Category: Montenegro

Montenegro, being a small country, is characterized by rapid modifications and changes in its business and financial environments. The new Montenegrin Law on the Capital Market (the “Law”), which came into force at the very beginning of 2018, is designed to create and develop a consolidated financial background, and represents the first attempt to introduce a systematic regulation in this domain to support investors and efficiently protect their interests. 

New Law Prevailing Over Previous Difficulties!

In our practice we constantly meet various problems and obstacles – and the under-regulation of the capital market was one of the most constraining. We have witnessed many financial transactions in the last decade in which clients were forced to use different solutions. One cannot think of those conditions as anything but discouraging. We believe that the new Law on Capital Market is undeniably a step towards ensuring better provisions for the integration of the financial market and the vitality of our Capital Market. 

The harmonization with European Law, primarily with Directive 2014/65/EU and Directive 2004/109/EC, among others, will provide a wider concept of financial instruments and make the regulatory authority more visible. It is worth noting that Montenegro’s Security and Exchange Commission, which now is recognized as the Capital Market Commission – with full independence and genuineness guaranteed by the incorporated IOSCO Principles – will provide a more secure way to for investors to carry out their transactions.  Already visible, the consequences of the Law on Capital Market will undoubtedly go far beyond the mere harmonization requirements.  

New Venues and Platforms For New Opportunities!

The Law provides full-scale regulation of financial instruments which were previously not recognized in Montenegro. Introducing new trading venues such as the Multilateral Trading Platform, and comprehending forwards, futures, options, swaps, and so on, the Law creates a desirable environment for trading and transactions, making the Montenegrin capital market more competitive and surely more attractive for foreign investors.

It is of the utmost importance that the new Law is directly aimed to protect investors by creating a fair, steady, and regulated capital market; the provisions on the mandatory requirements for the disclosure of information and financial intermediaries in the working of the capital market are intended to protect investors from various forms of fraud and to leave misleading and manipulative practices in the past of the Montenegrin capital market.

In the second half of 2017 the Montenegrin capital market witnessed the problems which the Security and Exchange Commission faced due to the lack of a mandate. These problems were finally resolved in late December 2017, however, and the Security and Exchange Commission should be able to prepare a better and more secure environment for the implementation of the new Law.It remains to be seen whether the concept of the new Law will be completely absorbed through the creation of the necessary bylaws and its implementation in order to fully address the requirements of the capital market.

The End of a Monopoly?

Transforming the Central Depository Agency to the Central Clearing and Depository Company, in accordance with Directive 97/9/EC, is not a mere statutory change; it defines in detail the formation and operation of the Investor Compensation Fund in order to protect investor claims when an investor is unable to pay or when bankruptcy proceedings have been commenced, as well as in other circumstances of investor financial instrument exposure. Nevertheless, we could also witness the end of the depository agency monopoly in Montenegro, since the new Law diffidently opens the door for the Capital Market Commission to approve other companies for clearing and depository management.

Overall, as far as we can see, since the depth and the size of a national economy vastly depends on its capital market, Montenegro will now be able to interconnect its capital market in the globalized economy. 

By Lana Vukmirovic Misic, Managing Partner, and Andrej Bracanovic, Associate, Vukmirovic Misic Law Firm  

This Article was originally published in Issue 5.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On 29 December 2017, the Montenegrin parliament adopted a new Law on Tourism and Hospitality (the “Law”), which entered into force on 18 January 2018.

The Law aims, among other things, to bring the quality of tourism and hospitality services in line with contemporary trends in order to position Montenegro as an exclusive tourist destination, to implement EU standards and to harmonise national laws with EU law.

Below is an overview of the main changes introduced by the Law in the hospitality sector.

1. Advertisement and promotion of the tourism and hospitality industry

For the first time in Montenegro, the Law introduced the rule that only properly licensed tourist/hospitality businesses can be advertised and promoted.

Such advertising and promotion includes electronic and printed media, digital platforms (such as Booking.com, Airbnb, TripAdvisor and others), social networks or any other means of communication. The law further stipulates a list of documents which have to be disclosed before the tourist or hospitality business can be advertised or promoted. Failure to comply with these conditions is a misdemeanour punishable by a fine, and under certain circumstances, by the imposition of an interim measure – prohibition of the business activity for up to six months.

