatia

Kyriakides Georgopoulos Law Firm28, Dimitriou Soutsou Str.115 21 AthensT: +30 210 817 1500 [email protected]

www.kglawfirm.gr

Greece

KALO & ASSOCIATESPejton, Mujo Ulqinaku 5/1 Str.10000 Pristina, KosovoT: +381 38 609 [email protected]

Kosovo

BDK Advokati Attorneys at Law51, Džordža Vašingtona Blvd.81000 Podgorica, MontenegroT: +382 20 230 [email protected]

Montenegro

Polenak Law Firm98 Orce Nikolov Str.1000 SkopjeRepublic of MacedoniaT: +389 2 3114 [email protected]

Republic of Macedonia

Nestor Nestor DiculescuKingston Petersen201 Barbu Vacarescu Str.Globalworth Tower, 18th FloorDistrict 2, Bucharest 020276RomaniaT: +40 31 225 [email protected]

Romania

BDK Advokati Attorneys at LawMajke Jevrosime 2311000 Belgrade, SerbiaT: +381 11 3284 [email protected]

Serbia

Selih & PartnerjiKomenskega ulica 361000 Ljubljana, SloveniaT: +386 1 300 76 [email protected]

Slovenia

Kolcuoğlu Demirkan KoçaklıSağlam Fikir SokakKelebek Çıkmazı No. 534394 Esentepe, Istanbul, TurkeyT: +90 212 355 99 [email protected]

Turkey

MEMBERS


6 SEE LEGAL GROUP



DisclaimerThis publication is intended to provide a general guide to the insolvency regulations in South East Europe. Each country section has been preparedby the relevant SEE Legal member firm covering the particular jurisdiction. This guide is not meant to be a treatise on any particular country’slegislation and is not exhaustive, but is meant to assist the reader in identifying the main principles governing the insolvency proceedings in thevarious jurisdictions of the South East Europe and to provide helpful guidance. Legal advice should always be sought before taking any actionbased on the information provided herein. The information contained herein is based on the respective legislation as of 31 December 2015. Nopart of this guide may be reproduced in any form without our prior written consent.

Dear Partners and Friends of SEE Legal,

South East Europe Legal Group (“SEE Legal”), a unique regional organisation of ten leading independent national law firmscovering the twelve jurisdictions of South East Europe, is delighted to be publishing this Guide on Restructuring andInsolvency in South East Europe.

Established in 2003, SEE Legal employs more than 450 lawyers and has an impressive client base of multinationalcorporations, financial institutions and governmental bodies. The member firms of SEE Legal have advised on most of thelandmark transactions in the region in the last two and a half decades and have been continuously ranked as top tier lawfirms in the main reputable legal directories (Legal 500, Chambers & Partners, IFLR 1000, etc.).

Our aim in preparing this Guide on Restructuring and Insolvency in South East Europe was to provide to in-house counsels,professionals and legal practitioners a helpful tool in understanding the legal framework regulating the insolvencyproceedings in the South East Europe.

The Guide provides information regarding the triggers for the opening of the insolvency proceedings, the effects of theopening of the insolvency proceedings, including treatment of the on-going agreements, court restructuring procedurebased on a reorganization plan, bankruptcy procedure, the treatment of secured and unsecured creditors, claw back cases,treatment of the additional financial support provided to the debtor after the opening of the insolvency proceedings, aswell as information regarding alternative restructuring procedures aimed at preventing the insolvency of companies infinancial distress.

Should you have any specific queries regarding restructuring and insolvency matters in South East Europe, we would bepleased to hear from you.

Sincerely,

Borislav BoyanovCo-Chair of SEE Legal

Alina RaduHead of Banking and Finance Practice Group of SEE Legal

PREFACE


8

AL



1. INSOLVENCY

1.1 Definition of InsolvencyAccording to the Bankruptcy Law in Albania, a debtor may bedeemed bankrupt under several circumstances including: : (i) theactual insolvency, i.e. the status when the debtor is overloadedwith debts, and (ii) the future insolvency i.e. the debtor will beunable to pay the creditors in the near future. A corporation isconsidered as overloaded with debts when its liabilities towardthird parties exceed its assets and it is not possible for it tocontinue its economic activity. In addition, the law provides thatthe cause for the opening of the bankruptcy proceedings ispresumed to exist if the debtor has not paid the liability threemonths after the due date.

1.2 Legal FrameworkIn Albania the primary legislation regarding insolvency andbankruptcy are as follows: • Law No. 89011 (the “Bankruptcy Law”).• Law No. 99202 (the “Tax Procedures Law”). • Law No. 78503 (the “Civil Code”).• Law No. 78954 (the “Criminal Code”). • Law No. 93745 (the “State Aid Law”).• Law No.99016 (the “Company Law”).

1.3 Main ActorsThe main bankruptcy bodies in a bankruptcy proceeding in Albaniaare: (i) the debtor (i.e., the legal entity which is insolvent), (ii) thecreditors, (iii) the commercial section of the relevant district court(the “Bankruptcy Court”), and (iv) the Bankruptcy Administratorappointed by the Bankruptcy Court.

2. INSOLVENCY PROCEEDINGS

2.1 Main Types The Albanian Bankruptcy Law provides that an insolvencyproceeding can be initiated for corporations with financialdifficulties in Albania. This is the only available formal insolvencyproceeding under the Albanian legislation for a company withfinancial difficulties. Once the insolvency proceedings are initiated,there is an option to (i) adopt a reorganisation plan aiming at thesurvival of the company; (ii) liquidate the company; or (iii) sell thedebtor (i.e., the legal entity which is insolvent).

2.2 Grounds for Initiating Each ProceedingThe competent Bankruptcy Court shall decide on the opening ofthe court insolvency proceedings whenever it is assessed that thelegal reason for the opening of such procedure is real. The legalreason for the opening of such procedure is deemed real; (i) if thecorporation is unable to pay its debts in due time, and (ii) if it isoverloaded with debts as provided in the Bankruptcy Law.

2.3 Formalities for Initiating Each ProceedingThe petition for the opening of the court insolvency proceedingsmay be submitted to the competent bankruptcy court either bythe debtor, or by a creditor.

Note that the Bankruptcy Law expressly provides that the openingof insolvency proceedings can be initiated also by the taxauthorities. Article 104 of the Tax Procedures Law provides thatthe tax administration shall submit a petition for the opening ofinsolvency proceedings for a taxpayer (registered in the form ofcommercial companies) in the following cases: (i) the companyhas been registered by the National Registration Center (“NRC”)as being under a passive/dormant status for two years; (ii) thecompany has been declaring losses of its own capital for at least

ALBANIA

AL

1 Dated 23 May 2002 on Bankruptcy, as amended2 Dated 19 May 2008 on Tax Procedures, as amended

3 Dated 29 July 1994 Civil Code, as amended4 Dated 27 January 1995 Criminal Code, as amended5 Dated 21 April 2005 on state aid, as amended6 Dated 14 April 2008 on entrepreneurs and commercial companies, as amended


10 ALBANIA

three consecutive years; (iii) the company has been in dormantstatus, according to article 44 of the Tax Procedure Law, for aperiod of at least three years; (iv) the company has been havingunpaid liabilities towards the tax administration for at least twoyears from the effective date of the Tax Procedures Law.

During the examination of the petition, the Bankruptcy Court mayappoint a Bankruptcy Administrator. The court may also imposesecurity measures on the debtors property The examination of theissue shall be terminated in any case no later than 30 days fromthe date of submission of the petition for the opening of theinsolvency proceding.

A copy of the court decision for the opening of the insolvencyproceedings is sent to the creditors (each of them), to the debtor, andto the debtors of the debtor. A copy of the decision is also sent to theNRC (it is made public on http://www.qkr.gov.al/nrc/vendime.aspx)and to the Real Estate Registry Office. The court decision is alsopublished on the website of the relevant bankruptcy court. Inaddition, the notifications for the initiation and termination of theinsolvency proceedings are published in the newspapers used forthe official notifications of the court.

2.4 Ending the Formal Proceeding(a) ProcessesThe insolvency proceedings must be terminated by the BankruptcyCourt and they cannot end automatically. The Bankruptcy Courtmay terminate the court bankruptcy proceedings if (i) all assets ofthe debtor have been distributed and the debtor has beenliquidated, (ii) the reorganization plan has been approved, and (iii)there are not sufficient assets to finance the insolvencyproceedings. This decision of the Bankruptcy Court is published onthe website of the Court. In addition, the decision of theBankruptcy Court is sent to the NRC.

(b) Cramming downFor purposes of adopting the Reorganisation Plan, the creditorsare divided into groups pursuant to their priority rights andeconomic interests. The Reorganisation Plan shall be approved if • The majority of the creditors with voting rights accepts it;• The sum of all the claims of the creditors who accepted the

Reorganisation Plan is higher than 50 per cent of the sum ofthe claims of all creditors with the right to vote.

