Bankruptcy Administrator Mira Hajdić: Pre-bankruptcy is a God-given instrument for writing off one’s own debts

The president of the Croatian Association of Bankruptcy Administrators (HUSU), Mira Hajdić, emphasizes that she is primarily an entrepreneur and manager, and she is proud that among the hundred bankruptcy proceedings she has led, several companies continued to operate after she guided them through successful bankruptcy plans. Therefore, she can competently explain why too many bankruptcies end in liquidation, propose how to reduce the number of companies that go bankrupt, warn of all the dangers of pre-bankruptcy proceedings, and elaborate on the problems faced by bankruptcy administrators. After all, these are some of the reasons why HUSU’s goal is to organize bankruptcy administrators in a professional chamber. Here we present excerpts dedicated to the problem of pre-bankruptcy from an extensive interview published in the new digital and printed issue of Lider.

The institution of pre-bankruptcy has existed for 12 years. Throughout this time, there have been significant criticisms, especially from creditors who would lose part of their claims, while the rest would be received with delays. Nevertheless, many companies managed to save themselves this way.

– Pre-bankruptcy is an institute, regardless of the noble intentions of the legislator, that is ripe for abuse at the expense of creditors. Pre-bankruptcy agreements are generally unsuccessful because operational restructuring is lacking, i.e., after the write-off of debts, the same business model continues, which ultimately leads to bankruptcy. Perhaps someone will one day analyze successfully conducted pre-bankruptcy proceedings with financial effects on all participants, but until then, it can best be written off as a God-given insolvency instrument for writing off one’s own debts: ‘Look, I owed you, and now I legally no longer owe you. And I continue my life, and whatever happens with you.’

Despite the criticisms, pre-bankruptcies have not been abolished, but the regulations have been changed several times. What are the main shortcomings of today’s rules of the game?

– The existing legal solution for the pre-bankruptcy procedure is, according to the opinion of many of my colleagues, which I join, the worst so far since the establishment of this procedure, with all the initial growing pains of that time. So much has been poorly resolved that it is difficult to summarize in a sentence or two.

Is the phenomenon still present where owners and related companies act as large creditors to vote for a settlement that is most favorable for the debtor?

– Not only is this phenomenon still present, it has been perfected to perfection and has legal blessing. Of course, there are preventive and corrective measures to prevent this from happening, but they are largely hindered by other articles in the Bankruptcy Act, which make them almost unenforceable. Therefore, I particularly admire judges who do not hesitate to react when they see such practices in action.

What specific recent changes to the Bankruptcy Act particularly favor debtors?

– The pre-bankruptcy procedure was indeed introduced to favor debtors, to provide them with a ‘lifeline’, to allow a respite from the pressure of old obligations until they restructure and stabilize. Of course, debtors should behave correctly and responsibly in this process. The problem is that pre-bankruptcy treats ‘irresponsible’ players equally, who have recognized this procedure as a means to buy time to hide assets. According to the new solutions, if you want to eliminate a creditor who warns that your business rescue solution is unsustainable, and they are not a bank and have no secured claim through a registered mortgage, it is enough to dispute their claim. This eliminates them from influencing the non-adoption of an unsustainable bankruptcy plan, because for you, the sustainability of the business is not the goal, but, as we said, just buying time in the form of a moratorium, after which, look, the pre-bankruptcy has failed, not due to your fault… For this task, it is enough for you to have the support of a creditor who has voting rights regardless of whether you disputed their claim, most often a bank. What is truly sad is that in a large number of cases, this agreement is reached with the wholehearted assistance of a specific state financial institution.

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