The Government Gives Companies a Fourth Chance for Pre-Bankruptcy Settlement

The government adopted a regulation with legal force at today’s session, which introduced amendments to the Law on Financial Operations and Pre-Bankruptcy Settlement, expecting that it will facilitate pre-bankruptcy settlements and increase the number of rescued companies, thus increasing the number of attempts for pre-bankruptcy settlements from three to four.

Finance Minister Slavko Linić reported that 4,932 requests for pre-bankruptcy settlements have been submitted so far, with a total of 47.8 billion kuna in claims, and these entrepreneurs employ about 41,000 people.

A total of 3,837 cases have been resolved, but of those, 3,065 were rejected, while 787 were resolved positively. Of these, 168 reached a final positive outcome in court, while 619 are being finalized and awaiting a court decision. In these companies, 12,580 workers are employed, and more than 12 billion kuna in claims are being resolved.

These data, says Linić, show that the crisis is very deep and that the majority of companies seeking an exit through pre-bankruptcy settlements have little chance of salvation, most often involving small companies.

According to Linić, the average duration of the process, when it comes to accepting the restructuring plan and creditor agreements, is about 60 days, and after that resolution, commercial courts conclude the settlement within 58 days, which totals an average of about 120 days from the start of the process to the final resolution.

Pressed by the expiration of deadlines for pre-bankruptcy settlements for several large companies, the government today increased the maximum number of attempts for pre-bankruptcy settlements and settlement plans from three to four through the adopted regulation.

Minister Linić states that creditors and debtors in some cases, after three unsuccessful attempts, managed to come closer and could positively resolve the settlement, thus now being given the opportunity to realize those agreements.

The regulation also supplements the content of the report on the financial status and operations of the debtor by adding a list of all initiated proceedings before courts and public law bodies (litigation, administrative, enforcement, security proceedings, etc.) that the debtor conducts against third parties.

This change, says Linić, is necessary so that participants in the pre-bankruptcy settlement, i.e., all of the debtor’s creditors, have insight into his overall financial situation and the obligations that third parties have towards him, which could potentially be adjudicated or concluded in his favor.

Furthermore, deadlines for submitting the amended financial restructuring plan are adjusted so that the existing deadline of 30 days is shortened to 15 days, while simultaneously allowing the debtor, after the voting hearing at which the plan was not passed, to offer an amended financial restructuring plan two more times before the new voting hearing, all in order to reach an agreement with creditors, conclude a settlement, and avoid bankruptcy.

It is also regulated that claims that have subsequently appeared and are subject to special enforcement will not be executed, but will be specially recorded so that everyone has a clear insight into the total obligations of the debtor.

The regulation also stipulates that in cases where the pre-bankruptcy settlement has failed, Fina is obligated to submit a request for bankruptcy.

Minister Linić believes that pre-bankruptcy settlements have indeed helped the economy.

He recalls that illiquidity reached 44.7 billion kuna in 2012, and according to the latest data, it has fallen to 35.1 billion kuna, so, as he said, almost 10 billion kuna has been erased solely as a result of government measures, including the pre-bankruptcy settlement.