1. Definition of Reorganization
The institute of reorganization of a debtor was first introduced to the legislation of the Republic of Serbia by the Law on Bankruptcy Proceedings (“Official Gazette of the Republic of Serbia”, No. 84/2004 and 85/2005 – as amended) but it should be noted that the Law on Compulsory Settlement, Bankruptcy and Liquidation (“Official Gazette of the SFRY”, No. 84/89 and “Official Gazette of the FRY”, No. 37/93 and 28/96) recognized the institute of compulsory settlement which had the purpose to prevent and avoid the occurrence of bankruptcy by the agreement between a debtor and creditors concluded with the participation and under the control of the court on partial and/or delayed settlement of claims aimed at ensuring economic recovery of debtors and preventing debtors’ bankruptcy. It can be concluded that compulsory settlement was a precursor of the reorganization in the legal system of the Republic of Serbia.
Bankruptcy in terms of applicable legislation of the Republic of Serbia contained in the Bankruptcy Law (“Official Gazette of the Republic of Serbia”, No. 104/2009, 99/2011 – as amended, 71/2012 – Decision of the CC and 83/2014) may be implemented in two forms as bankruptcy or reorganization.
In terms of the Bankruptcy Law (“Official Gazette of the Republic of Serbia”, No. 104/2009, 99/2011 – as amended, 71/2012 – Decision of the CC and 83/2014), the term of reorganization shall mean settling creditors’ claims in accordance with the adopted reorganization plan and by re-defining debtor-creditor relations, debtor status changes or otherwise as prescribed under the reorganization plan. Reorganization shall be implemented if more favourable settlement of creditors’ claims may be achieved other than by bankruptcy, and in particular if economically justified conditions are in place for the debtor to continue its business operations. The adopted reorganization plan shall be an executive document and be deemed to a new contract for settling claims specified in it.
Reorganization shall be implemented in accordance with the reorganization plan prepared in a written form. The reorganization plan may be filed simultaneously with the motion for opening of bankruptcy proceedings or after opening of the bankruptcy proceedings. If the reorganization plan is filed simultaneously with the motion for opening of the bankruptcy proceedings it will be referred to as a “pre-packaged reorganization plan”.
2. The most important legal characteristics of a pre-packaged reorganization plan and reorganization plan submitted after opening of the bankruptcy proceedings before recent legal amendments in accordance with the Bankruptcy Law (“Official Gazette of the Republic of Serbia”, No. 104/2009, 99/2011 – as amended, 71/2012 – Decision of the CC)
The most important phases of the reorganization procedure which in terms of process systematics retained their characteristics and process flow even after the adoption of the Law amending the Bankruptcy Law (“Official Gazette of the Republic of Serbia”, No. 83/2014) will be presented in the lines below, while the most important legal novels will be specially presented within the chapter under the title “most important amendments to the institute of a Pre-packaged Reorganization Plan and the Reorganization Plan submitted after opening of the bankruptcy proceedings contained in the Law amending the Bankruptcy Law ("Official Gazette of the Republic of Serbia", No. 83/2014)”
The Pre-packaged Reorganization Plan (hereinafter referred to as: PPRP) as an independent institute has been regulated for the first time by the provisions of the Bankruptcy Law (“Official Gazette of the Republic of Serbia”, No. 104/2009) in accordance with Chapter 11 of the US Bankruptcy Act. In terms of normative regulation of the PPRP the provisions of the Bankruptcy Law have been amended by the by-law – Rulebook on the method of implementing a pre-packaged reorganization plan and the contents of the plan (“Official Gazette of the Republic of Serbia”, No. 37/2010).
The reorganization plan submitted after opening of the bankruptcy proceedings has been regulated exclusively by the provisions of the Bankruptcy Law (“Official Gazette of the Republic of Serbia”, No. 104/2009, 99/2011 – as amended, 71/2012 – Decision of the CC) and the deadline for its submission shall be 90 days as of the opening of the bankruptcy proceedings while the bankruptcy judge may extend the specified term by another 60 days upon justified proposal which must be filed within the specified term, with the possibility of being granted the additional term of 60 days at most for amending the submitted reorganization plan upon obtaining prior approval of the creditors' board.
