A look at corporate, personal and, where relevant, partnership insolvency proceedings in Croatia, with a brief description to explain key features, as part of our Dictionary of Insolvency Terms in EU Member States. In particular, we highlight who controls the procedure and whether it is likely to be accompanied by a moratorium to prevent enforcement.
- A voluntary procedure commenced by the debtor (or a creditor with the debtor’s consent) when the debtor is facing "impending insolvency" with a view to rescuing the debtor’s business (company or natural person) as a going concern.
- Considered to be urgent and must be terminated within 300 days of opening (the court may extend for an additional 60 days).
- The debtor prepares a restructuring plan to be put to creditors for approval (see below).
- In the period between presentation of the petition and the court’s decision to open proceedings, the debtor may only make payments necessary for regular business operations and may not dispose of its assets.
- The debtor’s management board conducts its business for the duration of the proceedings subject to the supervision and approval of a court-appointed pre-bankruptcy trustee.
- One of the options available in bankruptcy proceedings, which enables the restructuring and continuation of the debtor’s business operations during the course of those proceedings.
- Only a bankruptcy trustee is entitled to file a bankruptcy plan with the court. The debtor may only make recommendations.
- The plan will be accepted if approved by the majority of creditors in each class and if the sum of the claims of all creditors who voted in favour of the plan twice exceeds the sum of the claims of creditors who voted against it. Creditors whose claims are not affected by the plan do not have voting rights. Secured creditors have the right to vote as a separate class if they are in any way affected by the plan.
- The court will conclude the bankruptcy proceedings as soon as the decision to accept the bankruptcy plan becomes final.
- When opening bankruptcy proceedings, the court may, by the same resolution, authorise the debtor to operate and dispose of its bankruptcy estate, under the supervision of a bankruptcy commissioner, who is appointed instead of a bankruptcy trustee.
- In general, the court will grant a resolution for personal administration in the following circumstances: (i) if proposed by the debtor; (ii) if not objected to by any creditor who filed the petition to open the bankruptcy proceedings; and (iii) if, having regard to the circumstances in hand, it is not anticipated that such administration shall cause a delay in the bankruptcy proceedings, or be detrimental to the creditors’ rights and interests. The court may also grant a resolution for personal administration if it is proposed by the creditors at the first hearing.
- The debtor continues to operate and perform activities in the ordinary course of its business, however activities that fall outside of this scope may only be undertaken by the debtor with the prior approval of the bankruptcy commissioner.
- Despite the fact that personal administration entails a deviation from the usual course of bankruptcy proceedings, in these circumstances, bankruptcy proceedings may still be terminated, either by collective satisfaction of the creditors’ claims and subsequent dissolution of the company, or by the conclusion of a bankruptcy plan (in which case the debtor company survives the proceedings).
Postupak izvanredne uprave
Compulsory (extraordinary) administration proceedings
- An extraordinary administration may be imposed in circumstances justifying pre-bankruptcy or bankruptcy proceedings of joint stock companies (and their related undertakings) that are of systemic importance to the Croatian economy.
- During extraordinary administration proceedings, an extraordinary administrator represents the debtor and conducts its business activities. Other bodies involved in the proceedings are the court (the Commercial Court in Zagreb has exclusive competence), an advisory body and the creditors’ council.
- Creditors submit their claims that are thereafter classified into groups, and subject to the approval of the extraordinary administrator.
- From the moment of the opening of compulsory extraordinary administration proceedings until their conclusion, no bankruptcy proceedings (stečajni postupak), pre-bankruptcy proceedings (predstečajni postupak), liquidation (likvidacija), litigation, court or out-of-court enforcement (izvansudska ovrha) or procedures of interim measures may be initiated against the debtor or its related undertakings, except for proceedings relating to employment relationships.
- Commenced with a view to settling creditors’ claims and dissolving the debtor company (unless a bankruptcy plan is agreed). Bankruptcy proceedings can also be initiated over the assets of a natural person who is subject to tax on income from self-employment or who is a profit taxpayer.
- Initiated by petition of the debtor, creditor, the Croatian Financial Agency (FINA) or a secured creditor, by reason of the debtor’s insolvency, over-indebtedness or impending insolvency.
- On the opening of bankruptcy proceedings, the debtor’s capacity to conduct business ceases, it is represented by a court-appointed bankruptcy trustee, enforcement proceedings against the debtor are terminated, and litigation proceedings are stayed until the bankruptcy trustee assumes conduct of them.
