Serbia

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The new Law on Bankruptcy Proceedings (LBP), which was passed in 2004 and came into effect in 2005, differs greatly from its predecessor, a Law on Forced Settlement, Bankruptcy and Liquidation (1989). The novelties introduced include: formal licensing and regulation of bankruptcy administrators, a more active role of creditors in the proceedings, shortened deadlines, inclusion of the provisions of UNCITRAL model law, etc.

Based on an analysis of the application of the existing LBP, a process for its amendments has started and is currently underway. The adoption of the new bankruptcy law is expected during 2009.

From the perspective of the BSA, the proposed amendments to the existing LBP are intended to:

1. Define BSA supervisory work as professional (introduction of on-site inspection of Bankruptcy Administrators' work, in addition to the review of received documentation)
2. Specify actions the BSA will take in carrying out its entrusted supervisory tasks and in the license revocation procedure;
3. Determine the type of administrative act enacting a decision and ensure the finality of the administrative act on BSA level - license removal decision is final, but administrative dispute may be instituted against it;
4. Ensure legal basis and specify license revocation procedure - define types of sanctions (notice, public notice, suspension), criteria for imposing sanctions, procedures, etc. for any failure of the administrator to comply with the law and relevant by-laws before revocation;

Following the adoption of the proposed amendments, the amendments of relevant sub-legal acts are expected, such as to the Regulation establishing the National Standards for Administering the Bankruptcy Estate, Code of Ethics. It would involve the introduction of new regulations on license renewal and removal, and other relevant acts, as well.

With the assistance of the EBRD, the BSA will develop interpretive and guidance materials to accompany the new National Standards (the 'NS') and the Code of Ethics (the 'CE') that would also be used as training material.

Key Legislation

• Law on Bankruptcy Proceedings (2004)
• Law on Bankruptcy Supervision Agency

Insolvency Procedures

Insolvency procedures in Serbia apply to legal entities, that is, companies. Insolvency procedures of individuals are still not regulated by the law.

Bankruptcy proceedings, according to the law, include reorganization and liquidation. Liquidation is to be understood as creditors' satisfaction through the sale of the debtor's entire assets, and reorganization as creditors' satisfaction accomplished in the manner and under the conditions contained in a plan of reorganization.

In addition, the Law on Bankruptcy Proceedings contains provisions on singular management, small value bankruptcy and international bankruptcy. Singular management. The bankruptcy debtor, which is an entrepreneur, or the debtor's management, may be authorized, by the decision to open the bankruptcy proceedings, to administer and convey the bankruptcy estate himself if:

1) the creditors that initiated the proceedings agree to this,

2) the bankruptcy debtor proposes it, or

3) if it is reasonably probable that deciding on singular management will not hurt the interests of creditors or prolong bankruptcy proceedings.

At the request of the creditors' committee, singular management is replaced by appointing a bankruptcy administrator. Bankruptcy proceedings of a small value are conducted if the value of the bankruptcy debtor's property is smaller than RSD 5,000,000.

Roles

Role played by government

The role of the Government is to pass relevant laws, adopt bylaws, supervise the work of the insolvency regulatory body (Bankruptcy Supervision Agency - BSA) and the Bankruptcy Unit of the Privatization Agency (PABU), which is established to manage bankruptcy cases of state-owned and socially-owned enterprises, etc.

The BSA, as a state agency, is under the cap of the Ministry of Economy and Regional Development. According to the Law on Bankruptcy Supervision Agency, it carries out the following tasks:

• Issues, suspends, renews and revokes licenses,
• Sets the professional exam which all candidates must pass as a precondition of acquiring a license,
• Maintains a Register of Licensed Bankruptcy Administrators,
• Supervises the work of Bankruptcy Administrators,
• Collects and processes statistical and other data relating to bankruptcies,
• Advises National Standards for Administering the Bankruptcy Estate, together with the Code of Ethics, both of which adopted in accordance with the provisions of the Law on Bankruptcy Proceedings.

Role played by private sector practitioners

According to the existing Bankruptcy Law, a bankruptcy administrator has an operative function and his/her duty is to manage the bankruptcy procedure with the assent of the Court and the creditors' bodies. The bankruptcy administrator is appointed by court (bankruptcy panel).

