Category: Croatia

The global pandemic has impacted all markets, with subsequent ramifications for M&A. Investors are now seeking greater protection against general lock-downs and supply-chain disruptions, while governments aim to protect critical supplies and services by imposing new regulations on foreign investment in crucial or strategic industries.

If you are considering investment opportunities in Croatia, take a look at this overview to get insight into the regulations on foreign investment in strategic industries.

​The following overview is an extract from the Foreign Direct Investment in Central Europe publication, which gives insight into the regulations on foreign investment in strategic industries in the region.

Have FDI screening rules been implemented (or will they be implemented) in the country?

Croatia is planning to implement FDI screening rules, but has not yet brought any relevant national legislative act.

Namely, the Act on the implementation of Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (,,Act on implementation’’) was provided for in the Plan for harmonizing the legislation of Republic of Croatia with EU acquis communautaire in 2020. The respective Act should have entered the legislative procedure by July this year, however, the legislative procedure has not yet begun.

Furthermore, according to unofficial information from the Ministry of European and foreign affairs, the Act on implementation will not enter the legislative procedure at all. Instead of the primarily planed Act on implementation, a short Regulation on the implementation of Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (,,Regulation on implementation’’) shall be adopted. The Regulation on implementation will designate the Ministry of Economy and Sustainable Development national contact point for FDI screening rules and should be made available for the public consultation later in August. Moreover, the Critical Infrastructure Act shall also be amended according to the Regulation 2019/452.

Currently, FDIs are regulated by the Foreign Exchange Act (Official gazette 96/2003, 140/2005, 132/2006, 150/2008, 92/2009, 153/2009, 133/2009, 145/2010, 76/2013) and the accompanying Decision on data collection for the purposes of compiling the balance of payments, the state of external debt and the state of international investments. The reporting obligation under those acts in not connected with the implementation of the Regulation 2019/452, since they are in force from 2013(7).

By Tarja Krehic, Partner, Krehic & Partners in cooperation with Deloitte Legal

Just over a year ago, 2020 was shaping up to be a good one for the Croatian Transportation and Infrastructure sector. Croatia was presiding over the Council of the EU, and the Ministry of Transport & Infrastructure, one of its most active ministries, had several interesting projects in the pipeline. Osijek was due to become the first 5G city in Croatia by year’s end, and major investment deals were planned to strengthen existing road and railway infrastructure. But then COVID-19 happened and dealt a complicated hand to both transport and infrastructure.

To be precise, transport itself wasn’t a problem; the absence of it was. For a while, both taking the bus to town and flying overseas were dangerous undertakings you were either prohibited from or seriously advised against. Many found comfort in the positive environmental effects of this forceful travel abstinence, only to realize that dolphins never really reached the Venetian channels. Croats scarcely had time to notice any of it.

Much like everywhere else, transportation was one of the sectors in Croatia most severely hit by the pandemic. But unlike everywhere else, domestic travel restrictions in Croatia were shaped by a natural disaster. On a Sunday morning in late March, Zagreb was violently torn from her sleep by the strongest earthquake in the last 150 years. Reluctant to stay in the shaky capital, hundreds of families fled the city within hours. But this risked spreading the virus, so a nation-wide lockdown was put in place on Monday, prohibiting travel outside one’s registered residence or current place of stay, except for serious reasons. This made sense from an epidemiological standpoint, but the rushed decision failed to consider its applicability within a complex network of municipalities, criss-crossing landscapes and city areas alike.

The resulting frustration was immense, as thousands were forced to undergo an approval procedure for a permit, just to get to work or to shop in a larger store. Although the authorities maintained their view and claimed the measure crucial for protection, such was not the prevalent public opinion in the aftermath. Moreover, it likely led to a decline in public trust for national authorities in charge of fighting COVID-19.

