Rules on Bankruptcy Unaffected by Coronavirus in Serbia – Is There a Reason?

July 17, 2020

Rules on Bankruptcy Unaffected by Coronavirus in Serbia – Is There a Reason?

July 17, 2020

Radovan Grbović

Radovan Grbović

Partner

Ivan Nikolić

Ivan Nikolić

Senior Associate

Across Europe, the governments are attempting to stem the tide of bankruptcies with economic rescue programs as an answer to the pandemic of Covid-19. Most of the European countries’ bankruptcy rules are ripped up, easing the current situation for the companies in distress. For example, Germany suspended the obligation of the companies to file for bankruptcies, until September. Spain, France, and several other countries introduced a moratorium on the initiation of bankruptcy proceedings (except when the management of distressed companies decide to file for bankruptcy voluntarily). Italy is working on a set of rules that would exempt Corona-hit companies to file for obligatory bankruptcy. However, it is understood that these anti-bankruptcy measures are mostly avoiding inevitable, thus postponing the peak of bankruptcies and preventing economic collapse.

However, Serbia did not follow this example. Instead, Serbia introduced other economic measures, but bankruptcy rules remained intact. Even during the state of emergency, the courts in Serbia opened bankruptcy over dozens of companies, and when the state of emergency ended at the beginning of May 2020, and the courts started working relatively normally, the number of bankruptcies increased to pre-pandemic period.

The main question is whether Serbia needs easing of bankruptcy rules. The answer is no in the current situation. One of the main features of the Serbian Bankruptcy Act is that it has no forced or obligatory bankruptcy (except in case of voluntary liquidation process when liquidation receiver finds that there are grounds to initiate bankruptcy over the company). Consequently, many companies could have gone to bankruptcy several years ago, but this has never happened. Instead, there are thousands of shell companies in the company register with no assets and huge debts. They have no effective business at all.

Instead of pursuing the practice of most of the European countries concerning mandatory bankruptcy, Serbia took a different approach – mandatory wind-down process (mandatory liquidation). This process is initiated ex officio by the business register, in the out-of-court procedure, by announcing the initiation of mandatory wind-down procedure in the company register, inter alia, in the following cases:

  • In case the competent authority suspends further business operation of the company, or if the company loses the license to operate a certain business, whereas the company failed to register another business activity;
  • In case of expiry of the term of the company, whereas the company fails to register extension of the term, or fails to initiate a regular wind-down procedure;
  • The court finally determines that registration of the company or company’s articles of association are null and void;
  • The company lacks legal representative or liquidation receiver, and fails to register a new one within 3 months from deletion of the former legal representative or liquidation receiver;
  • Adopted liquidation balance is not provided to the business registry;
  • The company fails to provide annual financial reports to the company register for two consecutive years preceding the year when the financial reports should be provided to the business register; and
  • In other cases prescribed by the law.

The process should be initiated automatically, and in case the company fails to remedy the reason for the initiation of a mandatory wind-down process, the company is deleted from the company register. The consequence of deletion of the company from the business register is that the controlling shareholders (holding more than 50% of the shares in the company) are severally and jointly liable for the debts of the company for further 3 years following the deletion of the company from the company register, despite the company is, for example, a joint-stock company or a limited liability company.

 The fact that there is no mandatory bankruptcy, like in most developed European countries, and there is a mandatory wind-down procedure, obviously made Serbian Government ambivalent towards easing bankruptcy rules, which for Serbia, in the end, does seem unnecessary.

 

 

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

Contact:

Radovan Grbović, Partner
radovan.grbovic@sog.rs

Ivan Nikolić, Senior Associate
ivan.nikolic@sog.rs

OTHER NEWS

Procedures Before Notaries Just Became Simpler

Procedures Before Notaries Just Became Simpler

  On 26 June 2020, the Government of Serbia adopted a decree* allowing citizens to obtain cadastre excerpts at the notary public office or at a geodetic organisation. Hence, when citizens are in need of the public notary services or of services provided by the...

read more

Let's connect

Let us know how we can help you and your business.