The Reorganisation Plan, approved as stated above, binds the othercreditors. However, even if the necessary majority is not achieved,

a voting group shall be deemed to have approved theReorganization Plan in some specific cases as provided for by theBankruptcy Law.

3. RIGHTS OF CREDITORS

3.1 Claw-back actionsPursuant to Bankruptcy Law, the Bankruptcy Administrator maychallenge all transactions executed prior to the opening of the courtbankruptcy proceedings and damaging the bankruptcy creditors.Such transactions may be challenged if (i) they are executed threemonths prior to the submission of a petition for the opening of thebankruptcy proceedings on condition that the debtor was insolvent,and/or (ii) such transactions are executed after the date ofsubmission of the petition for the opening of the bankruptcyproceeding on condition that the other party was aware of theinsolvency of the debtor or of the petition for the opening of thebankruptcy proceedings.

Bankruptcy Law provides also for other specific claw back actionswhich guide to the reversal of transactions executed prior to theabove three months timeline.

3.2 Claiming DebtsIn addition, note that, pursuant to Article 104 of the BankruptcyLaw, any transaction of the debtor executed during the last 10 yearsprior to the filing of the petition for the initiation of the bankruptcyproceedings, or after such petition is filed, with the intention todamage the creditors, may be challenged in certain relevantconditions, as provided by the Bankruptcy Law. According to the Bankruptcy Law, insolvency creditors shall submittheir claims to the Bankruptcy Administrator if they address theclaims within the time period as set out by the Bankruptcy Courtin the relevant decision for the opening of the bankruptcyproceedings.The law provides that the deadline for submission ofthe claims shall be between 15 and 90 days following the date ofsuch decision. The notification shall detail the nature and cause ofthe claims and the documents evidencing the relevant rights shouldbe attached to it.

3.3 Rights of Secured and Unsecured CreditorsAccording to the Bankruptcy Law, secured creditors are consideredas insolvency creditors and are entitled to preferential satisfaction

AL



compared to unsecured ones. However, the secured creditorscannot enforce their security immediately. Secured creditors arethe creditors who have placed, through a legal transaction, asecurity over the asset, or, pursuant to the law, have acquired a rightover certain assets of the bankruptcy estate, for securing theirinterest.Once the insolvency proceedings are opened, unsecured creditorscannot enforce their rights. All claims against the debtor aresuspended and writs of execution cannot be enforced. All pendingand new claims should be submitted to the BankruptcyAdministrator.

3.4 Ranking of ClaimsIn addition to the relevant provision of the Civil Code, the rankingof creditors is regulated by several articles of the Bankruptcy Law.The Bankruptcy Law provides that the court proceedings shall notbegin if there is an insufficient money to cover the costs andexpenses associated with the proceeding. The Bankruptcy Law provides expressly that the ranking of claims,as provided in the Civil Code, ought to be followed in a bankruptcyproceeding. More specifically, Article 605 of the Civil Code providesthe following ranking of creditors’ claims:(a) Purchase Money Security; (b) Claims from employment or service relations and alimentary

obligations, for a maximum of 12 months; (c) Claims for unpaid employment benefits with interest, and also

workers’ credits for damages due to non-payment of theabove contributions by the employer;

(d) Claims deriving from remunerations because of death eventsand health problems;

(e) Copyright claims by authors (and their heirs) from completeor partial conveyance of their copyright, for obligationscreated during the last two years;

(f) State claims, i.e. obligations payable to the budget and creditsof the institute of social security, as defined by law;

(g) Claims, secured with securing charges, as per criteria definedby law;

(h) Claims from employment or service remuneration andalimentary obligations beyond the limit defined in (b) above;

(i) Remuneration for brokerage under agency contracts, duringthe last year of remuneration;

(j) Claims secured by a mortgage or a pledge (other than asecuring charge), pursuant to the law, by the value of the itemsmortgaged of pledged;

(k) Court expenses for the protection of the property and for

executive actions, performed in the common interest of thecreditors, from the sale proceeds;

(l) Bank claims not included in (e) above and claims fromvoluntary contributions;

(m) Claims for the supply of seeds, chemical fertilizers, insecticides,water for irrigation and for cultivation and collection ofagricultural productions, over yearly agricultural production(fruits), for which credits have been used.

In addition to the above, the bankruptcy court ought to consideralso the related conventions ratified by Albania for purposes of thedecision related to ranking of claims in a specific bankruptcy case.

3.5 Debt Set-off Before / After BankruptcyCreditors in Albania are not entitled to set off their claims againstthe counter obligations of the debtor if:(a) The liabilities of an insolvency creditor toward the bankruptcy

estate have arisen only after the opening of the insolvencyproceedings;

(b) An insolvency creditor has obtained the right to set off fromanother creditor after the opening of the insolvencyproceedings;

(c) An insolvency creditor has obtained the right to set off througha transaction that ought to be avoided;

(d) A creditor, the claims of which should be satisfied from thedebtor’s unburdened estate, has a liability toward thebankruptcy estate.

3.6 InterestPursuant to the Bankruptcy Law, creditors’ claims for obligationsthat have not matured, due to the bankruptcy proceedings, shall bedeemed as mature. Article 42 of the Bankruptcy Law provides forthe generic rule which states that the interests over the bankruptcycreditors' principal claims, such related interest generated since theopening of the relevant bankruptcy proceedings, shall be paid afterpayment of the creditors’ principal claim.

3.7 Other Mechanisms to Secure or Recover UnpaidDebtsPlease note that there are no other mechanisms in favour of theinsolvency creditors to secure/recover unpaid debts, except for theones provided in the Bankruptcy Law. And there is also a right infavour of the insolvency creditors to secure/recover unpaid debtscalled the right to separation. This right is applicable in the case thata person having commercial relations with the debtor holds thetitle of an asset that is possessed by the debtor.

AL


12 ALBANIA

4. LIABILITY

4.1 Director Liabilities for Trading DistressedCorporationIn the case that the debtor is a legal person, any member of thecorporate executive body, i.e. excluding shareholders’ meeting, isobliged to seek immediate opening of the bankruptcy proceedingsno later than 21 days following the date when the legal person isdeclared insolvent. These members are personally liable for thecompensation of creditors, if creditors suffer losses due to failureto submit the request within the above deadline.If the partners or shareholders of the corporation have been awareof the insolvency standing of the corporation, and they have notsubmitted a petition to the Bankruptcy Court for the opening ofcourt bankruptcy proceedings within 3 (three) months followingthe day on which they became aware of such insolvent standing,they are personally liable and subject to a fine.

4.2 Liabilities for an Insolvent Corporation's Debts Pursuant to the Bankruptcy Law, in order to initiate the courtinsolvency proceedings, there must be sufficient assets to coverthe costs of the procedures. If there are no funds to cover the costsof the insolvency proceedings, the Bankruptcy Court has the rightto reject the request for the opening of the insolvency proceedings.However, the law provides also for an alternative correspondingremedy. Please note that any expenses incurred following the opening ofthe insolvency proceedings, such as expenses made for therecovery of the bankruptcy estate, the remuneration of thebankruptcy administrator, etc., are considered bankruptcy debtsand are to be paid from the bankruptcy estate.

4.3 Criminal LiabilitiesPursuant to the Criminal Code, the intentional guidance of a legalentity toward insolvency standing is punishable by a fine orimprisonment. Further, the Criminal Code provides that enteringinto a commercial relationship with third parties, with theintention to hide the bankruptcy standing, is punishable by fine orimprisonment. In addition, the Criminal Code provides that hidingassets after the bankruptcy of the legal entity, in order to avoidconsequences thereof, is punishable by a fine or imprisonment.Also, any violation by a legal entity of its obligations in insolvencyproceedings constitutes a criminal offence and is punishable by afine or imprisonment.

5. EFFECTS OF INSOLVENCY ON INSOLVENT

5.1 Acceleration of Maturity of the Insolvent’s DebtsPursuant to the Bankruptcy Law, for purposes of the insolvencyproceedings, claims of creditors for liabilities which have notmatured shall be considered as matured.

5.2 Effects of the Proceedings on Assets of theInsolventWith the opening of the court bankruptcy proceedings, the debtoris deprived of its rights to dispose of and manage the bankruptcyestate unless the court decides otherwise. It is the BankruptcyAdministrator who is appointed to be in possession and to managethe bankruptcy estate.The bankruptcy estate includes all the assets and the debtor’srights on the date of opening of the insolvency procedure and theassets that the debtor gains during this procedure. The assets thatare excluded from the mandatory execution pursuant to the CivilCode are not included in the bankruptcy estate.Please see also the information in Section 3.3 herein.

5.3 Outgrowth of the Legal Proceedings The Bankruptcy Law provides that once the court bankruptcyproceedings are opened, all civil actions where the debtor is a partyare suspended. However, this law provides that lawsuits relatedto the bankruptcy estate may continue upon request of theBankruptcy Administrator, and in specific circumstances.Please see also the information in Section 3.3 herein.

