By Goran Korać, Lawyer
Law office of Tomislav Šunjka
As in other legal systems, bankruptcy proceeding in Republic of Serbia has great significance considering that it provides mechanism and possibility to creditors of bankruptcy debtor to collect the claims from bankruptcy debtor which has due to bad business decision, difficulties at the market, changed circumstances (hardship) or for some other reasons become insolvent and incapable to fulfil its obligations towards the creditors.
The bankruptcy proceeding in Republic of Serbia is governed by the Law on bankruptcy ("Official Herald RS", no. 104/2009, 99/2011 - other Laws, 71/2012 - Decision of Constitutional court and 83/2014) whereas general principle and purpose of the bankruptcy in Republic of Serbia is to provide the creditors possibility to collect claims which they have towards bankruptcy debtor in the highest possible percentage.
The bankruptcy proceeding in Republic of Serbia may be conducted through the process of liquidation of the bankruptcy debtor (compulsory liquidation in accordance with Law on bankruptcy when the company becomes insolvent or voluntary liquidation in accordance with Law on companies if company is solvent and is capable to pay off all of the debts) and through reorganisation of the bankruptcy debtor.
By this Article we shall only refer to compulsory liquidation of the company in accordance with provisions of Law on bankruptcy and give closer overview of bankruptcy proceeding through process of compulsory liquidation of the company and registration of claims in this proceeding.
The bankruptcy proceeding in Republic of Serbia may be initiated against any legal entity (partnerships, limited liability companies, joint stock companies, companies in state ownership, associations, foundations, sport clubs, etc.) while reason for opening bankruptcy proceeding upon the debtor are following: 1) If it cannot respond to its obligations within 45 days from the time when they became due; 2) If it has stopped all payments during a continuous 30 day period; 3) The debtor shows that it is probable that it will not be able to pay existing obligations when they become due; 4) Value of property which it possess is lower than its obligations. Insolvency is considered presumable if bankruptcy proceeding is initiated by the creditor which could not collect its claim in court or taxing enforcement proceeding. The bankruptcy proceeding in Republic of Serbia may not be executed upon individual physical person.
The bankruptcy proceeding is initiated by proposal for opening bankruptcy proceeding which is being filed to the competent Commercial court with territorial jurisdiction at which the bankruptcy debtor has registered seat.
After being initiated, acting judge opens previous bankruptcy proceeding and schedules hearing for discussion about existence of bankruptcy reasons in order to determine whether bankruptcy debtor is insolvent and whether reasons for opening bankruptcy proceeding exist. The hearing for determination of existence of bankruptcy reasons must be scheduled in time period of 30 days as of day when proposal for opening bankruptcy proceeding has been filed to the court. In previous bankruptcy proceeding, upon proposal of the creditor, acting court may issue numerous security measures in order to secure property of bankruptcy debtor.
The court shall not initiate previous bankruptcy proceeding if: 1) The debtor itself has filed proposal for initiation bankruptcy proceeding; 2) If creditor has filed proposal for opening bankruptcy proceeding and debtor has agreed with the proposal; 3) If bankruptcy proceeding is initiated by the creditor which could not collect its claim in court or taxing enforcement proceeding. In this case acting court shall in time period of 10 days after receiving the proposal for initiation of bankruptcy schedule hearing for discussion on existence of bankruptcy reasons for opening bankruptcy proceeding.
If court determines that some of the reasons for opening bankruptcy proceedings exist it shall deliver Decision on opening of bankruptcy proceeding. The Decision on opening bankruptcy proceeding has to contain following mandatory data: 1) Name and seat of the acting court; 2) Registry number, business name and seat of the debtor; 3) Bankruptcy reason; 4) Decision on appointing bankruptcy manager; bankruptcy manager name and surname and address; 5) Invitation to all of the creditors to register their claims in time period of 120 days from announcing of ad on opening of bankruptcy proceeding in Official herald of Republic of Serbia; 6) Invitation to all of bankruptcy debtor debtors to fulfil their obligations towards the bankruptcy debtor; 7) Date, time and place of holding of hearing for examination of registered claims; 8) Date, time and place of holding of first creditors hearing; 9) Day of announcing ad on the court’s notification board.
After the Decision on opening bankruptcy proceeding is delivered, following legal consequence in respect to the court proceedings in which bankruptcy debtor participates are emerging: 1) all court and administrative proceedings in respect to the bankruptcy debtor are being discontinued; 2) enforcement proceeding and collection of the debt in enforcement proceeding against bankruptcy debtor is prohibited.
The court proceedings in which bankruptcy debtor is plaintiff or proposer are being continued after bankruptcy manager gives statement to the court that he will continue the proceeding while court proceedings in which bankruptcy debtor is being sued are being continued only after creditor requests continuance of that court proceeding. Firstly, the creditor must register claim in bankruptcy proceeding and after his claim is contested by bankruptcy manager or by some other creditor, creditor whose claim request has been contested may request continuance of the court proceeding for determination of claim in preclusive deadline of 15 days from receiving Conclusion on contesting of claim.