Room for criticism was found in the Transport and Infrastructure sector too. The drastic decrease in intra-city traffic which followed the travel ban was seen by many as providing the government with a unique opportunity to undertake overdue public works without interrupting daily life, but instead the competent Ministry turned its attention towards supporting ongoing projects in large road and railway infrastructure projects. A number of such projects managed to keep going at a steady pace throughout the lockdown, which helped the Government make good on its early 2020 plans to invest 20 billion HRK in transport infrastructure through various projects in the course of the year.

The electronic communications infrastructure also benefited from pandemic-created public criticism. Upon the spring lockdown, Croatian public authorities were confronted with a choice: go digital or go bust. Opting for the former, the proverbially lethargic Leviathan had only days to prepare for remote work. This seemed a bit much for a country that ranks 38th out of 79 countries on Huawei’s GCI list for 2020, but local public officials beat the odds. Armed only with existing capabilities and infrastructure, they took Croatia digital practically overnight. But this brief period of administrative bliss ended abruptly. As soon as the lockdown was lifted, in mid-May, all digital tools were quickly and quietly put back to their “Emergencies only” casings.

But the Croats had had a taste of digitally efficient administration, and were not about to go back to queuing. Responding to public sentiment, certain ministries were quick to recognize the pandemic as a useful beacon for digitalization opportunities. In December, 2020, Croatia landed a 770.6 million HRK project, backed by EU funds, for the construction of its national backhaul broadband infrastructure. Hopefully this trend will continue and will help propel Croatia towards digital acceleration and transformation.

These transformative changes are bound to become increasingly meaningful in our daily lives as we come to terms with the sombre realization that 2020 will not be remembered as “the COVID-19 year,” but as “the first COVID-19 year.“ The New Normal setup will no doubt rely on developments in the Transport and Infrastructure sector – a challenge which it seems prepared to meet. 

By Ema Skugor, Partner, Divjak, Topic, Bahtijarevic & Krka

This Article was originally published in Issue 8.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Nlaw has advised the Czech Republic’s J&T Ventures on an unspecified investment in Croatia’s Robotiq, IT company based in Croatia. Ilej & Partners advised Robotiq on the deal.

Robotiq.ai is an enterprise grade robotic process automation platform.

Nlaw’s team included Managing Partner Frano Barovic and Intern Dora Nikolla.

Ilej & Partners’ team included Partner Goran Ilej and Associates Nika Jurkovic and Antun Skansi.

The Constitution of the Republic of Croatia abolished “social ownership” in 1990 and introduced a universal type of ownership – private ownership. Legislation that followed the introduction of the Croatian Constitution specified how social companies were to be transformed into private companies. To establish private ownership over companies undergoing this transformation, the companies had to appraise the property used in their share capital. However, land that was used by said companies that was located in the zones for tourism-related purposes near the Adriatic coast (which we will refer to as the “tourist land”) was often not appraised in its entirety towards share capitals, as the intention was for it to become the property of the state for developing Croatian tourism strategies. Therefore, social companies performing tourism-related activities (e.g., hotels and camps) often appraised only buildings, while the land on which the activities were also performed was left un-appraised, yet continued to be used without compensating the real owner – the state.

In 2010, the Croatian Parliament enacted the Law on Tourist Land and Other Building Land Un-Appraised in the Procedure of Transformation and Privatization (which we will refer to as the “2010 Act”). The 2010 Act was designed to clarify the ownership regime of tourist land in camps, tourist land with hotels and resorts, and other un-appraised building land. All the land falling under the definitions provided in the 2010 Act that was un-appraised in the transformation procedure is consequently owned by the state or municipality, merely on the ground of the act’s entry into force (i.e., acquisition of ownership based on law), regardless of any registrations to the contrary in the land registry. Nevertheless, even after ten years of practice, the 2010 Act proved to be vague and unsuccessful, and a much-needed legislative update was made in 2020.