5.4 Circumstances for Continuing BusinessWith the opening of the court bankruptcy proceedings, the debtoris deprived of its rights to dispose of and manage the bankruptcyestate, and it is the Bankruptcy Administrator who is appointed tobe in possession and to administer the bankruptcy estate. Uponopening of the bankruptcy proceedings, the business of the debtorcannot continue to operate, unless the court has approved theReorganisation Plan.

5.5 Authority to Supervise or Carry OnThe Bankruptcy Court may appoint a Bankruptcy Administratorwhose work is supervised by the Bankruptcy Court and creditors’committee / creditors' meeting. Upon opening of the courtbankruptcy proceedings, the debtor is deprived of its rights todispose of and manage the bankruptcy estate. It is the Bankruptcy

AL



Administrator who is appointed to dispose of and manage thebankruptcy estate. However, upon decision of the Bankruptcy Court, the debtor maycontinue to dispose of and to manage the bankruptcy estate. Inthis case, the Bankruptcy Court shall appoint a supervisor tocontrol the debtor’s actions.

5.6 RestrictionsPlease see Sections 5.2 and 5.4 above.

5.7 Effect of the Proceedings on Directors,Shareholders, EmployeesThe directors, shareholders and other officers of the debtor arerequired to support the Bankruptcy Administrator in its duties.However, the decision-making body and the executive body ofthe debtor are replaced by the creditors' meeting/creditors'committee and the Bankruptcy Administrator, respectively, if nototherwise decided by the Bankruptcy Court. The opening of the insolvency proceedings does not affect theexisting employment contracts. The Albanian legislation providesfor an exhaustive list of cases of termination of labour contractwithout cause; the termination due to insolvency is considered tobe termination with cause.

5.8 Financing the ProceedingsAccording to the Bankruptcy Law, in order to initiate theinsolvency proceedings, there must be sufficient assets to coverthe costs of the procedures. If there are no funds to cover thecosts of the insolvency proceedings, the Bankruptcy Court has theright to reject the request for the opening of the insolvencyproceedings; however, the law provides for certain remedy toavoid the said rejection.

5.9 Effect of Proceedings on ContractsClaims related to periodic contracts that have been performed bythe debtor’s counterparty until the opening of the insolvencyproceedings have to be converted into monetary claims and arequalified as insolvency claims.Contracts concluded between the debtor, in the capacity as alessee or as a lessor, for the lease of immovable property(ies) orof their parts, and for services to be performed related to them,shall continue to exist, in favour of the bankruptcy estate. Whenthe debtor is acting in the capacity of a lessee, the BankruptcyAdministrator can terminate the contract by notifying the otherparty according to the law.

In addition, with regard to the service contracts, the BankruptcyAdministrator and the service provider may terminate thecontract by respecting the legal term. If the BankruptcyAdministrator terminates the contract, the other party mayrequest compensation as an insolvency creditor.

6. ADDITIONAL FINANCE

6.1 Obtainment of Additional FinanceThe Bankruptcy Law provides that the Bankruptcy Administratorcan obtain new financing and in this scenario the approval of thecreditors’ committee (if any), or of the creditors’ meeting, isindispensable.

6.2 Repayment PrioritiesThe law does not have specific provisions on the ranking of thenew financing. However, according to the law, the “newfinanciers” are not prohibited from perfecting a security for suchnew financing, thus to become secured creditors and the “newfinancier” will have the same ranking as the other bankruptcysecured creditors. In addition, please note that the Albanianlegislation acknowledges the pari passu principle, meaning thateach secured creditor is paid pro rata in accordance with theamount of the claim, i.e. equally and without preference.

7. TAX LIABILITIES & STATE SUPPORT

7.1 Tax Liabilities per ProceedingThe opening of the court bankruptcy proceedings does not affectthe debtor’s general tax treatment. Therefore, insolventcompanies are required to continue to pay taxes until there is aspecial court decision to suspend the activity of the company (i.e.to be dormant for a specific time or until the company is declaredbankrupt). Please note that if the insolvency procedure is aiming at theliquidation of the company assets, the Bankruptcy Administratormay request from the tax authorities to obtain a “passive” status(i.e. dormant status), and therefore to suspend the payment oftaxes until the debtor is liquidated.

AL


14 ALBANIA

7.2 Availability of State Support Pursuant to the State Aid Law, state authorities are allowed toprovide state aid to rescue a company in financial difficulty. Thestate aid for restructuring may be granted if it is based on arestructuring plan, containing measures for restructuring, whichwill guarantee the long-term feasibility of the company. Therestructuring plan must be approved by the aid provider (stateauthority) and shall be submitted to the State Aid Commission.

8. ALTERNATIVE FORMS OF DEBT RECOVERY AND RESTRUCTURING

8.1 Informal Rescue or Insolvency ProceedingsThe Bankruptcy Law has no specific provisions for restructuring ofthe company outside a formal court procedure. However, prior tosubmission of the petition for the opening of the insolvencyproceedings, the debtor is not prohibited from trying to achievean out-of-court restructuring.

8.2 CircumstancesIt should be highlighted that, although the law does not prohibitthe out-of-court reorganisation, as explained above, the executivedirectors of the company are obliged to request immediateinitiation of an insolvency procedure, not later than 21 daysfollowing the date the legal entity becomes insolvent.Please also refer to the information in Section 4 above with regardto the executive directors' and shareholders' liabilities.

8.3 Reorganising Approach As explained above, according to the Albanian legislation, thereorganisation of the debtor is possible when the ReorganisationPlan is approved by the creditors and the Bankruptcy Court.

8.4 Pre-packaged PlansThe Albanian legislation does not expressly provide for an expeditedrestructuring of the debtor by means of a pre-packaged sale.

9. INTERNATIONAL ASPECTS

9.1 Recognition of International Insolvency andRescue ProceedingsInsolvency proceedings initiated in another jurisdiction arerecognized if (i) the debtor’s domicile or legal seat is in that otherjurisdiction, and (ii) the insolvency proceedings do not violate theprinciples of the Albanian legislation, especially the constitutionalprovisions. Regarding Rescue Procedures, please see Section 7.2 above.

9.2 Applicable Legislation or Case Law A corporation duly established in Albania in accordance with theAlbanian laws can be declared bankrupt only in Albania, thus, theAlbanian laws shall apply to any bankruptcy-related procedure. Ifthe insolvency proceedings have been initiated in anotherjurisdiction, the opening of the insolvency proceedings is treatedaccording to the legislation of the relevant foreign jurisdictionwhen: (i) the request submitted in Albania has not been suspended,(ii) the rights on movable and immovable properties are notaffected, and (iii) the contracts on immovable properties withinthe Republic of Albania or any employment contract are subjectonly to the Albanian law.

9.3 Cooperation in Concurrent ProceedingsPursuant to Article 282 of the Bankruptcy Law, in case foreigninsolvency proceedings and insolvency proceedings under theAlbanian Bankruptcy Law are taking place simultaneously for thesame debtor, the Bankruptcy Court and the BankruptcyAdministrator shall cooperate to the maximum extent possiblewith the foreign court or representatives. The Bankruptcy Court isentitled to communicate directly with, and to request informationor assistance directly from, the foreign court or representatives.

9.4 International Treaties, Model Laws or EULegislationThere is no specific international treaty or EU legislation whichAlbania is a party to regarding insolvency and bankruptcyproceedings. However, note that Albania is a UN member, andtherefore Albania is a party to the Model Law on Cross-BorderInsolvency of the United Nations Commission on InternationalTrade Law (UNCITRAL).

AL



Albania has ratified ILO Convention No.173/1992; it is relevant tostate that, according to the Albanian Constitution, theinternational conventions ratified by law prevail over the domesticlegislation.

9.5 Special Proceedings for Foreign Creditors in LocalInsolvency ProceedingsPlease note that, pursuant to the Albanian bankruptcy legislation,there are no special proceedings for foreign creditors in insolvencyproceedings in Albania.

AL


BA

16


BA


1. INSOLVENCY

1.1 Definition of InsolvencyFirstly, it is important to elaborate the complex political structureof Bosnia and Herzegovina, agreed upon as part of the constitutionthat makes up Annex 4 of the General Framework Agreementconcluded at Dayton. The state of Bosnia and Herzegovina is setup with two entities and a district. These are the Federation ofBosnia-Herzegovina (which further consists of 10 cantons) andRepublika Srpska, which make the two entities; the Brčko Districtalso retains status at the state level. The entities havecompetencies in areas such as taxation, except indirect taxation,business development, and general legislation. In this regard, thereare two laws regulating the bankruptcy procedure – one for theFederation of Bosnia and Herzegovina (hereinafter FBiH) and onefor Republika Srpska (hereinafter RS). Since the laws are of similarnature and contain similar provisions, the text below refers tofederal law. In case of discrepancies between the two laws, relevantprovisions for RS will be indicated in brackets. Under the laws of Bosnia and Herzegovina, the bankruptcyproceeding is conducted for the purpose of satisfying thebankruptcy debtor’s creditors collectively through the liquidationof its assets and the distribution of the proceeds to the creditors.