By opening of the bankruptcy proceeding upon bankruptcy debtor, all of the claims become due and creditors may collect the claims from the debtor only through bankruptcy proceeding. For that purpose, creditors must register claims in bankruptcy proceeding by submitting claim application in writing. The claim application has to contain following data: 1) Business name i.e. name and surname, and seat i.e. place of residence of the creditor; 2) Registry number of legal entity i.e. personal identification number of citizen as physical person; 3) Number of bank account; 4) The legal basis of the claim; 5) Amount of claim, in particular amount of main debt and calculation of interest rate; 6) The property at which the creditor has some means of security; 7) Specific request of the creditor in accordance with the provisions of civil procedure code on content of the lawsuit.
The legal basis of the claim may represent any enforcement decision (judgment, verdict, resolution and etc.), legal or bookkeeping document (agreement, contract, invoice, bill, etc.) as well as damages which the bankruptcy debtor has caused to creditor. The creditor has to deliver together with the claim application and evidences proving his claim.
In case if creditor’s claim is subject of litigation, enforcement or some other court proceeding, creditor is obliged to state number of case file and acting court before this court proceeding is being led.
If creditor has claim in foreign currency, this claim is being registered in foreign currency in which debt exist but this claim also has to be calculated in RSD (Republic of Serbia dinar currency) counter value at the official middle exchange rate of National bank of Serbia at the day of opening of bankruptcy proceeding. The creditors may request legal interest until the day of opening bankruptcy proceeding while after payments towards all of the creditors which have registered claims in bankruptcy proceeding are performed and if there is still funds from bankruptcy estate, the acting judge may decide and approve payment and additional legal interest and for the period after the opening of bankruptcy proceeding.
The creditors are in accordance with provision of Article 82 of Law on bankruptcy proceeding entitled to give statement on offsetting of mutual claims which they have with bankruptcy debtor, in case of existence of mutual claims between creditor and bankruptcy debtor.
The creditors have to submit claim applications in time period determined by Decision on opening bankruptcy proceeding. After the deadline has expired, bankruptcy manager after examination and checking of business books of the bankruptcy debtor decides which of the claims will be recognized and which of the claims will be contested. He composes and delivers to the court List of recognized and contested claims about which List it shall be discussed at hearing for examination of claim applications.
By the Decision on opening bankruptcy proceeding acting court has scheduled hearing for examination claim applications at which bankruptcy manager informs present creditors which claims have been recognized and explains to the present creditors reasons why some of the claims have been contested in case if any of the claims has been contested. At this hearing, creditors are also entitled to contest claim of some other creditor which claim has been recognized by bankruptcy manager.
After hearing for examination of claim applications is concluded, acting judge delivers Conclusion on recognized and contested claims while bankruptcy manager sends to the creditors whose claim applications have been contested Conclusion on contesting of the claim by which creditor has been informed on contesting of claim and invited to initiate or to continue court proceeding for determination of claim. If in determined deadline creditor whose claim application has been contested does not initiate or continue court proceeding, his right to collect the claim will be precluded.
This part of Article represents actual judicial practice before court in Republic of Serbia.
Prior to opening of bankruptcy proceeding upon bankruptcy debtor, contractor (bankruptcy debtor) has submitted lawsuit against the investor (creditor) for collection of the alleged debt for performed construction works under the issued invoice. Therefore, contractor has started litigation against investor.
Prior to starting litigation, the investor has rejected to pay amount under the issued invoice and it has returned back the issued invoice to the contractor considering that construction works at the project (building) have not been performed by the contractor as it was agreed by Construction agreement i.e. in agreed quality and quantity and in agreed deadline.
By failing to perform works in agreed quality and quantity and in agreed deadline the contractor has caused significant damages to the investor.
Therefore, in this litigation which was initiated by contractor, the investor has submitted offsetting counterclaim for damages caused by the contractor and in this offsetting counterclaim investor has set claim of the contractor at only EUR 1,00 due to the fact that investor does not recognize whole claim of the contractor but just claim in the amount of EUR 1,00. The investor had to set the contractor’s claim at EUR 1,00 considering that offsetting counterclaim would not be submitted in accordance with mandatory provisions of Serbian law and it would be rejected by the court in litigation.
During the course of the litigation, bankruptcy proceeding has been opened upon contractor as bankruptcy debtor and litigation proceeding has been discontinued due to opening of bankruptcy proceeding where creditors of bankruptcy debtor, as well as investor, have been called to register their claims in bankruptcy proceeding.
The investor as creditor has timely submitted claim application together with offsetting statement in which bankruptcy debtor’s (contractor’s) claim is set at EUR 1,00. The creditor’s claim application till this day have not been recognized nor contested by bankruptcy manager but it is expected that it shall be contested considering that it is subject of litigation and it is disputed by contractor prior to opening bankruptcy proceeding upon the contractor.
Considering that bankruptcy debtor as contractor in aforementioned litigation has position of plaintiff - counter defendant, the bankruptcy manager has proposed continuance of the litigaiton and in regular course of things it would automatically be continued but considering that creditor as investor is defendant - counter plaintiff in this litigation and he has offsetting counterclaim, this litigation may be continued only after creditor’s claim application with offsetting request in bankruptcy proceeding is contested and only after creditor also requests continuance of this litigation.
Also, after creditor’s claim is contested, in case if creditor does not propose continuance of the proceeding in deadline prescribed by Conclusion on contesting of the claim, the creditor will be precluded from the claim i.e. offsetting counterclaim which he has set in litigation and litigation will be continued without request of creditor for continuance of the litigation. In that case the acting court in litigation shall deliver judgment only in respect to the claim of contractor.