- Creditors are invited to register their claims, which are subsequently examined at a hearing before the court. All of the debtor’s claims become due (irrespective of the stated due date) and the bankruptcy trustee is obliged to manage the bankruptcy estate that is formed from the debtor’s assets. Assets subject to security form part of the bankruptcy estate, but secured creditors have priority, a so-called right of separate satisfaction.
- Unless a bankruptcy plan is adopted (see section titled Bankruptcy Plan / Stečajni plan), after termination of the bankruptcy proceedings, the debtor ceases to exist.
Liquidation / Winding up procedure
- This is one of the ways to bring a company’s existence to an end where, for example, a company needs to be dissolved and the shareholders are unable to agree how the assets should be distributed, and they have not decided to declare bankruptcy.
- The liquidation is generally conducted by the company’s directors, unless the company’s constitution or shareholders require a liquidator to be appointed.
- After all liabilities of the company have been settled, the liquidator is obliged to propose the distribution of the company’s assets and to file an application to remove the company from the court register. Upon removal, the company ceases to exist.
Brisanje iz sudskog registra po službenoj dužnosti
Deletion from the court registry ex offo
- A procedure whereby a company is removed from the court registry in the following circumstances: (i) it does not have any assets or has assets of insignificant value; (ii) it has not complied with laws concerning the subject in a prescribed term; (iii) it has not published annual financial statements for three consecutive years; or (iv) a foreign founder of the company’s branch has not delivered its annual financial statements to the competent registry court for three consecutive years.
- An intention to remove the company from the register is recorded with the court registry so that interested parties may object to decision being made.
Postupak stečaja potrošača
Consumer bankruptcy proceedings
- A voluntary procedure intended to release a consumer from any of their obligations that remain outstanding after all their assets have been realised and the proceeds distributed among their creditors.
- Prerequisites: the consumer must be acting in good faith and unable to pay debts exceeding HRK30,000 during a period of at least 90 consecutive days.
- Generally the preserve of consumers but may be initiated by a natural person engaged in business satisfying various criteria including the absence of employees.
- If a consumer fails to conclude an out-of-court agreement with creditors (see section titled Izvansudski sporazum/Out-of-court agreement) within 30 days they may file a petition to open these proceedings before a competent court.
- The course of consumer bankruptcy proceedings is similar to that of corporate bankruptcy proceedings: creditors are invited to register their claims, which are subject to examination at a hearing. The bankruptcy commissioner creates a final distribution list, followed by a decision on the conclusion of the bankruptcy proceedings.
- The court determines a time period of good conduct for the consumer, during which the consumer’s assets are managed by an appointed bankruptcy commissioner. After the expiry of the good conduct period, the court releases the consumer from their remaining obligations.
- As mentioned in the section titled Postupak stečaja potrošača / Consumer bankruptcy proceedings, a consumer is obliged to seek to conclude an out-of-court agreement with their creditors before seeking the initiation of consumer bankruptcy proceedings. A consumer’s creditors may also request the execution of an out-of-court agreement, however only with the consumer’s consent.
- Upon the request of either a consumer or any of their creditors, the out-of-court procedure can be conducted by a mediator from a Croatian Financial Agency (FINA) counselling centre or other authorised entity. The out-of-court proceedings should not last longer than 30 days from the date of the creditors’ meeting scheduled in the invitation for participation in the procedure (however, such time limit may be extended in certain circumstances).
- If the parties fail to conclude an out-of-court agreement, the counselling centre issues a certificate to this effect. However, where such an agreement is concluded, it has the same effect as an out-of-court settlement and becomes immediately enforceable.
- A creditor is entitled to enforce its claim in an out-of-court procedure if its security is established over movable assets or rights that are not considered immovable. Croatian law does not provide for out-of-court enforcement over immovable assets.
- Out-of-court enforcement is mainly conducted by the Croatian Financial Agency (hereinafter: "FINA"). However, there are some specific situations in which it is possible to conduct an out-of-court enforcement without FINA (for example an out-of-court enforcement of an Employer of the debtor).
- When conducting an out-of-court enforcement it is necessary to provide FINA with a billing request, as well as basis for payment. These documents have the same power as a court order (FINA acts the same as in the case of an ordinary judicial enforcement).
Blockage of accounts
- When FINA receives the above-mentioned documents, it may issue an order to preserve the accounts of the debtor. FINA will act in that manner if a payment order, made by a bank for settlement of claims in enforcement proceedings over a debtor’s cash assets, cannot be fully executed.