In May 2020, the new Act on Un-Appraised Building Land (the “2020 Act”) entered into force, introducing structure in the regulation of ownership and other relationship pertaining to tourism-dedicated land (for hotels, resorts, and camps) and other un-appraised building land. At the time of enactment, according to the Croatian Government, there were approximately 20 million square meters of un-appraised tourist and other land. The Government projected that, were titles finally resolved, it could generate millions of Croatian kunas in profit from future lease agreements or even sales of the land. The 2020 Act therefore aims to resolve any legal doubt and vagueness arising from the 2010 Act and provide clarity towards a final determination of the legal status of all tourist land.

The procedure for the resolution of the legal status of the land is specified in detail in the 2020 Act, which is designed to resolve all disputes within a few years. Companies are obliged to prepare all relevant geodetic surveys, obtain confirmations, and initiate and apply for administrative resolution of the property status.

The deadline for completing these surveys is 180 or 270 days, while the deadline for filing the applications is 12 or 24 months, depending on the land in question. If these timelines are not met, the state may initiate the resolution of the status by itself and impose the costs on the relevant companies. Even when the ownership status is resolved and registered in the land registry, the companies will not be precluded from using the land, but would be required to lease the land from the “new” owner, with back rent since 2011 being due and payable. If an agreement is not made, the companies run the risk of losing the property appraised in their share capital through the expropriation process. Therefore, companies failing to oblige with the obligations prescribed in the 2020 Act risk losing the land on which they are performing their long-term business activities.

Regardless of the short deadlines prescribed in the 2020 Act, the bylaw on rent calculation, which provides information about one of the most important questions for investors/owners of tourist land, has not yet been passed, even though its adoption was envisaged in July 2020.

The process of resolving ownership statuses of tourist land is slow but steady, and the loopholes existing ever since the enactment of the Croatian Constitution have yet to be fully addressed.

By Emir Bahtijarevic, Managing Partner, and Sanja Novoselic, Associate, Divjak, Topic, Bahtijarevic & Krka 

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Krehic & Partners in cooperation with Deloitte Legal has advised Nipro PharmaPackaging, a supplier of glass primary packaging for the pharmaceutical industry, on the acquisition of Croatian glass pharmaceutical packaging manufacturer Piramida from Blue Sea Capital. Savoric & Partners advised the sellers on the deal.

According to Krehic & Partners, “with an outstanding market position in the Central European Territory, alongside an impeccable reputation combined with sound and strong customer relationships, Piramida became a very important asset to Nipro’s future and its ambitious growth plans.”

Krehic & Partners’s team was led by Managing Partner Tarja Krehic and included Partner Ivan Zornada and Associate Jelena Kraljevic.

The Savoric & Partners team was led by Partner Nina Radic Kuzik.

Former Glinska & Miskovic Partner Anamaria Zuvanic has left the Croatian firm to open her own office, Law Office Anamaria Zuvanic, in cooperation with Kovacevic Prpic Simeunovic.  

Zuvanic began her career at Zuric i Partneri, which she left after four years in July 2013 to join Glinska & Miskovic. She specializes in banking & finance, real estate, M&A, corporate governance and compliance, energy, and employment.

According to Zuvanic, “bearing in mind my previous experience, which allowed me to develop specific skills and knowledge, as well as a deep understanding of how the legal industry and the business work, opening my law office seemed as the only logical step. I have learned that it is essential to offer tailor-made, solution-oriented advice to clients, and to do so, understanding clients’ needs in the context of their respective industries, is essential to being able to meet their demands. Finding ideal solutions for my clients has been a true privilege to date and I look forward to new challenges.“

Regarding the way the M&A transactions are conducted recently, we notice that the representations and warranties insurance policy for breaches of representations and warranties by the seller in the M&A (the “Warranty Insurance Policies” or the “RWI”) transactions are used more frequently.

A brief overview of the mergers and acquisitions market in Croatia

Against expectations and despite the global Coronavirus pandemic, in the last year, the M&A activity in Croatia was on the year 2019 level, with a total of over 40 transactions concluded. Several significant transactions marked the year, such as Nanobit, Infobip, Sunce Group and others.

We have also noticed that the Covid-19 more resilient industries, such as IT, gaming, healthcare and pharmaceutical sector, retail, e-commerce, and food sector, still show a impressive M&A activity and spark investors’ interest worldwide. Additionally, private equity investors are still very active, particularly the specialized tech funds. Another trend we have noticed, is that a growing number of companies in the region, such as the Polish Allegro, see their future in in the listings and IPOs on the European and global stock markets, and are currently preparing intensely for this step forward.

As a background information, RWI for corporate transactions has existed for approximately two decades in the UK and the US, but has only recently become practice in the Croatian and regional deals. R&W insurance, as the name suggests, provides coverage for breaches of representations and warranties regarding the business acquired that were not known to the buyer at the time of the purchase. While RWI was viewed historically as a product of limited application in Croatia and the region, we have seen in recent years a significant expansion of the use and importance of these policies. Today, RWI in the region is generally viewed as an attractive product when deployed in the right circumstances, often providing for a longer period of coverage and higher limits than would be available in a customary seller indemnification arrangement.

What are the warranty insurance policies?

RWI is typically procured by the buyer, with the buyer being the insured party under the policy. In its basic form, RWI covers breaches by the seller or target of their respective representations and warranties in the acquisition agreement up to a policy limit. Policies largely incorporate the indemnification terms of the acquisition agreement (including the underlying representations and warranties).

Under the RWI, the buyer in an M&A transaction recovers directly from an insurer for losses arising from certain breaches of the seller’s representations and warranties in the share purchase agreement. By transferring the risk of such losses from the seller to the insurer, the buyer and the seller can limit or eliminate the seller’s liability for certain breaches of the representations and warranties, all without materially reducing the buyer’s coverage or the amount of the compensation itself.

The goal of the buyer and the seller in every M&A transaction is to come out satisfied, but also unconcerned with potential representations and warranties they have given or that have been given to them. Precisely this type of insurance policy helps cover a large portion of the risk, which is an integral part of every M&A transaction.

The seller wants the freedom of manipulating the purchase price and does not want a part of that amount to be locked until the expiration of the period in which the buyer may claim damages from representations and warranties breaches, which period often tends to last several years. On the contrary, the buyer wants to be sure that there will be a source of money from which he will recover for potential claims for breaches of the seller’s representations and warranties.

In most cases, we see that the policyholder of such an insurance policy is the buyer in an M&A transaction, but sometimes the policyholder is also the seller, who aims to protect himself from potential unintentional breaches of his representations and warranties and claims arising from such breaches. It is often a matter of negotiations between the contracting parties, regardless of who the policyholder is, who will bear the costs of this insurance policy.

Advantages and disadvantages of RWI policies

The main advantages of the RWI for a buyer:

1. The primary benefit of an R&W policy is to distinguish a bid (or, often, keep pace with other bids) in an auction or other competitive process. We have experienced this trend set by the seller to be the driving force of the RWI in recent transactions;
2. It allows the buyer to obtain post-closing recourse from a third party (as opposed to the former stakeholders of the target—some of whom may be key employees of the buyer after closing);
3. The buyer is certain that he will be able to recover for potential damages arising from the seller’s representations and warranties breaches in the full amount, since the liability has been shifted to the insurance company. The buyer should also feel more secure because the management board of the company is, together with the buyer, focused on the future development of business without the fear of the “ghosts from the past” popping out.

Advantages of the RWI for a seller:

1. R&W significantly lowers the amount of money the seller must place in escrow to cover its post-closing indemnification obligations (approximately 0.5% to 1% of the purchase price as compared to a 10% escrow);
2. In the seller’s friendly M&A environment, frequently we are seeing “no seller indemnity deals”, where the seller is not required to place any funds in escrow;
3. It may prolong the validity period of the representations and warranties compared to the standard periods in the SPAs;
4. Particularly advantageous for private equity sellers looking to close end-of-life funds and distribute the proceeds from the sale to their investors as quickly as possible.