The Law also introduces the mandatory use of a quick response (QR) code – a matrix code that stores addresses and other information enabling quick electronic use and access to data in promotion of tourist/hospitality business activities.

The above aims to improve transparency and competition among all entities in the tourism and hospitality sector that comply with the law, while deterring those that do not.

2. Hospitality sector

The new Law now focuses on the regulation of exclusive hospitality facilities, recognised as having great investment potential in Montenegro. Thus, several novelties have been introduced in this sector.

2.1. Facilitating the commencement of hospitality business

In order to facilitate new hospitality businesses, in addition to obtaining approval from the competent authority, the Law introduced the possibility of registration in the Central Tourism Register. This is done by submitting an application and accompanying documents to the Central Tourism Register. In this case, control over the commencement of the business activity is shifted to the hospitality provider.

2.2. Operation of foreign entities

The Law clarifies that foreign legal or natural persons may perform hospitality business activities provided that they have established a presence in Montenegro through a foreign company branch and comply with other legal requirements.

2.3. Primary hospitality facilities

As the main goal is to attract investment in exclusive hospitality facilities, the lawmaker regulated this area in more detail:

Hotel operating models

Under the previous regulation, “condo” and “mixed use” were recognised as a type of hotel. The new Law has turned “condo” and “mixed use” into operating models.

The condo operating model may be implemented within a five-star hotel in a coastal region or in the capital, or within a four-star hotel in the north and central regions that has to operate for at least 12 months a year. Accommodation units within a condo hotel intended to be sold have to be in commercial operation for at least 10 months a year and each unit is subject to individual sale.

A mixed operating model may be implemented within a five-star hotel with a capacity of at least 120 accommodation units in a coastal region or the capital, or within a four-star hotel with a capacity of at least 60 accommodation units in the north and central regions. The hotel can offer for sale a maximum of 50% (or in exceptional circumstances 60%) of total accommodation units.

Both models, among other things: (i) stipulate that obtaining the proper licence for provision of hospitality services is a condition for inscription of the ownership rights over sold units; (ii) require the existence of a management agreement [further described under Management Agreement].

The main difference between the two models is that the lease of accommodation units within a mixed operating model is not mandatory but at the discretion of the owner (voluntary rental pool), while the condo model introduces a mandatory rental pool.

Other conditions for using one of the two models are regulated in detail by the Law.

It may be deemed that the introduction of operating models instead of hotel types creates more flexibility for investors, given that the model can be determined at a later stage and not in the construction phase, while complying with the requirements of the determined operating model.

Management agreement

Unlike the previous regulations, the Law now explicitly regulates the management and maintenance of hotels operating under the condo or mixed operating model.

The Law introduces a management and maintenance agreement. The elements and time limitations for the conclusion of such an agreement per year are regulated by the Law.

If unit owners do not conclude a management agreement, it may lead to the nullity of the agreement on sale of the unit within the condo or mixed use operating model.

Change of operating model

One- and two-star hotels having a permit for the provision of hospitality services are entitled to change their operating model to the condo or mixed model if they upgrade to four- or five-star status. The law makes no mention of three-star hotels.

Tourist resorts

The most exclusive hospitality facilities under the Law are tourist resorts, which must be constructed on land having a surface area of 5 to 150 hectares. A tourist resort is comprised of at least one hotel with a capacity of at least 120 five-star accommodation units in a coastal region or a four-star hotel in the north and central regions with at least 60 accommodation units, containing offerings such as wellness centres, restaurants, golf courses, marinas, sport fields, skiing and/or other tourist infrastructure and superstructures operated by one or more legal entities. The tourist resort is ranked as a unique high-quality tourist product, which must operate 12 months a year.

Mystery guest

The mystery guest programme was introduced as a means of quality control and may consist of an individual or a legal entity chosen by the Ministry of Sustainable Development and Tourism to objectively measure the criteria that all four- and five-star hotels must fulfil. The mystery guest has to spend at least 24 hours in the hotel, without disclosing his purpose, and make an evaluation.