3. Authorized Petitioners
Only a debtor-in-possession shall be in the capacity to file a pre-packaged reorganization plan. In parallel with filing the petition for opening of bankruptcy proceedings, a debtor-in-possession shall clearly specify in the petition that the opening of the bankruptcy proceedings by reorganization is proposed, in accordance with a pre-packaged reorganization plan. The petition shall be accompanied with the evidence on the cause of bankruptcy in the form of threatened insolvency, permanent insolvency or excessive indebtedness of a debtor-in-possession.
Authorized petitioners of the reorganization plan filed after opening of the bankruptcy proceedings shall be a debtor-in-possession, administrative receiver, creditors with separate satisfaction rights in possession of at least 30% of secured claims against total claims from a debtor-in-possession, as well as persons in possession of at least 30% of the capital of the debtor-in-possession.
4. Contents of the Plan and Measures for the Implementation of the Plan
PPRP and the reorganization plan filed after opening of the bankruptcy proceedings shall include the prescribed elements referred to in Article 156, Paragraph 1, Item 1 through 19 of the Bankruptcy Law as follows:
3) a detailed list of creditors divided into classes and the criteria based on which such classes have been formed;
4) amount of cash assets or property to be used for full or partial settlement of each class of creditors, including both secured and unsecured creditors, as well as assets reserved for creditors whose claims have been contested, the procedure of settling claims and the timescale for such settlement;
5) description of asset sale procedure, along with a list of assets to be sold with or without security interest, and the purpose of use of proceeds of any such sale;
6) deadlines for the implementation of the reorganization plan and deadlines for the implementation of principal elements of the reorganization plan, if identifiable;
7) clear statement to the effect that the adoption of the reorganization plan shall result in the redefinition of all creditors' rights and duties in accordance with the adopted reorganization plan, including situations where a plan is not fully implemented or where its implementation is suspended;
8) list of all members of managing bodies and their remuneration;
10) name of an independent expert to monitor the implementation of the plan in the interest of all creditors included in the plan and the method of such expert's reporting to creditors on the implementation of the plan, and such expert's award and timescale of his remuneration payment;
11) annual financial statements for the previous three years with the opinion of the auditor if the statements were subject to audit;
12) Financial projections, including the projected profit and loss account, balance sheet and cash flow statement for the period of the reorganization plan implementation;
13) Estimate of the proceeds of sale in compulsory liquidation;
14) Date of commencement of the implementation of the reorganization plan;
15) Term of the reorganization plan implementation which may not exceed five years;
16) Proposal for the appointment of an administrative receiver and members of the creditors' committee if the plan calls for their involvement.
A legislator, however, treats the PPRP as a qualified legal act and along with its general elements it expands its wording with additional elements which it must contain in the form of:
The measures for the implementation of the reorganization plan are described in Article 157 of the Bankruptcy Law. Measures provided in the reorganization plan shall not be implemented contrary to the provisions of the law governing the protection of competition, and the body in charge of the protection of competition shall act with special urgency and by summary action.
The Law also stipulates that the measures provided in the plan of reorganization, and in particular changes in the capital structure of the debtor-in-possession and alienation or other disposal of real estate registered as a social ownership, may not be implemented contrary to the provisions of the laws governing the protection of social capital in companies with the majority socially-owned capital, or the protection of property registered as a social ownership in cooperatives.
5. The Role of Bankruptcy Judge in the Reorganization Procedure
A bankruptcy judge is a controlling and operative body of the bankruptcy proceedings whose scope of competence has been defined under Article 18, Item 1, Item 7 and 8 of the Bankruptcy Law and includes consideration of draft reorganization plan, holding hearing for consideration of the draft reorganization plan, verifying of the adoption of the reorganization plan or rejection of the draft reorganization plan.
6. The Role of an Administrative Receiver in the Reorganization Procedure
An administrative receiver in the procedure concerning the adoption of the pre-packaged reorganization plan has a dual role. His/her primary role is related to the performance of the function of the bankruptcy proceedings authority in the form of a interim administrator during a previous procedure for determining eligibility for opening of the bankruptcy proceedings in accordance with the pre-packaged reorganization plan related to determining of the accuracy of the data from the pre-packaged plan, acting upon court orders for the purpose of carrying out the necessary actions and establishing the facts stipulated by the law as well as for the purpose of performing other tasks determined by the decision of the bankruptcy judge on his/her appointment. An administrative receiver does not have an exclusive position in terms of process status determined at regular bankruptcy proceedings. Namely, beside an administrative receiver, a person who may assume the function of an interim administrative receiver shall be an expert appointed by the judge and who holds equal prerogatives as the administrative receiver, although such person does not have to meet legal requirements to perform the function of an administrative receiver.
Along with the status of the bankruptcy proceedings authority, an administrative receiver shall have the role of an authorized petitioner of certain process action, as well as of an assistant court authority. Namely, a licensed administrative receiver, beside the auditor, may confirm by a statement that a pre-packaged reorganization plan is feasible which represents one of mandatory elements of the PPRP wording. An administrative receiver may be a petitioner of the reorganization plan filed after the regular bankruptcy proceedings has been initiated. Upon motion of the administrative receiver, a bankruptcy judge will assess the amount of claim for the purposes of voting, and also upon his/her motion, a bankruptcy judge may engage an independent expert to evaluate the capital of the debtor-in-possession in case the reorganization plan envisages the measure of converting claims into capital of the debtor-in-possession.
7. Preliminary consideration of the PPRP
After the receipt of the PPRP, a bankruptcy judge, acting in the official capacity or upon objection of stakeholders, shall take into preliminary consideration the feasibility and accuracy of the PPRP. In this initial phase of the procedure, a bankruptcy judge shall reject the PPRP:
1) if the plan is not in accordance with the law;
2) if the plan does not include the creditors who, if they were included in the plan, might influence the decision on the plan adoption with their votes;
3) if the plan is incomplete or sloppy, and in particular if provisions of this Law on authorized petitioners, wording and deadline for filing of the reorganization plan have not been adhered to, and the deficiencies may not be eliminated or have not been eliminated within the term specified by the bankruptcy judge;
4) if he/she identifies that there is no cause of bankruptcy in the form of a threatened insolvency, permanent insolvency or excessive indebtedness of a debtor-in-possession;
The PPRP deficiencies which may not be eliminated, for example, may be related to an authorized petitioner as the PPRP petitioner may only be a debtor-in-possession or non-existence of supplementary auditor's report setting out the balance of business books established no later than 60 days prior to the filing of the pre-packaged reorganisation plan with the court, with an overview of all claims and percentage of each creditor's claim in appropriate class. A bankruptcy judge will reject the plan due to deficiencies which may not be removed only when objective legal causes make the petitioner unable to remove a certain deficiency mostly due to the loss of preclusive deadlines for taking certain action. Deficiencies which can be eliminated or technical errors shall be removed by the petitioner upon conclusion of the bankruptcy judge, i.e., make necessary adjustments within 8 days as of the receipt of the conclusion; otherwise, the bankruptcy judge shall reject the motion for opening of the bankruptcy proceedings by issuing a decision in accordance with the above pre-packaged reorganization plan.
8. Preliminary proceedings
A bankruptcy judge shall within 3 days as of the date of filing of the PPRP issue a decision on the initiation of preliminary proceedings for establishing the eligibility for opening of the bankruptcy proceedings in accordance with the pre-packaged reorganization plan by which he/she shall set the hearing session for deliberating on the draft reorganization plan and voting on the plan at which all known creditors will be invited. The hearing session shall be held within the term specified for completion of the preliminary proceedings. However, please note that the hearing session for deliberating on the draft reorganization plan and voting by creditors may not be held before issuance of the decision of the body in charge of competition protection, and/or before expiry of the term prescribed by the law governing protection of competition. The hearing session shall be scheduled within 20 days as of the receipt of the decision of the body in charge of competition protection by the court.
Upon adoption of the decision on the issuance of preliminary proceedings for establishing the eligibility of opening of the bankruptcy proceedings in accordance with a pre-packaged reorganization plan, a bankruptcy judge shall draft the announcement for the initiation of preliminary proceedings for establishing the eligibility of opening of the bankruptcy proceedings in accordance with a pre-packaged reorganization plan to be published on the notice board of the court and in the “Official Gazette of the Republic of Serbia”, as well as at least in three journals with a high circulation in the whole territory of the Republic of Serbia. A bankruptcy judge is authorized to issue the order to the bankruptcy petitioner to publish the announcement both in other national and international media.
The costs of publishing the announcement as well as other costs of the preliminary proceedings shall be covered by an advance payment made by the petitioner in the amount determined by the court within three days as of the receipt of the court order. In case the petitioner fails to make the advance payment within three days, the bankruptcy judge shall suspend the preliminary proceedings and reject the motion.
The preliminary proceedings for establishing the eligibility of opening of the bankruptcy proceedings in accordance with a pre-packaged reorganization plan shall last at least 30, and/or 45 days at most. A bankruptcy judge may issue a decision on the extension of this term by up to 15 days at most if this is required due to complexity of business operations and debtor-creditor relations in relation to debtor-in-possession or acting upon objections of stakeholders filed to the bankruptcy judge by which such persons dispute the wording of the pre-packaged reorganization plan and in particular the grounds or the amount of claims or acting of the debtor-in-possession upon court order.
During the preliminary proceedings for establishing the eligibility of opening of the bankruptcy proceedings in accordance with a pre-packaged reorganization plan, the bankruptcy judge may, upon request of a stakeholder or acting in the official capacity take the following process action:
1) appoint an interim administrative receiver or engage other experts in order to assess the accuracy of the data within a pre-packaged reorganization plan. An interim administrative receiver shall perform the activities specified under the decision on his/her appointment. The costs of engagement of an administrative receiver or an expert shall be covered by the bankruptcy petitioner.
2) Upon motion of the bankruptcy petitioner, a bankruptcy judge may within five days as of filing the motion issue the prohibition of enforcement over the secured and non-secured assets of the debtor-in-possession.
A bankruptcy judge may decide on the above measures which are analogous to the security measures under the regular bankruptcy proceedings as prescribed by Article 62 of the Bankruptcy Law outside the hearing session or by scheduling a separate hearing session during preliminary proceedings at which he/she shall deliberate on the request for issuing the measure of prohibition of enforcement and settlement and on the appointment of an interim administrative receiver. An appeal may not be filed against the decision on the appointment of an interim administrative receiver or on the issuance of the measure of prohibition of enforcement or settlement. Other issues related to the pre-packaged reorganization plan may be subject to deliberation at a separate hearing session during preliminary proceedings, which in the opinion of the bankruptcy judge should be subject to the overall discussion in view of ensuring as quality protection of creditors’ interests as possible with the preservation of business future of a debtor-in-possession.
In case requirements have not been met for opening of the bankruptcy proceedings in accordance with the pre-packaged reorganization plan as prescribed under the Bankruptcy Law, a bankruptcy judge shall reject the motion for opening of the proceedings, five days before holding the session for voting on the pre-packaged reorganization plan at the latest.
9. Voting and Adoption of the Reorganization Plan
For the purposes of voting on the pre-packaged reorganization plan it shall be deemed that all the obligations of the debtor-in-possession incurred before filing of the pre-packaged reorganization plan are due on the date of the hearing session for voting on the plan. A bankruptcy judge, acting upon request of a stakeholder may assess the amount of claim for the purposes of voting on the pre-packaged reorganization plan.
At the beginning of deliberation on the issues subject to voting on and adoption of the reorganization plan, it should be noted that all provisions equally refer to the PPRP and the reorganization plan filed after opening of the bankruptcy proceedings.
All creditors shall be eligible to vote on the plan in proportion to the amount of their claims. Where a claim has been contested or remained unexamined, the bankruptcy judge shall assess the amount of claim for the purposes of voting. Voting shall be done on a class basis. Creditors' claims shall be divided into classes based upon secured and priority rights (payment ranks) of their claims. A bankruptcy judge along with his/her controlling and supervising role in terms of legality of the procedure has a creative-correctional role, namely, the bankruptcy judge may order or allow the formation of one or more additional classes, in the following cases:
1) if real and substantial attributes of claims are such that the formation of a separate class is reasonable;
In particular cases and in view of protecting an equal legal position of creditors and taking into account legal and financial attributes of a certain group of creditors, a bankruptcy judge may correct the reorganization plan in the part of formed creditor classes and be superior to petitioner’s will in view of protecting creditors’ interests who are entitled to make a particular statement of their interests which the petitioner neglects or deliberately avoids to meet.
The above role of the bankruptcy judge should be differentiated from his/her par excellence controlling-supervisory function when he/she may sanction the petitioner’s striving to covertly meet its own interests instead of primary creditors’ interests through the system of affiliated and controlled enterprises. Namely, a bankruptcy judge may order the formation of a special class of creditors where he/she establishes, based on the evidence provided, that creditors holding over 30% of claims within a single class are:
The above affiliated entities in possession of more than 30% of claims within one class shall form a special class of creditors and shall not vote on the reorganization plan. The reorganization plan shall be deemed adopted if all classes of creditors duly accept the plan and if the plan is in compliance with the Bankruptcy Law.
If the pre-packaged reorganization plan is adopted at the hearing session, the bankruptcy judge shall issue a decision on opening of the bankruptcy proceedings, confirm the adoption of the pre-packaged reorganization plan and suspend the bankruptcy proceedings.
If the pre-packaged reorganization plan is not adopted at the hearing session, the bankruptcy judge shall issue the decision on the rejection of the motion for the initiation of the bankruptcy proceedings in accordance with the pre-packaged reorganization plan.
It should be interesting to note here that the American bankruptcy legislation recognizes the institute of cramdown which authorizes the bankruptcy judge to verify the reorganization plan in the case when all classes except one have voted on the plan provided the plan does not include discriminatory provisions in terms of the creditor class which has not voted on the plan, as well as that the plan should meet the equality standards and equal legal relation with the interests of such creditor class.
10. Special characteristics of the reorganization plan filed after opening of bankruptcy proceedings
As we described above, after opening of the bankruptcy proceedings the reorganization plan may be filed to the bankruptcy judge within 90 days as of the date of opening of a bankruptcy proceedings. The bankruptcy judge may extend the term for filing the plan up to 60 days at most upon explained motion of the authorized petitioner filed within the prescribed term.
Upon approval of the creditors committee, a bankruptcy judge may approve the additional term of up to 60 days at most to the authorized petitioner for amending the submitted reorganization plan, if this is requested by the authorized petitioner within the general term for filing the reorganization plan.
During the procedure conducted based on the reorganization plan filed after opening of the bankruptcy proceedings, the bankruptcy judge shall for similar reasons reject the reorganization plan in the phase of preliminary examination as in case of the PPRP. Namely, the bankruptcy judge shall ex officio or upon motion of a stakeholder reject the draft reorganization plan:
1) if provisions of this law on authorized petitioners, wording and deadline for filing the reorganization plan have been violated, and deficiencies cannot be removed or have not been removed within the term specified by the bankruptcy judge;
2) if the plan is not in accordance with another regulation.
By analysing cited provisions we may conclude that the reorganization plan filed after opening of the bankruptcy proceedings includes minor prescribed process deficiencies which ex lege cause the plan rejection as compared to the procedure related to the PPRP and the procedure related to PPRP includes the statutory preclusive term of 8 days for taking action upon court order for elimination of deficiencies while the law stipulates the judicial term for taking action in case of reorganization plan from bankruptcy.
The procedure based on the reorganization plan filed after opening the bankruptcy proceedings has a summary character compared to the procedure in accordance with a pre-packaged reorganization plan since there is no separate preliminary proceedings to reduce a whole one phase of the procedure as such filed reorganization plan presumes that the procedure has been implemented in accordance with general rules of bankruptcy proceedings.
Holding of the session for deliberating on the draft reorganization plan and voting by creditors in case of reorganization plan from bankruptcy unlike procedure pursuant to the PPRP is not related to the receipt of the decision of the body in charge of protection of competition and the bankruptcy judge shall schedule the hearing session within 20 days as of the date of filing the draft reorganization plan.
A special character of the authorization of the bankruptcy judge shall be reflected also in the case when the reorganization plan is not adopted. In case of procedure in accordance with the PPRP, a bankruptcy judge shall reject the motion for initiating the bankruptcy proceedings in accordance with the PPRP with no further consequences for a debtor, which means that a debtor-in-possession may file again a pre-packaged reorganization plan. In case of reorganization plan ensuing from bankruptcy which does not receive the required number of votes, the bankruptcy judge may approve to the petitioner the additional term of 30 days to file amended reorganization plan and schedule the hearing for deliberating on the amended plan. If such amended reorganization plan is not approved, debtor-in-possession shall be subject to bankruptcy. Also, the bankruptcy judge shall not issue the decision on the rejection of the plan in case of the reorganization plan ensuing from bankruptcy in case of its non-approval, but shall issue the decision stating that the plan has not been approved. In case the reorganization plan ensuing from bankruptcy is approved, the bankruptcy judge shall issue the decision on the adoption of the reorganization plan without opening of the bankruptcy proceedings which is already in place unlike the wording of the decision on the adoption of the PPRO which in the contains a decision on opening of the bankruptcy proceedings in the wording of the decision.
The reorganization plan ensuing from bankruptcy does not produce the same legal effects after the verification of the plan against the verified plan based on the pre-packaged reorganization plan.
Namely, If a non-existing claim is included in the pre-packaged plan of reorganization or a claim in the amount higher than its realistic value, the debtor-in-possession and the creditors included in the adopted plan, as well as those whose claims arose before the plan was adopted, but not included therein, may, within one year from the decision confirming the adoption of the pre-packaged plan of reorganization, contest such a claim by filing a claim initiating litigation, a counterclaim or objection in the litigation. The provisions of this Law on actions and effects of contestation shall apply accordingly to taking actions of contesting claims referred to in the pre-packaged plan of reorganization and to effects of such contestation.
The above person in the capacity to sue shall have no possibility in the case when the pre-packaged reorganization plan adopted during the bankruptcy proceedings contains a non-existing claim or a claim in the amount higher than its realistic value probably since the legislator has presumed that the authenticity and accuracy of the claim has been considered at the examination hearing and the fact that creditors and the debtor-in-possession could dispute legal transactions of the debtor-in-possession after opening of the bankruptcy proceedings.
The decision on verification of the reorganization plan adoption having become final, the bankruptcy proceedings shall be suspended.
