Fina calls on debtors to submit proposals for pre-bankruptcy

The Financial Agency (Fina) has today called on debtors who, as of the date of entry into force of the Law on Financial Operations and Pre-Bankruptcy Settlement, met the conditions for initiating pre-bankruptcy settlement proceedings, that is, those who were illiquid and/or insolvent, to submit a proposal to Fina for the opening of this procedure no later than December 31, 2012.

According to data presented by Finance Minister Slavko Linić at yesterday’s Government session, 244 requests have been received for companies that have a total of about 8 billion kuna in obligations and debts and about 7,230 employees, and his Ministry expected that more than 20,000 proposals for initiating pre-bankruptcy settlement proceedings would arrive by the end of the year.

Fina reminds that on October 1 of this year, the Law on Financial Operations and Pre-Bankruptcy Settlement came into force, which represents the first step towards regulating not only the deadlines for execution and the consequences of non-execution of monetary obligations but also all further actions and measures that an entrepreneur must take after becoming unable to fulfill monetary obligations within the prescribed payment deadlines.

The pre-bankruptcy settlement procedure is conducted with the aim of enabling a debtor who has become illiquid and/or insolvent to undergo financial restructuring based on which they will become liquid and solvent, while providing creditors with more favorable conditions for settling their claims than the conditions they would achieve if bankruptcy proceedings were initiated against the debtor.

The law prescribes the obligation to initiate pre-bankruptcy settlement proceedings (Article 39 of the Law) for entrepreneurs who are illiquid or insolvent, under the threat of misdemeanor liability.

A monetary fine for the misdemeanor of failing to initiate pre-bankruptcy settlement proceedings under the conditions prescribed by the Law will be imposed (in accordance with the provision of Article 88 of the Law) on both the entrepreneur and the responsible person of the entrepreneur. Debtors who do not fulfill the legal obligation and do not initiate pre-bankruptcy settlement proceedings when they are legally required to do so commit a misdemeanor under the provisions of Article 88 of the Law, for which a monetary fine ranging from 10,000 to 1,000,000 kuna is prescribed for the debtor and a fine ranging from 1,000 to 50,000 kuna for the responsible person of the debtor, Fina warns.

The pre-bankruptcy settlement procedure is conducted at the Financial Agency, in four regional centers – Zagreb, Osijek, Rijeka, and Split. The regional center competent for conducting the procedure is determined by the debtor’s registered office, except in cases where the amount of obligation in the debtor’s financial report exceeds 10 million kuna, in which case only the council of the Regional Center Zagreb is exclusively competent, regardless of the debtor’s registered office.

Fina therefore calls on debtors to whom the provisions of this Law apply to submit a proposal for initiating pre-bankruptcy settlement proceedings if they have not already done so. The proposal is submitted to the locally competent regional center of Fina, either in person or by registered mail, marked “For pre-bankruptcy settlement”.

If an entrepreneur who is illiquid and/or insolvent fails to establish liquidity and solvency in the pre-bankruptcy settlement procedure, the Financial Agency will initiate bankruptcy proceedings in which the entrepreneur will ultimately be liquidated.

In light of inaccurate information that has appeared in the media regarding the application of the Law on Financial Operations and Pre-Bankruptcy Settlement, which states that Article 13 also applies to citizens, Fina once again emphasizes that the flat fee of 300 kuna (from Article 13) applies to contracts between entrepreneurs and entrepreneurs and public law entities, and cannot in any case be applied to citizens.