3. Tourism development incentives and tourism development zones

With the aim of improving the tourist offering and the development of Montenegrin tourism, the lawmaker envisaged:

1. the adoption by the Government of Montenegro of an incentives programme to encourage the construction of tourist infrastructure and superstructure, upgrade existing tourist products, improve knowledge and skills in tourism, increase tourism revenue, and more efficiently promote tourist destinations;
2. the creation of tourism development zones;
3. the provision of tourism and hospitality businesses in tourist zones as an activity qualifying for state incentives in accordance with the law on state aid.

The beneficiaries of the incentives can be legal or natural persons who operate tourist and/or hospitality businesses or activities connected with tourism and hospitality services.

4. Harmonisation with the Law

Companies and other legal and natural persons:

1. must harmonise their business with the Law within 24 months as of its entry into force;
2. operating tourist or hospitality businesses in an illegal facility must commence the legalisation process and provide proof thereof, otherwise their business licence will be withdrawn.
3. holding a construction permit or that have submitted documentation for the commencement of the construction of a condo hotel according to the previous regulation must obtain a business licence for hospitality activities within 36 months as of the entry into force of the Law.

5. Adoption of bylaws

The lawmaker determined that bylaws will be adopted within one year as of the entry into force of the Law. Until then, the existing bylaws remain valid.

As the new Law introduces many changes, it remains to be seen how they will be adopted and implemented in practice.

By Dijana Grujic, Attorney at Law, Ana Vukcevic, Associate, Moravčević Vojnović i Partneri in cooperation with Schoenherr

Long and costly court procedures resulting in enforceable verdicts remain the norm in Dispute Resolution in Montenegro.

Arbitration and Mediation have so far not shown significant practical relevance, despite the results expected from the adoption of the country’s 2015 Law on Arbitration and 2012 Law on Mediation. Court settlement, as yet another mechanism of Dispute Resolution, is rarely opted for in practice. This rigid tradition in Montenegrin Dispute Resolution practice has complex origins; nonetheless, the improvement of legal solutions offered by procedural and substantive laws should remain a priority. In that regard, our attention shall be focused on the Dispute Resolution practice established under the Law on Business Organizations (“LBO”), as well as the advancements reflected in the draft LBO adopted by the Montenegrin Government on July 6, 2017 (the “Draft LBO”).

The application of the LBO has revealed its numerous shortcomings, out of which we single out only a few. Provisions related to the court protection of minority shareholders’ rights applicable to the protection of members of a limited liability company (“LTD”), are sublimated in a single general and incoherent article of the LBO. This article simultaneously regulates both direct (individual and collective) and derivative shareholder lawsuits as an instrument of court protection, failing, however, to carefully define the specific grounds required for the submission of such lawsuits. The LBO guarantees shareholders’ elementary non-property rights, such as the right to be informed of the company’s business activities and to appoint an independent expert to review the company’s business activities on their behalf. At the same time, it fails to provide for an adequate urgent court procedure for the enforcement of those rights. Although the majority of start-ups are founded in the form of an LTD due to its efficient establishment procedure, low mandatory initial capital requirement (only EUR 1), and simpler managing body structure, the LBO has insufficiently treated specific features of this type of a company. Instead, for all LTD-related matters which have not been directly regulated, it calls for the application of provisions related to joint-stock companies. The LBO offers no clear solution for the decision-making deadlock issues occurring in LTDs where the distribution of owners’ shares enables such a scenario.

On the other hand, the Draft LBO eliminates these weaknesses. It provides clear provisions defining under which specific grounds and which type of lawsuit a shareholder and/or a company may file against company management and its managing bodies. Additionally, it provides a clearer definition of the obligations of persons owing special duties toward the company (such as management executives, shareholders with significant participation in capital, and so on). Breaches of such obligations and duties allow both the company and the shareholders to file lawsuits due to the violation of due diligence and/or rules of sound business decision making, infringement of the non-compete clause, duty to keep business secrets, and so on. For the first time, the Draft LBO elaborates the concept of a “Related Party.” In the future, some essential shareholder rights – such as the “right-to-be informed” and to review the company’s business activities – can be claimed by the shareholders/members in urgent extra-litigious proceedings and decided upon within eight days from the submission of the motion to the court. The Draft LBO also elaborates on the specific features of LTDs. It introduces the Assembly as a mandatory body, to an extent simplifies the decision-making procedure, and stipulates that an LTD’s Articles of Association must contain provisions regulating the manner of resolution of shareholder disputes. Furthermore, it provides for a special court procedure allowing members of an LTD to exclude a certain member from the company upon appropriate grounds. This model may serve to resolve prospective deadlock issues.