11. The most important modifications of the institute of the pre-packaged reorganization plan and the reorganization plan filed after opening of the bankruptcy proceedings contained in the Law amending the Bankruptcy Law (“Official Gazette of the Republic of Serbia”, No. 83/2014)
11.1. Amendments related to the mandatory contents of the reorganization plan and measures for the implementation of the reorganization plan
In relation to the reorganization procedure as a form of bankruptcy it is significant to mention that legal amendments stipulate that the reorganization plan must include the data on persons affiliated to the debtor-in-possession, as well as the assessment of the debtor's assets value not older than six months before the date of filing the reorganization plan. In case of a pre-packaged reorganization plan, legal wording of the statement of majority creditors has been changed in relation to the value of claims of each class envisaged by the plan who now make a statement that they have been familiar with the contents of the reorganization plan and who are ready to attend the hearing session for voting on the reorganization plan or to vote in writing instead of making a statement that they agree with the plan and that they are ready to vote on its adoption. We believe that a novel styled in this manner still does not produce a binding effect and cannot be deemed to be a ballot in terms of Article 3, Paragraph 1, Item 6 of the Rulebook on the method of implementation of reorganization by a pre-packaged reorganization plan and the contents of such plan (“Official Gazette of the Republic of Serbia”, No. 37/2010).
Also, the supplementary auditor's report setting out the balance of business books must include the period of 60 days prior to the filing of the pre-packaged reorganisation plan with the court, with an overview of all claims and percentage of each creditor's claim in appropriate class. The previous statutory provision stipulated the term of 60 days. However, statutory amendments stipulate in particular that more than nine months elapse from the date of business books balance in the supplementary auditor's report to the date of the hearing session, the bankruptcy judge shall ex officio instruct an interim administrative receiver or another expert engaged to determine the accuracy of data and provide a new supplementary report, prepared by anther independent auditor, with the balance as at the last day of the month preceding the month in which such instruction has been issued.
The amendments introduce the obligation for medium-sized and big legal entities to file the reorganization plan to the body in charge of competition protection and the body in charge of the state aid control, in order to get the feedback whether the prescribed measures are contrary to the law governing competition protection and the law governing the state aid control which will facilitate the process and speed up the implementation of legal procedures in micro and small legal entities.
11.2. Amendments related to the authorized petitioner of the pre-packaged reorganization plan
Along with the debtor-in-possession as an exclusive petitioner of the pre-packaged reorganization plan to date, statutory amendments provide for the possibility that the Privatization Agency files the pre-packaged reorganization plan on behalf of a legal entity operating with the majority public or socially-owned capital, but in this case the Agency may not be appointed as an independent expert in charge of monitoring the implementation of the plan.
11.3. Amendments relate to preliminary proceedings
Statutory amendments stipulate that the decision on the initiation of preliminary proceedings for assessing the eligibility of opening of the bankruptcy proceedings in accordance with a pre-packaged reorganization plan shall be filed to the Agency for licensing administrative receivers, Privatization Agency and the Serbian Business Registers Agency for announcement and/or recording purposes. Also, the announcement on the initiation of the preliminary proceedings for establishing the eligibility of opening of the bankruptcy proceedings in accordance with a pre-packaged reorganization plan shall be published on the electronic notice board of the court and in the “Official Gazette of the Republic of Serbia”, as well as in one daily paper with a high circulation distributed in the whole territory of the Republic of Serbia instead in three daily papers with high circulation as was previously prescribed by the law.
Legal novels also specify the deadline within which stakeholders may file complaints to the pre-packaged reorganization plan disputing its contents – by specifying the fixed term of 15 days as of the date of publishing the announcement on the initiation of the preliminary proceedings in the Official Gazette of the Republic of Serbia by which such term became a preclusive legal term ensuring uninterrupted rejection of untimely complaints. The previous term was not indefinite as in contained the entry “not shorter than 15 days” which used to cause problems in interpreting untimely complaints.
The measure of prohibition of enforcement on secured and non-secured assets of the debtor-in-possession which may last up to six months at most and may not be ruled again in the same procedure is a significant novelty.