- During the period of account preservation, the debtor is prohibited from making payments and transfers from its account. The account preservation is subject to registration with the Unique Register of Accounts, held by FINA.
- The period of account preservation lasts for 60 days during which a debtor can try to postpone the transfer of funds to the accounts of the creditors. After an expiry of the 60 days period, the funds will be transferred to the creditors based on an order issued by FINA.
- Alongside out-of-court enforcement, there is also a possibility of an out-of-court settlement by the creditors. The debtor in civil matters must expressly agree in writing to the out-of-court settlement at the time of establishment of the security. However, in commercial matters the out-of-court settlement is presumed if the debtor has not expressly excluded such a procedure.
- The creditor is entitled to out-of-court settlement by means of a sale at public auction, or in any other way provided for in the underlying security document, prescribed by law, provided that it is the only possible way of effecting the settlement.
EU Directive Implementation
The EU Directive on Restructuring and Insolvency1 requires Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2021, with an option to extend that deadline by one year. The intention of the Directive is to reduce barriers to the free flow of capital stemming from differences in Member States’ restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.
Notable features required to be included in Member States’ national laws include:
- An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
- A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
- An ability to cram down dissenting classes of creditors.
- Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
- Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.
Implementation in Croatia
- The EU Directive 2019/1023 on Restructuring and Insolvency (hereinafter: "Directive") has not yet been implemented into Croatian legislation.
- Croatia has been granted a deadline extension of one year in order to implement the Directive.
- As of October 2021, the competent authority has unofficially confirmed that the new legislation proposal required to implement the Directive will be put into legislative procedure in the beginning of 2022.
As mentioned in the previous section, the implementation date for the Directive is currently unknown.
Recognition of foreign insolvency processes
EU Regulation on Insolvency Proceedings
The EU Regulation on Insolvency Proceedings2 applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State.
- The EU Regulation on Insolvency Proceedings applies on bankruptcy proceedings in Croatia, while the recognition of enforcement proceedings is regulated by Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.
Recognition of third country insolvency processes
- Third country bankruptcy processes are regulated by the Croatian Bankruptcy Act.
- For the recognition of a foreign court decision, it is necessary to submit a proposal to the competent court in Croatia. The said proposal may be submitted by the bankruptcy trustee or the creditor of the bankruptcy debtor.
- A foreign decision on bankruptcy proceedings, will be recognized: (i) if it was issued by a court or body that has international jurisdiction under Croatian law, (ii) if it is enforceable under the law of the State in which it was enacted, (iii) if its recognition would not be against the public order of the Republic of Croatia.
- Regarding enforcement proceedings for third countries, this matter is regulated by the Private International Law Act, which also prescribes the necessity of recognizing a foreign court decision by the Croatian courts.
- A foreign court decision may be recognized if it is accompanied by a certificate of validity and a certificate of enforceability from the country in which it was issued.
Insolvency changes in response to COVID-19
For more information on changes to insolvency law in Croatia as a result of the COVID-19 pandemic please see our Guide to changes in insolvency law in response to COVID-19.
With thanks to Petra Siketic of Glinska & Miškoviĉ for writing this chapter of the dictionary.
- On 1 May 2020, the Croatian Parliament passed an Act on Intervention Measures in Enforcement and Bankruptcy Proceedings for the duration of the so-called "special circumstances." The law prescribed certain special intervention measures in enforcement and bankruptcy proceedings during the COVID-19 pandemic, which was deemed to be within the scope of "special circumstances".
- The adoption of this act aimed to significantly reduce the number of enforcement and bankruptcy proceedings in the Republic of Croatia. The act was in force until 18 October 2020, after which it was considered that the circumstances were no longer such as to require the application of the aforementioned act.
- The Croatian Financial Agency (FINA), as the body in charge of conducting enforcement, also adopted a different approach during the special circumstances caused by the COVID-19 pandemic. Namely, FINA stopped the implementation of enforcement in relation to natural persons and did not charge any interest during a period of time in addition to the aforementioned period of special circumstances. These provisions were included in the Funds Enforcement Act, which mainly regulates the operation of FINA, and were in force until the Act on Intervention Measures in Enforcement and Bankruptcy Proceedings ceased to be valid (18 October 2020).
- The abovementioned provisions in response to the COVID-19 pandemic are no longer in force. Thus, the position under the Croatian legislation has reverted to the time before the COVID-19 pandemic.
- The Government’s measures of economic assistance are still in force, which indirectly affects the prevention of enforcement and bankruptcy to some extent.
1Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.
2 Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast).