Category: Serbia

The past decade was rather dynamic in terms of the development of the legal framework for bankruptcy in Serbia, as, since its adoption in 2009, the Bankruptcy Law has undergone several amendments, most recently in late 2017, designed to improve the efficiency of the bankruptcy proceedings.

One might say that even before the adoption of the latest amendments we “were doing just fine” in terms of bankruptcy regulations, especially as the Doing Business List of the World Bank ranked the Serbian legal framework better than frameworks of some other countries of Europe and Central Asia, including several OECD countries. According to the Doing Business list, Serbia holds the 48th place in the world in terms of resolving insolvency. When it comes to the duration of bankruptcy proceedings, Serbia’s two-year long period is ranked at the level of the OECD countries.

But the question is: Is “just fine” enough? The answer is quite simple: “No.” As certain legal solutions turned to be insufficient, amendments were inevitable.

In Serbia, bankruptcy proceedings may be initiated and directed in one of two possible directions: either towards bankruptcy or towards reorganization. Bankruptcy is carried out either by means of the sale of the company’s assets or through the sale of the debtor as a legal entity. Reorganization, as an alternative to bankruptcy, may be performed in two ways: either on the basis of a pre-packaged reorganization plan or on the basis of a reorganization plan adopted in an already initiated bankruptcy proceeding.

Although the primary aim of the Serbian Bankruptcy Law is ensuring the most favorable collective settlement of bankruptcy creditors by achieving the highest possible value of the bankruptcy debtor or its assets, it also opens the door to a new financial start of the bankruptcy debtor by the sale of the debtor as a legal entity or through the reorganization process. Therefore, the Serbian pro-creditor -oriented Bankruptcy Law also provides an opportunity for the bankruptcy debtor to get back on his/her feet and continue the race for profit.

A common issue that has arisen during the application of the Bankruptcy Law relates to the position of secured creditors, which is improved by the most recent amendments. Before, secured creditors had no significant influence on bankruptcy proceeding, which, in practice, often led to delays in settlement of their claims. Among the improvements of the latest amendments are provisions that  creditors’ boards must have one secured creditor as a member, grant a pre-emptive right of secured creditors in any direct sale of assets which serve as collaterals of their claims, and grant the opportunity for secured creditors who intend to buy assets servin as collaterals of their claims to set-off their claims with the price obtained at public sale. Furthermore, leasing the encumbered assets of the bankruptcy debtor now requires the consent of the secured creditors whose claims the assets secure.

As secured creditors are mainly commercial banks, better protection of their interests could create a better environment for financing and lead to the improvement of the situation on the NPL market. 

The amendments to the Bankruptcy Law improve the efficiency of bankruptcy proceedings in many other ways as well, such as providing the creditors’ board with permission to dismiss the bankruptcy administrator and elect a new one at any point in a bankruptcy proceeding, without needing to provide any reasoning.

The main objectives sought by the law, as amended, include reaching a larger creditors’ settlement and reducing the costs and duration of the proceedings. It remains to be seen, however, whether these amendments will justify the expectations of the legislator and lead to faster and more efficient bankruptcy proceedings in practice, contributing thereby to the business environment in Serbia in general.

By Mladan Marjanovic, and Marina Lazovic, Partners, Marjanovic Law  

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.

Geographical indication of origin, this very peculiar form of industrial property protection, has undergone a revival phase over the past few years, becoming omnipresent not only within natural circles of interest, but also amongst the Serbian public at large.

Although at the moment there have been only a few dozen geographical indications of origin registered with the Serbian Intellectual Property office, for a country of a little over seven million, spread over 80,000 square kilometers of land, these numbers are remarkable – and something to be proud of. Through the goods and services they represent, they paint a picture of a different Serbia.

Generally used for the marking of natural, artisanal, or industrially produced food, goods, and produce, this legal term has come to reflect something much greater; the traditional and folkloric expressions of a country, its socio-cultural identity, and its historical heritage. Through dozens of well-curated picks of what each autochthone region has to offer as its best, once stemming from the ancient past only to be passed down to its modern day successors, these traditional expressions nowadays include textiles, knits, cheeses, wines, and even health services.