1.2 Legal FrameworkThe primary laws and legislation regarding insolvency andbankruptcy are: 1. Law on Bankruptcy Proceeding of Federation of Bosnia and

Herzegovina1;2. Law on Bankruptcy Proceeding of Republika Srpska2.

1.3 Main ActorsThe parties to the bankruptcy proceeding are: the bankruptcycourt, bankruptcy judge, bankruptcy trustee, interim bankruptcytrustee, assembly of creditors, interim creditors’ committee, andcreditors’ committee. The bankruptcy court is the commercial

court competent in the principal place where the debtor is locatedand the commercial court at the same location shall decide onbankruptcy.


2.1 Main TypesPursuant to the laws of Bosnia and Herzegovina, the bankruptcyproceedings may be initiated by the bankruptcy debtor or anycreditor under the conditions provided by the law. Applicablelegislation of Bosnia and Herzegovina recognizes only an ordinarybankruptcy proceeding. Below is the summary of the proceeding.

2.2 Grounds for Initiating each Proceeding The reason for initiation of the bankruptcy proceeding is theinability of the debtor to make payments. To be more specific, thedebtor is unable to make payments if it cannot meet its accruedand outstanding payment liabilities. The fact that the debtor haspaid or is able to pay the claims of certain creditors, wholly orpartially, does not, in itself, mean that it has the ability to makepayments. As a rule, a debtor is unable to make payments if it failsto pay its outstanding payment liabilities for a period of 30 days(RS Law provides for 60 days instead of 30 days). The bankruptcyproceeding may also be initiated because of the threat of aninability to make payments, which is present if the debtor,according to projections, is not able to meet existing paymentliabilities when due. Only the debtor may file a petition to open abankruptcy proceeding due to the threat of the inability to makepayments.

2.3 Formalities for Initiating each ProceedingA bankruptcy proceeding is initiated by a written petitionsubmitted to the competent court by an authorized person.Authority to file a petition is granted to the debtor and to allcreditors who have a legally recognized interest in the conduct ofthe bankruptcy proceeding. The creditor is obliged to show, by

BOSNIA AND HERZEGOVINA

1 Published in the Official Gazette of FBiH No. 29/03, 32/04 and 28/06. 2 Consolidated text published in the Official Gazette of RS No. 26/10


18 BOSNIA AND HERZEGOVINA

attaching appropriate documentation, that its receivable, and alsothe inability of the debtor to make payments, is probable. If thedebtor is a legal entity, once the inability to make paymentsoccurs, the debtor’s authorized representatives are required to file,forthwith, a petition to open a bankruptcy proceeding. The petitionmust be filed within 30 days of the day the inability to makepayments occurs.

If a creditor files the petition for initiating a bankruptcy proceeding,the creditor is obligated to deposit an amount determined by thebankruptcy judge to cover the expenses of the preliminaryproceeding. If the creditor does not execute this deposit within adetermined period of time, the bankruptcy judge shall reject thepetition. If the petitioner is the debtor, the bankruptcy judge mayexempt it from paying the deposit if the debtor can prove that ithas sufficient assets to fund the cost of a preliminary proceeding.

Preliminary ProceedingAfter receiving an acceptable petition to open a bankruptcyproceeding, the bankruptcy judge is required to determine whetherthere are grounds for the initiation of the bankruptcy proceedingand whether the petition is justified. The judge shall in most cases,for that purpose, appoint an interim bankruptcy trustee or anappropriate expert. The interim bankruptcy trustee is required toinvestigate whether the property of the debtor can satisfy the costsof the proceeding and whether there are grounds for the initiationof the bankruptcy proceeding, and to report his findings to thebankruptcy court. In addition, the interim bankruptcy trustee shallconduct an assessment of whether the business operations of thedebtor can continue, in whole or in part. If the continuing businessoperations would harm the debtor or the potential bankruptcyestate, the interim bankruptcy trustee shall file an application withthe bankruptcy judge for a temporary suspension of its businessoperations.

The applicable laws provide situations when no preliminaryproceeding is necessary. Namely, the bankruptcy judge may decideto initiate the bankruptcy proceeding without conducting apreliminary proceeding and without examining the grounds forinitiating the proceeding if the petition to initiate the bankruptcyproceeding has been submitted by a liquidator, in cases when theliquidator has established that there are no sufficient funds forsuccessful completion of the liquidation procedure. In addition,the bankruptcy proceeding may be initiated directly if the petitionto open the proceeding is submitted by a creditor who holds a final

writ of execution and that writ of execution has remainedunsatisfied debt for 60 days. In this event, the bankruptcy judgepresumes that the existence of the obligation of the debtor andthe inability of the debtor to pay his debts has been proven.

Opening of the Proceeding The bankruptcy judge shall schedule a hearing on the grounds forinitiation of the bankruptcy proceeding after receiving the reportof the interim bankruptcy trustee, together with the opinion of anyexpert, possibly appointed to assess the debtor’s insolvency. Thepetitioner, the debtor, the interim bankruptcy trustee, and, whennecessary, the experts, are invited to the hearing. The bankruptcyjudge shall issue a decision to initiate the bankruptcy proceeding,or shall deny the petition to initiate the bankruptcy proceeding,no later than three days after the completion of the bankruptcyhearing.

The bankruptcy judge shall initiate the bankruptcy proceedingagainst the property of the debtor if the petition is acceptable, (i)if there are grounds for bankruptcy, ()and if the property of thedebtor, according to the projections, suffices to cover the costs ofthe proceeding. If the property of the debtor does not cover thecosts of the proceeding, but the petition is acceptable and justified,the bankruptcy judge may open the proceeding if an interestedparty deposits a sufficient amount in cash. This deposit is includedas an obligation of the bankruptcy estate. If the assets of thebankruptcy estate are insufficient to repay the deposit of the costsof the proceedings, the person who has paid such a deposit mayrequest repayment from each person who was under an obligationto file a petition for the opening of the bankruptcy proceeding, buthas neglected to do so through his own fault.

If the bankruptcy proceeding is initiated, the bankruptcy judge shallappoint a bankruptcy trustee. With the initiation of the bankruptcyproceeding and the appointment of the bankruptcy trustee, therights and the obligations of the interim bankruptcy trustee aretransferred to the bankruptcy trustee. An interim bankruptcytrustee, who was not appointed a bankruptcy trustee when thebankruptcy proceeding was initiated, is under an obligation totransfer his duties to the bankruptcy trustee and to turn over tohim all assets he manages, and also all business records he hasreceived or produced.

Conduct of the ProceedingAfter the initiation of the bankruptcy proceeding, the bankruptcy

BA



trustee shall assume control of all property that enters into thebankruptcy estate, and shall manage it. Based on the enforceabledecision to initiate the bankruptcy proceeding, the bankruptcytrustee may request from the bankruptcy court to order the debtorto transfer the property to the bankruptcy trustee and to ordersuch actions which shall enforce this decision. The bankruptcytrustee is required to compile an inventory of the assets in thebankruptcy estate. The value of each asset must be declared. If thevalue depends on whether the business of the bankruptcy debtorcontinues operations or not, both values must be declared. Inaddition, the bankruptcy trustee is required to compile a list of allthe bankruptcy debtor’s creditors that he has learned about fromthe ledgers and business records of the bankruptcy debtor, fromtheir claims, or in some other way. The list shall distinguish thesecured creditors from the bankruptcy creditors, who are classedby payment priority. For each creditor it is necessary to state theaddress, and also the basis and the amount of its receivable. Forsecured creditors, it is also necessary to identify the collateral, andalso the probable amount which the creditor would not be able tofully recover. The list shall identify the possibility of any set-off.The amount of the liabilities of the bankruptcy estate in the eventof an orderly and continuous liquidation of the bankruptcy debtor’sassets must be estimated.

Within a period no longer than 45 days after his appointment, thebankruptcy trustee must prepare a well-organised summary listingthe assets of the bankruptcy estate and the liabilities of the debtorat the time of opening of the bankruptcy proceedings. Thissummary must include an evaluation of the portion of thebankruptcy estate that may be available in the bankruptcyproceeding for the satisfaction of the bankruptcy debtor’screditors. Once the summary of assets and liabilities is prepared,on motion of the bankruptcy trustee or a creditor, the bankruptcyjudge must instruct the responsible persons of the bankruptcydebtor to make a solemn declaration in front of the bankruptcyjudge that the summary of assets and liabilities is complete.

The bankruptcy proceeding includes all property that belonged tothe debtor at the time of the initiation of the bankruptcyproceeding, and also the property that the debtor obtained duringthe bankruptcy proceeding (bankruptcy estate), unless other legalprovisions stipulate otherwise. The bankruptcy estate is used topay the costs of the bankruptcy proceeding; the creditors who, atthe time of the opening of the bankruptcy proceeding, had anallowed property claim against the debtor (bankruptcy creditors);

and the creditors who acquired the right to assert claims againstthe bankruptcy estate after the bankruptcy proceeding wasinitiated (creditors of the estate).

