11 Dec 2015

Serbia: Amendments to the Financial Restructuring Act

In line with the action plan included in the non-performing loan resolution strategy (“NPL Strategy”), the Serbian Parliament passed amendments to the Voluntary Financial Restructuring Act (“the Act”) on 23 October 2015. The law entered into force on 4 November 2015 and will be enforced as of 2 February 2016. Pending financial restructurings will continue in line with the provisions of the Act.

The changes the Act introduces may not be monumental, but legislators expect they will contribute to developing a more favorable economic environment in the country. It remains to be seen how the Act is going to be applied and whether market participants will recognize its importance this time around.

The Act will not apply to companies in the financial leasing business, payment institutions, electronic money institutions, as well as entities in (prepackaged) bankruptcy proceedings.

One of the most significant changes introduced under the Act is that it now refers not only to companies, but also to entrepreneurs (the point set out in the strategy for NPL resolution). According to official records, the accounts of around 30,000 companies and more than 26,000 entrepreneurs were frozen as at the end of April due to outstanding liabilities, which justifies the said shift in legislators’ approach.

Unlike the Act previously in force, which stipulated that financial restructuring can take place only if at least two banks partake, this Act allows for the domestic development institutions (Development Fund of the Republic of Serbia, Export Credit and Insurance Agency of the Republic of Serbia, Deposit Insurance Agency when acting on behalf of the state and other entities established for the purposes of funding or encouraging development in the Republic of Serbia) to take part in the procedure instead of banks. Another change related thereto is that, when an entrepreneur is a debtor, financial restructuring can take place even where only one bank partakes.

Financial restructuring requires only the consent of the creditors and debtors, which is no longer need be given in writing. On the other hand, unlike the previous regulation, the Act requires for the agreement on financial restructuring to be in written form. There is no longer an obligation on the part of the debtor to register the agreement with the Business Registers Agency, as the financial restructuring itself is not mandatory and there are no ramifications for entities that decided not to take part in it.
Apart from its mediation role, the remit of the Chamber of Commerce and Industry of Serbia (“CCIS”) is extended under the Act to include maintaining records of concluded contracts and monitoring their execution. The status of CCIS mediators is now regulated in detail.

Debt standstill is no longer obligatory. Practice has shown that not many standstill agreements have been entered into so far, owing to the fact that banks have been reluctant to waive their right to freeze debtors’ accounts. The minister of economy is no longer authorized to prescribe the content of these agreements, which further underscores the need for flexibility.

For more information on this topic, please contact Nikola Aksić, partner and head of the Banking & Finance practice at Gecić Law.