11.4. Hearing session for considering the draft reorganization plan, discussion and voting by creditors
The hearing session for voting on the pre-packaged reorganization plan cannot be held before expiry of the term of 30 days as of the date of publishing of the announcement of the initiation of the preliminary proceedings for establishing the eligibility of opening of the bankruptcy proceedings in accordance with a pre-packaged reorganization plan prepared by the bankruptcy judge after issuance of the decision on the initiation of the initiation of the preliminary proceedings for establishing the eligibility of opening of the bankruptcy proceedings in accordance with a pre-packaged reorganization plan. The hearing session for deliberating on the draft reorganization plan and voting by creditors may not be held before adoption of the decision by the body in charge for protection competition and the body in charge of the state aid control. This limitation refers only to medium-sized and big legal entities.
For the purposes of voting on the pre-packaged reorganization plan it is significant to mention the provision which materializes the right of the bankruptcy judge to make the assessment of the claim value for voting purposes upon request of a stakeholder or upon motion of an interim administrative receiver. The assessment of the amount of claim for voting purposes shall be made by an authorized expert (assessor) and shall not be older than 12 month.
For the purposes of exercising the rights of creditors with separate satisfaction rights, the bankruptcy judge shall assess the probability of settlement of the creditors’ claims from encumbered assets.
A creditor with separate satisfaction rights shall be authorized to submit to the court the assessment of encumbered assets value prepared by an authorized expert (assessor). The court may instruct an interim administrative receiver to organize a new assessment of value of such assets by an authorized expert (assessor) engaged by an interim administrative receiver at the petitioner’s cost. With respect to the amount for which the bankruptcy judge assesses, based on a conscientious and reasonable evaluation of all received assessments and statement of the administrative receiver, that creditors with separate satisfaction rights cannot collect from the encumbered assets, creditors with separate satisfaction rights shall exercise the rights within the class of claims within which their claims have been classified.
Amendments define in more detail the method of settling claims of persons affiliated with the debtor-in-possession, which persons now ex lege and without previously required decision of the bankruptcy judge, constitute a separate class of creditors and do not vote on the reorganization plan, except for persons who engage in granting loans within their regular business activity. In case of the reorganization plan filed in the bankruptcy proceedings, claims of affiliated persons are settled in the same way and under the same terms as the claims from the class of creditors based on the payment class to which their claims have been classified.
11.5. Amendments related to the deadline for commencement of implementation of the reorganization plan
The deadline for commencement of the implementation of the reorganization plan has been defined more clearly and in more details. This deadline is now defined as the day which is specified in the reorganization plan and may not take place before the decision on the verification of the reorganization plan becomes final, or upon expiry of the term of 15 days as of the finality of such decision. The previous decision enabled the commencement of the implementation before the plan had become final which used to cause significant problems in practice, in particular when decisions on the verification of the plan get revoked upon complaint filed by the Commercial Appellate Court and certain measures under the reorganization plan are already implemented although the issue was raised related to their legal term.
11.6. Status of creditors holding security interest within the reorganization plan
As regards the rights of creditors with security interests (creditors without obligatory claims towards a debtor-in-possession and whose claims towards third parties have been secured by the assets of the debtor-in-possession), there is a significant novel by which the right of creditors with security interest who are not creditors with separate satisfaction rights is constituted and their status may not be changed or reduced by the reorganization plan without their explicit approval. Also, in accordance with the actual legal nature of the status of creditors with security interests, amended provision stipulates that creditors with security interests may not vote on the reorganization plan.
12. Conclusion
The Law amending the Bankruptcy Law (“Official Gazette of the Republic of Serbia”, No. 83/2014) represents the implementation of solutions recognized in the interaction of jurisprudence, professional public and legal dogmatics which are proactively integrated in the presented legal novels which represent a safe foundation for each future legal upgrading in view of affirming the principles of legal security, economy of process and urgency of bankruptcy proceedings.
Authors:
Attorney at law Aleksandar M. Majkić
Attorney at law Mihajlo Srdic
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