After the initiation of the bankruptcy proceeding, the bankruptcytrustee shall assume control of all properties that enter into thebankruptcy estate, and shall manage it. After the reporting hearing,the bankruptcy trustee must immediately liquidate the assetsbelonging to the bankruptcy estate, unless this is precluded by theresolutions of the assembly of creditors. When liquidating theassets of the bankruptcy estate, the bankruptcy trustee must abideby the decision of the assembly of creditors or the creditors’committee on the conditions and manner of sale.

In the decision to initiate the bankruptcy proceeding, the creditorsare notified to file their claims with the bankruptcy court within30 days and inform the bankruptcy trustee, within the sameperiod, of the rights that they claim in items of the debtor’sproperty as collateral. The item against which a lien is asserted,the type, and the basis of the right to the collateral, as well as theamount of secured claim, must be specified.

The creditors shall file their claims with the bankruptcy court inwriting. Upon receipt of the claims, the bankruptcy trustee shallrecord each filed claim in the table, and such table shall bedeposited at the registry of the bankruptcy court no later thaneight days before the examination hearing for inspection byconcerned parties. At the hearing on the examination of claims,the bankruptcy judge examines the registered claims of thecreditors. The parties at the hearing on the examination of claimsare the bankruptcy trustee, the creditors who filed their claims,and other parties who, taking into account the goods and servicesthey provided to the bankruptcy debtor, may submit informationon the existence and the amount of filed claims.

The bankruptcy trustee must declare whether he officially acceptsor disputes the claim. If the bankruptcy trustee disputes the claim,the creditor is instructed to file a lawsuit to have the claim officiallyaccepted. If there is an enforceable judgment for the claim thathas been disputed, the bankruptcy trustee must file a lawsuit toestablish the grounds of the objection. If the bankruptcy debtor ora creditor disputes the claim at the examination hearing, the partydisputing the claim is instructed to file a lawsuit to establish thegrounds for the objection. The party that is required to file a lawsuitconcerning a disputed claim must file such a suit within 30 days

BA



from the examination hearing, at which the claim was disputed. Ifthe person required to file a lawsuit does not do so before thisdeadline, he is deemed to have forfeited the right to file thelawsuit.

Before settlement of claims and distribution of funds, thebankruptcy trustee must draw up a schedule of the claims to betaken into consideration in the distribution. The schedule must bedeposited at the bankruptcy court for inspection by the concernedparties. The bankruptcy trustee must give a public notice of the totalclaims and the amount available in the bankruptcy estate fordistribution.

In addition, distribution cannot occur until the bankruptcy judgehas provided its consent for the distribution. When giving consentfor the main distribution, the bankruptcy judge sets the date forthe hearing on the main distribution. At the hearing on the maindistribution, the bankruptcy judge considers the proposeddistribution with creditors and the bankruptcy trustee. At thehearing on the main distribution, the proposed distribution maybe modified or supplemented. If there are no proposals to modifyor supplement it, or after they are adopted, the bankruptcy judgeshall certify the proposed distribution. After the bankruptcy judgecertifies the proposed distribution, the bankruptcy trustee mustmake the distribution. The bankruptcy trustee shall provide to thebankruptcy court evidence of the distribution to the creditors.

2.4 Ending the Formal Proceeding As soon as the main distribution has been completed, thebankruptcy judge shall order the termination of the bankruptcyproceedings. The order and the grounds for concluding thebankruptcy proceedings must be announced in the OfficialGazette of FBiH/RS.

3. RIGHTS OF CREDITORS

3.1 Claw-back ActionsPursuant to the provisions of the applicable Laws on BankruptcyProceedings, all legally binding transactions that were enteredinto before the initiation of bankruptcy proceedings thatundermine the equitable satisfaction of creditors (impair thecreditors), or that place certain creditors in a more favourableposition (preferred creditors), may be disputed.

A legally binding transaction that has facilitated or granted securityor paid a bankruptcy creditor shall be voidable if: (a) it was done within the six months before the petition to open

bankruptcy proceedings, if the debtor was unable to pay itsdebts when due at the time of the transaction, or if, at thattime, the creditor knew of the debtor‘s inability to pay itsdebts when due or was unaware due to gross negligence, or

(b) it was done after the petition to open proceedings and if, atthat time of the transaction, the creditor knew of the debtor‘sinability to pay its debts when due or was unaware due togross negligence.

A legally binding transaction that has facilitated or granted anunusual security or payment to a bankruptcy creditor, such as apayment the creditor did not have the right to demand, or did nothave the right to demand at that time and in that manner, shallbe voidable if: (i) the legally binding transaction occurred in the month

immediately preceding the petition to initiate bankruptcyproceedings or after the filing of the petition; or

(ii) the legally binding transaction occurred in the second or thethird month immediately preceding the petition to openbankruptcy proceedings and the debtor was unable to pay itsdebts when due at the time of the transaction.

A legally binding transaction of the bankruptcy debtor withoutcompensation or with negligible value may be disputed, except ifit was undertaken five years before the filing of the petition toinitiate the bankruptcy proceeding. In addition, a legally bindingtransaction of a bankruptcy debtor that was carried out in the fiveyears immediately preceding the petition to initiate bankruptcyproceedings or thereafter, with the intent to harm a creditor, maybe avoided if the other contracting party knew the intent of thebankruptcy debtor at the time the transaction was carried out. Itis presumed that the other party knew the intent if it knew thatthe bankruptcy debtor was under threat of an inability to pay andthat the transaction would harm the creditors.

3.2 Claiming DebtsIn the decision to open the bankruptcy proceeding, the creditorsare notified to file their claims with the bankruptcy court within30 days. In the decision to initiate the bankruptcy proceeding, thecreditors are notified to inform the bankruptcy trustee, within 30days, of the rights that they claim in items of the debtor’s assetsas collateral. The item, against which a lien is asserted, the type,

BA



and the basis of the right to the collateral, as well as the amountof secured claim, must be specified. In the decision to open thebankruptcy proceeding, persons who owe debts to the debtor arenotified in order for them to pay such debts to the bankruptcydebtor without delay.

3.3 Rights of Secured and Unsecured CreditorsThe creditors who, at the time of the initiation of the bankruptcyproceeding, have an allowed property claim against the debtor(bankruptcy creditors) are the creditors of the general paymentpriority, unless they are included in a higher or lower paymentpriority. Claims incurred during the period of preliminaryadministration, which, neither the interim bankruptcy trustee northe bankruptcy trustee was able to pay, are paid before any otherclaims of the bankruptcy creditors.

Before other claims of the bankruptcy creditors, except for theclaims of the creditors previously stated, the claims of the debtor’semployees for wages during the last eight months before the initiationof bankruptcy proceedings must be paid, in the amount of the minimalwage for each month calculated according to the General CollectiveAgreement for FBiH/RS and contributions in accordance with the law.The same applies to the payment of compensation for damages forlabour injuries, which must be paid in full.

The claims of a priority below other claims of bankruptcy creditorsshall be paid in accordance with the following priority scheme, withthose of the same priority to be paid pro rata:(a) interest on the claims of the bankruptcy creditors incurred

since the opening of the bankruptcy proceeding;(b) costs of particular bankruptcy creditors, incurred during their

participation in the proceeding; (c) cash penalties and misdemeanour fees, as well as property

damage resulting from criminal acts or misdemeanours;(d) claims related to particular gratuitous actions of the debtor; (e) claims related to the repayment of a loan from an equity

holder to replace capital or equivalent claims.

A person who has the right to separate recovery of assets notbelonging to the debtor (extraction creditor) is not a bankruptcycreditor. His right to separate recovery of an asset is governed byprovisions of other laws.

Creditors secured by specific assets of the bankruptcy estate areauthorized to execute on the collateral for their principal, interest,

and costs. Secured creditors are: (i) holders of mortgages and lienson real estate; (ii) creditors who have obtained a lien by law,foreclosure, court settlement or agreement; (iii) creditors, towhom the debtor has assigned specific rights as a surety; and (iv)creditors who are entitled to a right of possession.

Secured creditors may be bankruptcy creditors if the debtor is alsopersonally liable to them. They have the right to pro rata paymentfrom the bankruptcy estate only if they abandon their collateral,or if they were unable to obtain payment, in full or in part, in whichevent they are paid pro rata on the unpaid amount of their claims.

3.4 Ranking of ClaimsAccording to the type of their claims, the bankruptcy creditors areclassified in payment priorities. The creditors of a lower paymentpriority may have their claims paid only after the creditors of thepreceding payment priority have had their claims paid in full. Thebankruptcy creditors of the same payment priority have theirclaims paid pro rata.

The claims of the creditors are paid from the existing assets of theunencumbered bankruptcy estate in accordance with the followingpriority scheme: (i) bankruptcy creditors of higher payment priority;(ii) bankruptcy creditors of general payment priority;(iii) bankruptcy creditors of lower payment priority.