Under the existing Law (Article 17) bankruptcy administrator's responsibilities include the following: protection of bankruptcy debtor's property and its insurance, physical inventory of the property, preparation of various reports and information on the state of the estate and delivery of notifications to relevant participants in the proceedings, ascertain the validity, extent and priority of creditors' claims, sell the assets of the debtor in accordance with the procedures stipulated in the law, distribute payments to creditors, on the basis of the decision on main distribution, deliver a final statement, call creditor meetings, as appropriate, represent the bankruptcy debtor in the course of initiating and handling administrative and other actions, file a petition to appropriate bodies of executive and judicial branch of power of foreign countries as the officially authorized representative of the bankruptcy debtor's estate, requesting the distrait, seizure, protection or return of the bankruptcy debtor's property located abroad.

Role played by court

The Commercial Courts have jurisdiction in insolvency matters. The role of courts is to make sure that the procedure provided by the Law is followed. According to the law, the role of the court involves the duties of the bankruptcy judge and the bankruptcy panel. The bankruptcy panel consists of three judges, whereby the bankruptcy judge may not be a member of the panel.

According to the law, bankruptcy judge has the following responsibilities: approves bankruptcy proceedings expenses before they are paid, introduces the bankruptcy administrator to his duties, determines the preliminary salary and compensation of the bankruptcy administrator, approves the draft reorganization plan, approves the draft decision on the final distribution of the bankruptcy estate, issues decisions and conducts other activities in matters that are not in the competence of the bankruptcy panel, supervises the work of the bankruptcy administrator, and performs other activities stipulated by the law.

Bankruptcy panel: issues decisions on the initiation of preliminary proceedings, determines whether sufficient reason exist to open the bankruptcy case, issues decisions on the opening of bankruptcy cases, appoints and removes bankruptcy judges, appoints and removes bankruptcy administrators, rules on objections against decisions and conclusions of bankruptcy judges, rules on objections against the actions of bankruptcy administrators, issues authorization to the bankruptcy debtor-entrepreneur on singular management in accordance with conditions prescribed by law, and performs other activities stipulated by the law.

Creditors

There are two creditors' bodies, creditors' assembly and creditors' committee, that control the work of the bankruptcy administrator and give their approval to the bankruptcy administrator for the most relevant activities within the procedure.

In particular, creditors' assembly: decides whether the bankruptcy case should be resolved by continuing debtor's business activities and reorganization or by terminating business and sale of assets of the debtor, elects and replaces the creditors committee, reviews the reports of the bankruptcy administrator on the course of the bankruptcy proceeding and the status of the bankruptcy estate, reviews the reports of the creditors' committee, and performs other actions stipulated by the law.

Creditors' committee: The basic function of the creditors' committee is to monitor the activity of the bankruptcy case and raise appropriate objection to any action that would adversely affect the rights of all unsecured creditors, where appropriate to do so under the law. In addition, the committee provides input to the administrator's activities and approves certain proposed actions of the administrator where called for in the law. The committee has the ability to object and make its view known to the court on various issues in the case. The Committee reports to the assembly on its work, upon the request, and performs other activities stipulated in this law.

Some sections of the law require only that the administrator gives notice to the creditors' committee within a prescribed time frame, in order to give it the opportunity to object and bring the matter to the court for resolution. However, certain actions of the administrator require explicit prior approval by the committee.

Others

The bankruptcy debtor is obliged to collaborate with the bankruptcy administrator. Their most important role is in the reorganization procedure, where they are required to act in accordance with the reorganization plan, once it is approved.

At a Glance

Does the insolvency system in Serbia allow for:

1.	Different procedures for the insolvency of individuals and the insolvency of companies?
2.	Creditors to accept an arrangement outside of formal bankruptcy/liquidation proceedings?
3.	Priority payment for employee creditors?
4.	Priority payment for taxation debts?
5.	Automatic disqualification of directors of failed companies from managing other companies?
6.	Recognition of insolvency proceedings being conducted in another jurisdiction?
7.	A government agency to undertake insolvency administration work?
8.	Some form of licensing of private sector practitioners?
9.	A review of the remuneration claimed by an insolvency practitioner by either a court or other government regulator?
10.	A mandatory scale of fees applicable to insolvency practitioner remuneration?
11.	Surveillance of the work of private sector practitioners by a government regulator?
12.	Collation of insolvency statistics by a government regulator?