The most recent Amendments of the Serbian Insolvency Act (“Amendments”) put more control into creditors’ hands over the insolvency process, allowing them to propose to the insolvency administrator to be appointed in the process.  It also introduced more transparent provisions on the cost advance that has to be paid with the application for insolvency, as well as less restrictive provisions on the proposers of reorganization plans.  The overall impression of the Amendments is that insolvency will now be an even more attractive and cheaper manner for collection of the creditors’ receivables.

The Amendments started to apply on 9 December 2018.  There are three main novelties:

• creditors have more control over appointment of the insolvency administrator;
• provisions on the cost advance for initiation of the insolvency procedure are more precise and transparent;
• the threshold for filing of the reorganization plan has been abolished.

Creditors have More Control Over Insolvency Administrator Appointment

The Legislator allowed more influence of the creditors regarding insolvency administrator appointment.  Yet, the legislator paid attention not to provide an unbalanced solution.

Before the Amendments, insolvency administrators were appointed by accidental choice from the list provided by the Insolvency Administrator Supervision Agency.  On the other hand, the board of creditors could request removal of the insolvency administrator, without stating the reason, provided that at least ¾ members of the board of creditors voted for removal.

The Amendments allowed the creditor who filed for debtor’s insolvency, to propose the insolvency administrator.  The court has the obligation to consider such proposal, but at the end, the decision on insolvency administrator is in the insolvency judge’s discretion.

The Amendments also introduced a more balanced approach with reference to removal of the insolvency administrator.  Now, the board of creditors can request replacement of the insolvency administrator, but only after the hearing for examination of the receivables, with at least ¾ votes for the replacement, and with prior consent of the creditors’ assembly.  This amendment has at least three purposes: (i) to prevent possible delays of the process prior to the hearing for examination of the receivables, (ii) to prevent possible abuses that board of creditors may inflict with an unfounded request for replacement of the insolvency administrator, and (iii) to include a greater number of interested creditors in such decision making through the approval of the creditors’ assembly.

Cost Advance for Initiation of Insolvency Proceedings

Amendments set a scale for cost advance for filing for insolvency proceedings.  Amounts of the cost advance are related to the size of the company, so the maximum amounts range from EUR 420-8,440 depending whether the insolvency debtor is a micro, small, medium, or large company.  This allows the creditor that files for insolvency to predict its costs before the filing.  However, this does not provide full precision in prediction of expenses since the old provision that stipulates an obligations for the creditor to pay additional expenses if the advance payment is not sufficient, still remains.

Reorganization Plan is Easier to Submit

The final change of the Insolvency Act is that quotes for filing of the reorganization plan are abolished.  Before the amendments only 30% of secured creditors or 30% of insolvency creditors could file for a reorganization plan.  Now, these percentages are abolished, so any creditor can file for a reorganization plan regardless of the amount of their receivables, i.e. their shareholding interest.

Conclusion  

The obvious purpose of these minor changes to the Insolvency Act is to make a few steps forward, increasing the attractiveness of insolvency proceedings and reorganization for the creditors.  Amendments give more control of the process to the creditors , specifically regarding the appointment of the insolvency administrator.  They are also intended to make the initiation of insolvency proceedings cheaper for creditors, and to allow easier reorganization.

In our opinion, insolvency proceedings became more appealing after these Amendments.  The greatest fear of the creditors of losing control over collection of their receivables, is now brought to a better balance, as they can now propose the insolvency administrator, opting for those that are more efficient than the others.  On the other hand, by making the costs advance provisions more transparent and precise, the creditors will have more awareness of whether insolvency is a better option compared to litigation or enforcement proceedings, or to taking no action at all.

On the other hand, abolishment of a threshold for filing for reorganization seems to be a step back, given that so far most reorganizations allowed for a possibility of abuse and slowed down insolvency proceedings.  By allowing shareholders or creditors to submit a reorganization plan despite of their shareholders’ interest or amount of receivable, it seems to open even more room for abuses and delays in the process.

This text is for informational purposes only and should not be considered as legal advice. Should you require any additional information, please contact us.

Milan Samardžić, LL.M. (Georgetown), Partner
milan.samardzic@sog.rs

Stefan Despot, Associate
stefan.despot@sog.rs