3.5 Debt Set-off – Before and After BankruptcyIf a bankruptcy creditor is entitled to a set-off on the basis of thelaw or a contract at the time the bankruptcy proceedings areopened, this right shall not be affected by the initiation of thebankruptcy proceedings.

If the claims to set-off are still subject to a condition subsequentat the time of the initiation of the bankruptcy proceedings, suchclaims may only be set off when that condition is satisfied. Acreditor who has a claim with a condition subsequent may preventthe liquidation of the claim of a bankruptcy trustee if he providesadequate protection. Set-off shall not be disallowed because theclaims are expressed in different currencies or accounting units, ifthese currencies or accounting units may be freely converted atthe place of payment of the claim where such claims are set-off.The value of the claims must be converted using the exchange ratethat is applicable for this place at the time the set-off notice isreceived.

BA



3.6 InterestUpon the commencement of bankruptcy, interest on receivablesincluded in the bankruptcy estate shall continue to accrue.

3.7 Other Mechanisms to Secure or Recover UnpaidDebtsNot applicable.

4. LIABILITY

4.1 Director Liabilities for Trading DistressedCompanyThe management of the two most common corporate forms inBosnia and Herzegovina: limited liability company (d.o.o.) andjoint-stock company (d.d.) is entrusted to the management. InFBiH the management is consisted of Director and one or moreExecutive Directors which may or may not be appointed. Recentchanges to the Law on Business Companies of Republika Srpskahave introduced that the company can either have a Director orManagement Board where the Chairman of the ManagementBoard is elected among its members. Despite the differencesbetween the two entities, scope of authorities of the Director/Executive Directors/Chairman of the Management Board is ingeneral very similar. Their authorities and limitations are registeredwith the relevant court registry. If members of the managementact beyond their authorisations, and the limitations wereregistered into the court registry, the company is not bound bylegal affairs which are result of such breach of authorizations. Inthis regard, all information relating to the company – founders/shareholders, amount of basic capital, registered address, businessactivities, person(s) authorised to represent the company andlimitations to their authorisations are registered with the Registryof Business Companies which is an integral part of the courts. The nature of this registry is public and hence all informationcontained therein is available to any physical or legal entity uponrequest. Due to such public nature of the court registry, it isconsidered that anyone can and should know of the limitations.However, if the imposed limitations are not registered in the courtregistry, but are only provided for in internal acts of the company,such limitations cannot have negative impacts on third parties,and the company is bound by the management’s activities, evenif they are beyond their authorities.

Liabilities of management members are to the corporation solely.If the damages were incurred due to the illegal actions of themanagement members, creditors cannot claim their receivablesdirectly from the management members, but only from thecorporation. Consequently, the corporation may claim thereimbursement from the management members. Laws alsoprovide for criminal and pecuniary liability of the authorisedpersons within the company for illegalities in the activities. Liabilityof the shareholders is limited by the amount of their share in thebasic capital of the corporation – therefore, they are not liable withtheir assets above the share in the basic capital.

4.2 Liabilities for an Insolvent Company’s's DebtsUpon declaration of bankruptcy, all of the attachable assets,receivables and rights of the bankrupt corporation constitute anestate called bankrupt’s estate. Concerning the debts of thebankrupt corporation existing at the time of declaration ofbankruptcy, these debts constitute the receivables of thebankruptcy creditors and the mentioned receivables are called“bankruptcy receivables” since such must be registered with andrequested from the bankrupt’s estate. However, the debts incurredby the bankrupt company following the declaration of bankruptcycannot be requested from the bankrupt’s estate.

In addition to bankruptcy receivables, there are also some otheramounts which can be requested from the bankrupt’s estate. Theseamounts constitute the expenses made by the Bankruptcy Officeor Bankruptcy Administration (on behalf of the bankrupt’s estate)from the declaration of bankruptcy until the finalisation of theliquidation procedure. For instance, expenses regardingannouncement of the bankruptcy decision, keeping records of theassets and debts of the bankrupt company, protection of the assets(storage) registered with the bankrupt’s estate, fees of theliquidators, etc. constitute some examples of these expenses called“estate debts”. The payments regarding estate debts have priorityover bankruptcy receivables.

Upon declaration of bankruptcy by the relevant commercial court,the disposition power of the bankrupt is limited over the goodsand rights registered with the estate. The bankrupt corporationcannot engage in transactions, which may decrease the value ofthe estate. The disposition right on these goods shall belong to theBankruptcy Administration. The dispositions of the bankruptcorporation over the estate are no longer valid against creditors.By declaration of bankruptcy, all the debts of the bankrupt shall

BA



automatically be due and payable, except for the receivablessecured by a mortgage over the real estate of the debtor.

4.3 Criminal LiabilitiesIn the event of non-compliance with specific compulsory provisionsof the Criminal Code of Bosnia and Herzegovina, criminal liabilityis possible.

For a criminal offence perpetrated in the name of, for account ofor for the benefit of the legal person, the legal person shall be liable: (a) when the purpose of the criminal offence is arising from the

conclusion, order or permission of its managerial orsupervisory bodies; or

(b) when its managerial or supervisory bodies have influenced theperpetrator or enabled him to perpetrate the criminal offence;or

(c) when a legal person disposes of illegally obtained propertygain or uses objects acquired in the criminal offence; or

(d) when its managerial or supervisory bodies failed to carry outdue supervision over the legality of work of the employees.

Sanctions which may be imposed upon the legal persons are asfollows: (i) fines; (ii) seizure of property; or (iii) dissolution of thelegal person.

In this regard, fines imposable on a legal person shall be no less thanBAM 5,000 (EUR 2,556) and shall not exceed BAM 5,000,000 (EUR2,556,459). In the event that, by perpetrating the criminal offence,the legal person has caused material damage to another party orthe legal person has come into possession of an unlawful materialgain, the scope of the imposed fine may be twice as much as theamount of this damage or benefit. A failure to pay a fine within thedeadline set under the final verdict shall result in an immediateforced collection procedure.

The seizure of property may be imposed for criminal offences forwhich a punishment of imprisonment for a term of five years ormore severe punishment is prescribed. From a legal person at leasthalf of the property or the major part of the property or the entireproperty may be seized. In the event of bankruptcy proceedingsbeing brought about as a consequence of the imposed seizurepunishment, the creditors shall be permitted to settle theirreceivables out of the mass of the seized bankruptcy assets.

Dissolution of a legal person may be imposed in the case that itsactivities were entirely or partly being used for the purpose of

perpetrating criminal offences. Besides the dissolution of a legalperson, the property seizure punishment may be imposed. Inaddition to the dissolution of a legal person, the bankruptcy courtshall propose the opening of a liquidation procedure. Creditors maybe paid out from the property of the legal person upon which thepunishment of dissolution has been imposed.

5. EFFECTS OF INSOLVENCY ON INSOLVENT

5.1 Acceleration of Maturity of Insolvent’s Debts Claims that were not due when the proceeding was opened aredeemed to be claims now due. Claims related to an abrogation termare, in a bankruptcy proceeding, treated as unconditional claimsuntil the abrogation term sets in. Furthermore, claims related to anextended term participate in the distribution if that extension haspassed before the final distribution of the bankruptcy estate.

5.2 Effects of the Procedures on Assets of the Insolvent The bankruptcy proceeding includes all assets that belonged to thedebtor at the time of the opening of the bankruptcy proceeding,and also the assets that the debtor obtained during the bankruptcyproceeding (bankruptcy estate), unless other legal provisionsstipulate otherwise. The bankruptcy estate is used to pay the costsof the bankruptcy proceeding; the creditors who, at the time of theopening of the bankruptcy proceeding, had an allowed propertyclaim against the debtor (bankruptcy creditors); and the creditorswho acquired the right to assert claims against the bankruptcyestate after the bankruptcy proceeding was opened (creditors ofthe estate).

5.3 Outgrowth of the Legal ProceedingsIn the event bankruptcy proceedings are opened, all pending courtproceedings, including arbitration proceedings, are stayed if theyrelate to the bankruptcy estate. The stay shall continue until theclosing of the bankruptcy proceedings, unless the legal proceedingsare resumed before that time.

Pending legal disputes concerning assets belonging to thebankruptcy estate in which the bankruptcy debtor is the plaintiffand which are ongoing at the time of the opening of thebankruptcy proceedings may be assumed in their currentposture by the bankruptcy trustee and the opposing party in thedispute.

BA



Legal disputes pending against the bankruptcy debtor at the timeof the opening of the bankruptcy proceedings may be assumed byeither the bankruptcy trustee or the opposing party if they concern:(a) recovery of an asset from the bankruptcy estate; (b) satisfactionof a secured claim; or (c) debts of the bankruptcy estate. Legaldisputes related to bankruptcy claims may be continued by thecreditor only after the bankruptcy trustee disputes these claims atthe examination hearing. If the bankruptcy trustee immediatelyallows the claim, the opposing party may only assert a claim forthe refund of the costs of the legal dispute as a bankruptcy creditor.