The RIW Pitfalls

Despite the advantages, RWI is not the cure for everything. As the name suggests, RWI covers only the breaches of representations and warranties, and not the breaches of the conditions precedent, indemnification liability, changes in the purchase price, or other pecuniary obligations that might arise from the share purchase agreement. Also, it is possible that the RWI coverage is set in a percentage of the value of the transaction, which leaves the buyer exposed to the extraordinary losses due to breaches of representations and warranties that surpass the coverage limit. However, in a transaction with the seller’s indemnity, the seller may agree to indemnify the buyer for losses arising from breaches of representations and warranties that surpass the coverage limit.

As mentioned previously, one should bear in mind that it is generally not possible to cover all risks that result from the breaches of seller’s representations and warranties and that most of insurance policies will include several coverage exclusions or limitations. For example, the representations and warranties regarding certain criminal and bribery liability, tax issues, environmental issues, disallowed payments in the Locked Box mechanism of the closing of the transaction, obligations relating to the compliance with certain aspects of labor laws, personal data protection or all those facts that were expressly presented to the other party in the process of due diligence, often cannot be included in this insurance policy. Consequently, the buyer’s due diligence will potentially be a double-edge sword, since the buyer will want to conduct a comprehensive due diligence to be entirely aware of all risks of the company he is buying, but that will potentially cost him the coverage under the policy for all obligations he uncovers. To mitigate this, the insurers are becoming more willing to offer excess coverage for some or all of the obligations mentioned above, in which case the mentioned policy is positioned above the primary policy.

There is no question that the advantages of such insurance policies are clear for both parties. Not only will the transaction be concluded much faster in the first step, since the time negotiating the seller’s representations and warranties will be shortened, but the sellers will after Closing end up with funds which they will be free to use without retaining a certain amount on the escrow account, either with the notary public or the bank. Also, using the insurance policy to limit the seller’s liability may make the seller more willing to expand the substantive coverage of his representations and to reduce the use of knowledge qualifiers, thus improving the buyer’s basis for recovery under the RWI policy.

Our latest practical experience with the RWI

One example where we noticed the advantage of this insurance policy in transactions, is in competitive processes where several potential buyers compete for a single target company. Namely, the RWI will enable better structuring of the transaction and higher cash payment for the sellers, which may ultimately be crucial for selecting the final buyer.

Another example are situations when a Private Equity Fund, as the seller, disposes of its portfolio companies. The RWI policy enables the fund not to have a portion of their funds trapped in an escrow account until the representations and warranties expire, but to be able to freely dispose of its means and continue with its investment strategy once the transaction is closed. However, a case which we most often notice in transactions in the region, is that, when there are several shareholders who are simultaneously members of the management board in targets being sold, those shareholders seek new partners to further develop their companies. Private Equity Funds often appear as those partners/buyers. Additionally, because a common condition for the transaction closing is the continuation of engagement of the company’s management board after the acquisition of the company by the Private Equity Fund, it is important to avoid situations where claims for damages from breaches of the seller’s representations and warranties would be potentially directly claimed from the same persons. Therefore, the RWI policy helps to separate the ownership function from the management function of the seller and enables simpler communication in the further development of the company, to existing shareholders as well as to new investors.

Why the trend is ascending?

A number of aspects of this growing R&W insurance marketplace are notable and contributed to the increased expansion of this product:

1. While R&W insurance was previously used almost exclusively in transactions with private equity sellers, the R&W insurance market has evolved. Outside of Croatia & the region, public companies selling divisions or subsidiaries are sometimes expecting buyers to seek protection through R&W insurance; public companies wishing to limit exposure with respect to private acquisitions are sometimes purchasing R&W insurance; and R&W insurance has even been purchased in public company transactions, although exceptionally.
2. Insurers have traditionally been hesitant to cover a transaction in which there was no seller indemnity. Rather, they expected the seller to have the “skin in the game” and that R&W insurance should respond to a claim only in excess of a seller indemnity. More recently, however, insurers have been more receptive to writing R&W insurance in transactions without a seller indemnity. However, it is important to emphasize that the lack of a seller indemnity might discreetly increase policy pricing and result in enhanced insurer due diligence.