The Draft LBO announces that the new LBO should improve the degree of legal security in resolving disputes originating from the application of the LBO. A positive impact is also expected in the area of creating a safer business environment, while more precise rules and sanctions applicable to specific violations will have a positive effect on dispute prevention. Therefore, we look forward eagerly to the making of a new Montenegrin LBO.

By Dragan Prelevic, Managing Partner, and Gorjana Lekovic, Attorney at Law, Prelevic Law Firm

This Article was originally published in Issue 4.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The development of intellectual property rights in Montenegro started when Montenegro became independent in 2006 and since the Intellectual Property Office of Montenegro – which deals with industrial property rights – started operations in 2008.

Before the independence of Montenegro, and during the period of the Serbian and Montenegrin Union, there was significant trade in counterfeit, pirated, and other illegal goods, which infringed on intellectual property rights and significantly damaged national budgets, placing those with legal businesses in an unfavorable position and reducing foreign investment.

Montenegro has, in the time since, made great advances in the field of intellectual property protection.

In accordance with a Decision of the Government of Montenegro intellectual property rights granted by the Office of the former State Union of Serbia & Montenegro or by the Intellectual Property Office of Serbia are deemed automatically recognized in Montenegro. This means that intellectual property rights valid and properly recorded at the IP Office of Serbia & Montenegro before June 3, 2006, or at the IP Office of Serbia after that date but before May 28, 2008, are valid in Montenegro.

The harmonization of the different intellectual protection systems in the EU and throughout the world is a key factor in promoting innovation and investment, and for that reason it is important that Montenegro is working to bring its legislation in line with relevant EU regulations.

Montenegro’s new Patent Law of 2015 (as amended in 2017) aims to harmonize national patent legislation with the EU and relevant international treaties. The main innovation in this law is the provisions relating to the substantive examination of a patent application. The Patent Law of 2008 abolished substantive examination of inventions and requires only that a formal examination be carried out, but the new Patent Law corrects this by requiring the right owner to submit proof of patentability before the ninth year of its validity, conforming with EU regulations.

Montenegro has amended its trademark law to harmonize it with regulations of the EU as well. These amendments bring more transparency and clarity to various procedures – and, importantly, specify the fines for trademark infringement. Individuals can now be punished with fines of between EUR 250 and EUR 1,500, individual entrepreneurs could face fines from EUR 500 to EUR 3,000, and other legal entities could face fines of between EUR 2,000 and EUR 10,000. 

These fines are critical, as in the past many infringers have simply continued using others’ trademarks without any authorization. Accordingly, we hope that the adoption of provisions relating to fines for trademark infringement will discourage the infringement which has been plaguing the country.

Although IP regulations are developing in the proper manner and in accordance with EU regulations, it is equally important to raise the awareness of the public about the significance of protecting intellectual property rights. In the last five years many companies have worked to bring the public a step closer to understanding intellectual property rights.

Effective protection of intellectual property rights is in the national interest, as it strengthens the economy, protects consumers’ rights, and attracts new investors. 

In particular we point out that it is necessary for right-holders to bring claims before administrative authorities to their protect IP rights from infringement, which means, for example, that as a precondition for undertaking customs measures companies must protect what they have created and what constitutes their intellectual property, and to submit applications to protect their intellectual property rights to the Customs Administration in Montenegro. 

The lack of attention to the protection of intellectual property rights has negative consequences on business entities and other organizations. 

Taking into consideration that the protection of intellectual property rights is an area the EU is paying particular attention to, competent authorities should continuously undertake activities on enforcement measures to protect intellectual property rights following right-holders’ applications, and sometimes ex officio, and in compliance with the IP laws. In this way they support the development of this field in Montenegro – which is already on an incomparably higher level compared to the situation in this field before the independence of the country.

By Sasa Vujacic, Managing Partner, Vujacic

This Article was originally published in Issue 4.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.