5.4 Circumstances for Continuing Business Decision to Continue the Business Operations of the BankruptcyDebtor At the reporting hearing, the assembly of creditors decides whetherthe business should be terminated or its operation continued on aprovisional basis. The creditors may instruct the bankruptcy trusteeto prepare a plan of reorganization and specify the purpose of theplan. The creditors may alter their decisions at subsequent hearings. The assembly of creditors determines the manner and theconditions for liquidation of the debtor’s assets.

Terminating the Business Operations before the Decision of theCreditors If the bankruptcy trustee wishes to terminate the business beforethe reporting hearing, he must obtain the consent of the creditors’committee, if one has been appointed. The bankruptcy trustee must inform the bankruptcy debtor beforethe resolution of the creditors’ committee or, if one has not beenappointed, before closing the business. On motion of thebankruptcy debtor and after hearing the bankruptcy trustee, thebankruptcy judge shall prohibit the closure if this can be postponeduntil the reporting hearing without a significant reduction of thebankruptcy estate.

5.5 Authority to Supervise or Carry OnThe bankruptcy trustee is the legal representative of the bankruptcytable and is entitled to secure the benefits of the bankruptcycreditors and has a general power to take all steps necessary for thepurpose of advancing the liquidation of estate and settlement ofcreditors. The bankruptcy trustee is under the control of thebankruptcy judge.

5.6 RestrictionsNot applicable.

5.7 Effect of Proceedings on Directors, Shareholders,EmployeesAt the opening of the bankruptcy proceedings, the bankruptcydebtor’s right to administer and dispose of the property belongingto the bankruptcy estate, and also the rights of its boards,authorised procurators, representatives, and attorney, shall betransferred to the bankruptcy trustee. If bankruptcy proceedings are initiated for a corporation whoseshareholders are personally accountable for the liabilities of thecorporation, claims against the shareholders of the corporation onthe basis of their personal liability derived from the provisions ofthis or another law may only be enforced by the bankruptcytrustee for the duration of the bankruptcy proceedings. After the bankruptcy proceedings are initiated, the bankruptcytrustee shall terminate labour contracts with employees in writingwithin 60 days based on determination that there is no need forthe services of the employees during the bankruptcy proceeding.

5.8 Financing the ProceedingsThe bankruptcy court shall make a decision on the amount of thedeposit required to fund the preliminary proceeding within 15 daysof the filing of an acceptable petition. If a creditor files the petitionfor opening bankruptcy, the creditor is obligated to deposit anamount determined by the bankruptcy judge to cover theexpenses of the preliminary proceeding. If the creditor does notfurnish this deposit within 15 days, the bankruptcy judge shallreject the petition by granting a decision. If a bankruptcyproceeding is opened by a petition of a creditor, the amountdeposited by the creditor is included in the expenses of thebankruptcy proceeding. If the petitioner is the debtor, thebankruptcy judge may exempt it from paying the deposit if thedebtor can prove that it has sufficient assets to fund the cost of apreliminary proceeding.

5.9 Effect of Proceedings on Contracts During interim administration, parties who contracted with thebankruptcy debtor may not revoke a continuing contractualobligation. The interim bankruptcy trustee is under no obligationto pay claims for taxes, contributions, and other public liabilitiesresulting from continuing contractual obligations incurred in theperiod after the filing of the petition. Such claims are bankruptcyclaims. The interim bankruptcy trustee is required to pay the claimsof the employees, and also the contributions based on theemployees’ labour, only if the employees are still employed.Otherwise, the rights to wages for employment, and also the

BA



claims for contributions, do not terminate, but may be asserted asbankruptcy claims only. The claims of the employees who areemployed by the interim bankruptcy trustee may be financed bya loan. The interim bankruptcy trustee is required to pay otherclaims resulting from permanent contractual relations only if aseparate agreement has been reached in connection therewith.Otherwise, such claims are considered bankruptcy claims.

6. ADDITIONAL FINANCE

6.1 Obtainment of Additional Finance After the opening of a bankruptcy proceeding, a reorganisationplan may be drafted that deviates from the provisions of lawgoverning the liquidation and distribution of the bankruptcy estate.The plan shall include: (i) a description of how, when, and in whatamount the secured creditors and other classes of creditors willbe paid or otherwise compensated; (ii) conversion of claims ofcreditors to equity in the debtor; (iii) creation of new debt by thedebtor and the types of assurances to be offered to each class ofcreditors (iv) and new investors and how they will be paid in fullor protected from impairment that may result from theimplementation of the plan; (v) the degree to which the debtor’sdebt will be forgiven; (vi) the manner of compensation offered toall classes and the difference in the distribution if the debtor isliquidated; (vii) financial projections and the types of measures tobe undertaken to restore the profitability of the business of thedebtor; (viii) the manner of carrying out the reorganisation,especially with reference to the organisational, management,financial, technical measures, and the measures for reducing thenumber of employees; (ix) sources of funds and the financial planfor implementation of the bankruptcy plan, including increasingthe original equity and the debt, and also other measuresundertaken pursuant to this law.

6.2 Repayment PrioritiesThe plan of reorganisation shall classify the parties into separateclasses when defining their rights. Under the plan, creditors with adifferent legal status shall be classified in separate classes. Thefollowing shall be distinguished: a) creditors with a right toseparate recovery, if the plan affects their rights; b) creditors thatare not of lower priority; and c) each class of creditors of lowerpriority, if their claims are not discharged pursuant to the law.Creditors of the same legal status may be classified into classes

according to the similarity of their economic interests. The criteriafor classification should be stated in the plan. It is important tonote that the employees shall constitute a separate class if in theircapacity as creditors in the bankruptcy proceeding they claim sumsthat are not negligible. Separate classes may be constituted forthe smaller creditors.

7. TAX LIABILITIES & STATE SUPPORT

7.1 Tax Liabilities per Proceeding Pursuant to the laws of Bosnia and Herzegovina, limited liabilitycorporations and joint-stock corporations are liable with theirassets for their debts and the liability of the shareholders is limitedto the share capital that they have subscribed to. In other words,a shareholder of a limited liability corporation and joint-stockcorporation is liable only against the relevant corporation and thementioned liability consists of payment of the subscribed share.There are a few specific exceptions provided in applicable laws onbusiness corporations in relation to shareholders’ liability. It isprovided that the shareholder can be liable for the debts of thecompany if it: (a) used the company to achieve personal goalswhich are inconsistent with the goals of other members of thecompany and the company as a whole; (b) manages thecompany's assets as its own assets; (c) used the company for fraudor to cause damage to its creditors; (d) affects the reducing of thecompany's property for its benefit or the benefit of third parties,or affects that the company assumes liability even though he knewor should have known that the company is not or will not be ableto meet its obligations.

Moreover, the applicable tax legislation provides exceptions forthe liability of the management due to tax debts of thecorporation. In this regard, the officers and/or directors of a limitedliability corporation or joint-stock corporation are personally liablewith all their assets for all unpaid taxes, if the corporation hadfinancial means to pay taxes and they were not paid.

7.2 Availability of State AidThe Law on System of State Aid in Bosnia and Herzegovina doesnot provide for a possibility for provision of state support fordistressed businesses. Therefore, under laws of Bosnia andHerzegovina, state support is not available for insolventcorporations.

BA



8. ALTERNATIVE FORMS OF DEBT RECOVERY AND RESTRUCTURING

8.1 Informal Rescue or Insolvency ProceedingsNot applicable.

8.2 CircumstancesNot applicable.

8.3 Reorganizing ApproachPlease see Section 6.1.

8.4 Pre-packaged PlansNot applicable.

9. INTERNATIONAL ASPECTS

9.1 Recognition of International Insolvency andRescue ProceduresPursuant to the applicable legislation, foreign decision on theopening of a bankruptcy proceeding shall be recognised if: (a) itwas made by a court, (i.e., an institution, according to the legalframework of the FB&H), which has international jurisdiction; (b)it is enforceable according to the legal framework of the state inwhich it was made; and (c) its recognition would not be incontradiction to the public structure of the FBiH.

The petition for the recognition of a foreign decision shall berefused by the court if, in the event of an objection of a bankruptcydebtor or any other participant in the proceedings, it ascertainsthat the act which initiated the proceedings was not submitted tothe bankruptcy debtor in compliance with the law of the state inwhich the decision was made and if his fundamental rights to takepart in that proceeding and to defend himself were infringed.

9.2 Applicable Legislation or Case Law The courts of the FBiH have the exclusive jurisdiction over theimplementation of the bankruptcy proceedings against bankruptcydebtors whose center of business activity is in the area of FBiH. Itis presumed that the center of business operations of a bankruptcydebtor is in the locality that he has entered as his center. If it isproven that the center of business operations of a bankruptcy

debtor is located abroad, while the locality he has entered as hiscenter is within FBiH, the courts of the FBiH have exclusivejurisdiction over the conduct of bankruptcy proceedings againstthat bankruptcy debtor. İf, in accordance with the legal frameworkof the country in which the center of business operations of thedebtor is located, the bankruptcy proceedings may not be openedin that country on the basis of the center of business activity.