Where and how to shop the RWI?

As the RWI policies are more and more becoming the M&A standard recently, a significant number of new insurers have entered the RWI market. With such increased competition, the insurers offer better terms and are willing to consider covering more non-standard risks, such as tax and data privacy. With respect to Croatia & the region, this type of insurance is offered only by foreign insurance companies. Potential purchasers should be aware of the importance of using experienced and sophisticated brokers when purchasing R&W insurance.

By Tarja Krehic, Managing Partner, and Matea Gospic Plazina, Partner, Krehic & Partners in cooperation with Deloitte Legal

On March 3, 2021, CEE Legal Matters reported that Marohnic, Tomek and Gjoic had advised both Day One Capital and Orqa Holding Limited on the former’s EUR 1.3 million investment in the latter. CEEIHM spoke with Srdjan Kovacevic, CEO at Orqa Holding Limited to learn more.

CEEIHM: Let’s talk a bit about your company. What is the story of Orqa Holding Limited?

Srdjan: We originally started out as a Hardware Engineering company, providing R&D services to clients; basically a one-stop-shop for anyone that wants to do hardware. We offered EU-based full-stack hardware dev, with in-house manufacturing capability for small and mid-sized volume runs. Our selling point was to offer an EU-based service for something people would normally go to China for. 

This was back in late 2016. We first served clients from the SEE, but quickly started to get clients world-wide: from the US all the way to Singapore. We grew our capabilities with each project, and started toying with an idea of doing a product of our own.

We started working on the FPV.One, our flagship product, back in 2017. Some time during 2019, Orqa was born. Ever since then, we were slowly shifting our focus from engineering services to our own product portfolio. 

Today, around 4.5 years after inception, we are a tech company of 45 employees, doing immersive video, high-performance video systems, low-latency wireless comms links, various forms of drone tech, etc.

Our R&D is based in Croatia, but our holding company is based in Dublin. 

CEEIHM: Marohnic, Tomek, and Gjoic recently helped your company obtain a EUR 1.4 million investment from Day One Capital and your existing angel investors. What, in your view, made your company attractive for such an investment?

Srdjan: Our Angel Investors have been with us through thick and thin since late 2019, and Day One Capital was actually the first fund ever to reach out to us. We got to know each other back in 2018, and they’ve been following our growth and development for almost 2 years before signed a term sheet. 

So I guess it was the consistency of growth and overall development of our company that signalled to them that we are a good investment opportunity.

To turn the tables a bit, this protracted ‘courting period’ has also given us an opportunity to get to know Day One better, and to realise that we have an excellent fit. We grew to like how they function, and we came to a conclusion that it will be a pleasure and a great opportunity to work closely with them. 

CEEIHM: What’s next in line for your company, now that the funding is secured?

Srdjan: We will spend the first 12 months consolidating our operations, growing our sales volume, and extending our product portfolio. We have very exciting products and projects in the pipeline, and this capital injection will help us focus on getting them to market.

CEEIHM: It was reported that MTG advised both your company and the investor. Why did the parties prefer to have a sole advisor assisting them both and at what stage of the deal was MTG involved in the matter?

Srdjan: It was incredibly efficient to have a single advisor handle both due diligence and transaction, I would definitely advise this to anyone looking at a deal like this. Further to this, being that MTG is our legal advisor, checking conditions precedent off the list, and resolving issues found in the DD was simple and straightforward. 

It makes so much sense, that I’m wondering why this is not happening more often.

CEEIHM: What were the key qualities that made you choose MTG in the first place?