9.3 Cooperation in Concurrent ProceedingsThe bankruptcy trustee of a bankruptcy proceeding opened in theFBiH/RS and the bankruptcy trustee of the bankruptcy proceedingopened in another state over the same bankruptcy debtor shallcooperate with each other. They are under an obligation to presenteach other with all legally allowed information that may be ofimportance to the conduct of these proceedings. The bankruptcytrustee of the main bankruptcy proceeding opened in the FBiH isrequired to register a claim, registered in that procedure, in theforeign bankruptcy procedure, too, if that is requested of him by acreditor and if the creditor authorises him to do so.

9.4 International Treaties, Model Laws or EULegislationThere is no international treaty, model law or EU legislation towhich Bosnia and Herzegovina is a party to with respect toinsolvency and bankruptcy proceedings.

9.5 Special Procedures for Foreign Creditors in LocalInsolvency ProceedingsIn any proceeding or action against a Bosnian and Herzegoviniancounterpart in the Bosnian courts, a foreign party, as a foreignplaintiff, may be required to deposit security for court costs(“cautio judicatum solvi”), unless (a) in the country in which theplaintiff is a citizen, a citizen of Bosnia and Herzegovina is notobliged to deposit security for court costs; (b) the plaintiff has anasylum in Bosnia and Herzegovina; (c) the suit is related to theplaintiff's claim from the employment in Bosnia and Herzegovina;(d) it is related to marital disputes or disputes on determinationor adjudication of fatherhood or motherhood and legalalimentation; (e) it is a bill of exchange, cheque guarantee claim,counter claim or issuing of payment order.

BA



BA


28

BG



1. INSOLVENCY

1.1 Definition of InsolvencyUnder Bulgarian law, there are two possible legal grounds foropening of a bankruptcy proceeding: insolvency and/or over-indebtedness. A debtor shall be considered insolvent if it is unableto perform a matured monetary obligation due under, or inrelation to, a commercial transaction(including its validity,performance, non-performance, termination, invalidation ordissolution, or a public law obligation to the state or municipalitiesrelated to its commercial activity). Insolvency shall be presumedwhere the debtor has failed to make payments to its creditors. Thefact that a debtor has paid, or is able to pay, partially or in full,claims of certain creditors does not by itself mean that the debtoris solvent.

Over-indebtedness is a reason for opening a bankruptcyproceeding with respect to a limited liability company, a joint-stock company, or a public partnership limited by shares in caseswhere its assets are insufficient to cover its liabilities.Bankruptcy is a universal compulsory execution procedure, whichshall be aimed at providing fair satisfaction of all known creditorsand opportunities for reorganisation of the debtor's enterprise.

1.2 Legal FrameworkBankruptcy proceedings in the Republic of Bulgaria are generallygoverned by: • the Commerce Act, Part IV- Bankruptcy1 and • the Civil Procedure Code2.

Special law exists with respect to insolvency of banks - the BankBankruptcy Act3. Specific provisions contained in other laws (such as the InsuranceCode, the Social Insurance Code, etc.) apply to insolvencyproceedings with respect to certain types of entities, which are

subject to special regulatory regimes, such as insurance companies,additional social insurance funds, etc. The relevant generalprovisions of the Commerce Act shall be also applicable wheresuch matters are not expressly regulated by the special law.

1.3 Main ActorsThe main actors of the bankruptcy proceedings are: the bankruptcycourt, the bankruptcy trustee, the general meeting of creditors andthe debtor. The bankruptcy proceedings in Bulgaria are conductedby the civil courts. The competent court is the district court at theseat of management of the debtor.


2.1 Main TypesThe formal procedure types provided for companies in financialdifficulties are listed below.

2.2 Grounds for Initiating each ProceedingThe first stage in the general insolvency procedure is the initiationof bankruptcy proceedings. The initiation of bankruptcyproceedings can be followed by:- recovery procedure; or- bankruptcy; or- recovery procedure followed by bankruptcy (if the initiallyaccepted and approved recovery procedure fails).The insolvency proceedings with respect to banks shall be openedand carried out in compliance with the special provisions of theBank Bankruptcy Act.

(a) Opening of Bankruptcy Proceedings In order to open bankruptcy proceedings, the court has first toestablish the existence of the circumstances set out by the law (asdescribed above under Section 2.2). This court procedure is the

BULGARIA

BG

1 This part of the Commerce Act was published in State Gazette No. 63 dated 5 August 1994, in force as of 8 August 1994.2 Published in State Gazette No. 59 dated 20 July 2007, in force as of 1 March 2008.3 Published in State Gazette No. 92 dated 27 September 2001, in force as of 28 December 2002.


30 BULGARIA

first mandatory initial stage ofthe general insolvency procedure.The procedure for the initiation of bankruptcy proceedings maybe initiated upon application in writing submitted to the court bythe debtor or by a creditor of the debtor under a commercialtransaction, or by the National Revenue Agency. The debtor isobliged to file such an application within 30 days from theoccurrence of the insolvency or over-indebtedness. If the debtor(or the person/s managing and representing the debtor) does notfile a petition for the initiation of insolvency proceedings within30 days as of the suspension of payments, he would be subject tocriminal liability. The persons who are obliged by law to file such apetition shall be also liable towards the corporations’s creditorsfor damages caused by their delay to make the filing.

Based on the submitted petition, the bankruptcy court initiatesproceedings and issues a decision. By this decision, the court mayreject the petition if it is established that the conditions for theinitiation of bankruptcy proceedings are not exist, or even if theyexist, the debtor's financial difficulties are temporary and that thedebtor has sufficient assets to cover its obligations, safeguardingthe creditors' interests. In case the court establishes that the debtoris insolvent or over-indebted, then it issues a decision for theinitiation of bankruptcy proceedings. This decision is subject toannouncement in the Commercial Register.

The insolvency procedure with respect to banks with registeredaddress in the Republic of Bulgaria is regulated by the BankBankruptcy Act. Bankruptcy proceedings against a bank shall beinitiated when the Bulgarian National Bank has revoked its licencefor carrying out banking activity on the grounds of insolvency.

Pursuant to the Credit Institutions Act4 , the Bulgarian NationalBank shall mandatorily revoke a bank's licence on the grounds ofinsolvency where the bank’s own capital is a negative value andthe conditions for restructuring as per the Recovery andRestructuring of Credit Institutions and Investment IntermediariesAct5 have not been fulfilled.

Bankruptcy proceedings shall be also opened against a bank inliquidation proceedings where it has been established that thebank is in a state of insolvency.

(b) General Procedure If the court issues a decision for opening of bankruptcyproceedings, the next stage is related to the optional possibilityfor proposal of a reorganisation (recovery) plan, its acceptance bythe meeting of creditors and the approval of the plan by a decisionof the bankruptcy court. Such a plan may be proposed not laterthan one month following the date of the announcement in theCommercial Register of the court ruling on approval of the list ofcreditors. If a reorganisation plan is not proposed within the termprescribed by the law, or the plan proposed has not been acceptedand approved, the court declares the debtor bankrupt andterminates its activity. This is the condition for entering into thenext stages of the bankruptcy procedure – liquidation of the assetsof the insolvent debtor and distribution of the proceeds from suchliquidation among the creditors.

(c) Direct Bankruptcy The court may declare the debtor bankrupt immediately with thedecision for opening of bankruptcy proceedings in the followingcases: (i) where it is obvious that further continuance of the

commercial activity of the debtor could damage thebankruptcy estate (in such an event a ruling for declaringbankruptcy may be issued also at a later stage but beforeexpiry of the term for proposal of a reorganisation plan); or

(ii) where the available assets of the debtor is not sufficient forcovering the initial bankruptcy expenses and/or suchexpenses are not prepaid by the debtor or a creditor.

In such cases, there is no possibility for proposal and acceptanceof a reorganisation plan.

2.3 Formalities for Initiating each Proceeding

(a) Petition for İnitiating the ProceedingThe lawsuit for opening of bankruptcy proceedings may beinitiated upon a petition in writing submitted to the court by thedebtor or by a creditor of the debtor under a commercialtransaction, or by the National Revenue Agency.

Petition for opening of insolvency procedure, submitted by acreditor

BG

4 Published in State Gazette No. 59 dated 21 July 2006, in force as of 1 January 2007.5 Published in State Gazette No. 62 dated 14 August 2015, in force as of 14 August 2015.



Creditors must present with their petition evidence in writing andindicate any other evidence for the debtor's insolvency. Thepetition shall be examined by the court within fourteen days afterits submission in a closed court hearing summoning the debtorand the petitioner. The court shall declare the case for adjudicationwithin three months follow

Documents

The Southeast Europe Restructuring & Insolvency Guide 2016polenak.com/wp-content/uploads/2015/04/SEE-Legal... · 2018. 4. 5. · KALO & ASSOCIATES Kavaja Avenue G-KAM Business Centre