Srdjan: I had a pleasure of working with Josip Marohnic (the M in MTG) long before either MTG or Orqa were founded. Before that, during my career in finance and after, I had various degrees of pleasure and displeasure working with other legal counsels. 

After having delivered a rather complicated with Josip and his team, in record time, I realised that if you find a lawyer that you actually enjoy working with, you better make sure you stick with them (haha).

Originally reported by CEE In-House Matters.

Karanovic & Partners has announced that former Tokic Ivic Sverak Partners Iva Tokic Culjak and Ivana Sverak have joined Ilej & Partners in cooperation with Karanovic & Partners in Croatia.

Sverak focuses on energy law, infrastructure, project finance, and capital markets. Tokic specializes in mergers and acquisitions, private equity transactions, competition, labor, and EU law. Both join as Partners.

Joining the firm along with Sverak and Tokic are Associates Barbara Bilic and Petar Grubisic-Cabo.

“We welcome the new team with confidence that this combination will allow us to continue to support our clients in highly complex transactions,” said Partner Goran Ilej. “I have known Iva and Ivana for many years and have come to appreciate them for their expertise, professional skills and hands-on approach.”

In a joint statement released by the firm, Sverak and Tokic commented that “Although we have been in this business for almost twenty years, we are still very excited and very much looking forward to this business opportunity. With the support of a top-level corporate environment fostered by Ilej & Partners and Karanovic & Partners, we hope to be able to pass on our experience in relevant areas of law to new generations, to our mutual satisfaction and, above all, to the satisfaction of our clients.”

“I’d say that there are a few things of note, lately, that lawyers in Croatia find particularly interesting,” says Babic & Partners Partner Iva Basaric, who, first, reports “some turmoil regarding the election of the new President of the Supreme Court of Croatia.” 

Under the Croatian Law on Courts, the process of election of the Supreme Court President is initiated by the State Judicial Council, which publishes an invitation to prospective candidates to submit their applications, ultimately leading to the Supreme Court President being elected by the Croatian Parliament, at the proposal of the President of Croatia. “But President of Croatia Zoran Milanovic is attempting to circumnavigate this by relying solely on the provisions of the Constitution and the right of the President to propose the candidate to the Parliament, thereby pushing his preferred candidate, a law professor from the University of Zagreb, even though this professor has not formally applied for the seat,” Basaric says. 

On top of this, Basaric points out that extra friction has been added to the process by the fact that President Milanovic, elected as the candidate of Social Democratic Party, has often clashed with the party holding the majority in the Croatian Parliament (the Croatian Democratic Union (or HDZ)). “The parliamentary majority, led by the HDZ party, is pushing for the process that the Law on Courts prescribes, and that President Milanovic has called unconstitutional.” 

Regardless, Basaric says that, in order for a candidate to be elected by the Parliament, a significant majority would be needed. “With this in mind, it is difficult to see how President Milanovic’s candidate could win. It is a stalemate position, and it will be interesting to observe how the process will unravel.” 

The current political clashing over the next President of the Supreme Court comes against the backdrop of perceived lack of trust in Croatia’s justice system. “There is a strong notion among the people of Croatia that the justice system is not very trustworthy,” Basaric says. “A 2019 Eurobarometar poll showed that some 42% of Croatian citizens partaking in the poll described the independence of courts as very bad – the most in all of Europe, and far ahead of second-placed Slovakia, where the number was around 24%.”

Finally, turning to the Croatian market, Basaric says that not all is bleak. “There were some negative moments in the past year, but, on the whole right now, the transactions are up to par and the rhythm is good,” she says. “The life sciences sector is booming, as we could see with a couple of major transactions of last year – including the Rohatyn Group’s acquisition of Optimapharm and Selvita’s acquisition of Fidelta from Galapagos.” Basaric reports that the IT sector is doing well too, as is retail, “especially in terms of the food retail part of the sector.”