The surge in interest surrounding geographical indications of origin is now largely due to a country’s policy of promoting and subsidizing small and medium sized enterprises which focus on craftsmanship, artisanal work, and localized types of services which, in a way, help revive and ultimately preserve some of the traditional craft. 

Geographical indications, similarly to trademarks, transmit certain messages aimed at informing a potential consumer on the origins of a given product and the specific properties found only in that unique place of origin. They are therefore very useful tools when it comes to highlighting those specific or unique properties of each and every product or service offered under its umbrella. This can, for instance, be reflected through a particular climate, manufacturing, or a traditional approach to creating a product, all depending on the given region.

Thus, as the concept impacts the perception of both domestic and international consumers and promotes the country at large, the protection of geographical indications of origin has proven to be a large success. In Serbia, Valjevski Duvan Cvarci, Pirot Kilims, Sirogojno Knits, and Bermet sweet dessert wine, to name just a few, have come to serve as excellent examples of products which, due to their (i) defined geographical area, (ii) specific, territorially defined manufacturing methods, and (iii) localized product quality, have become recognized tools of promotion both within the country and beyond its borders.

By solidifying its bases through a plethora of now internationally recognized goods, Serbia has very recently gone a step further by registering its very first geographical indication for services offered in Zlatibor, a mountainous region in western Serbia known for its Golden Pine trees.

Stepping out from theory into practice, Serbia has become the very first country to actually register a service – the provision of health-tourism services provided exclusively in the Zlatibor region, and more particularly on the territory of the municipality of Cajetina – under the category of geographical indication of origin, thus far only foreseen on paper by local legislation. Registered under the indication Cigota, a mountain pass in Zlatibor, this specific service epitomizes a well-balanced mixture of natural and human factors such as, on the one hand, clean air with low humidity, specific light ion concentrations, an absence of allergens, and high pH levels in water, and on the other, a highly skilled medical and diagnostics staff.

Cigota is indeed that perfect example that allows us to shift our perception when it comes to geographical indications of origin, as it tears down the barriers of the traditional use of this legal tool and allows us to consider new possibilities stemming from more innovative concepts.

By Tamara Bubalo, Associate, and Dragomir Kojic, Partner and Attorney at Law in cooperation with Karanovic & Nikolic  

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.

In order to speed up turnover of funds in the Serbian economy, the Serbian parliament enacted a piece of legislation in 2012 regulating the terms of payment in commercial transactions, including ones in which public sector entities are debtors, and regulating the public sector’s obligation to register the received invoices – the Act on Terms of Payment in Commercial Transactions (the “Act”).

The latest amendments to the said Act were passed in December 2017, regulating the registering of invoices issued to public sector entities. These amendments require each invoice issued by a commercial entity to the public sector to be registered prior to sending. Subsequently, a new Registry of Invoices has been set up, and the Budgetary Inspection was delegated the authority to oversee the enforcement of provisions of the Act, starting from March 1, 2018.

All invoices to public sector entities now have to be registered with the Registry of Invoices, by the company issuing them, and sent to the public-sector debtors within three days of registration. In order to ensure compliance with new provisions it is stipulated that invoices not duly registered will not be paid by the National Treasury. To register invoices, a company will have to register itself with the Registry of Invoices and appoint an administrator of its account with the said Registry.

These amendments are meant to ensure greater control of the public debt, as well as to enable better planning of public sector spending and prevent possible deficits in public sector budgets due to inefficient planning.

A company violating the mandatory registration of invoices may be fined from 100,000 RSD (cca EUR 800) to 2,000,000 RSD (cca EUR 16,000).

The provisions laying down the maximum terms for payments in commercial transactions in Serbia have remained unchanged. All the invoices have to be paid within 60 days, and if a longer term for payment is stipulated by a contract, the term is considered to be 60 days. For payment in installments a term of 90 days may be stipulated. However in such case at least 50% of the debt has to be paid within the first half of the term.

In transactions in which the public sector entity is the debtor, the maximum term of payment is set at 45 days. The only exception is the National Health Insurance Fund, whose maximum term of payment is set at 90 days.

This legislation’s original aim was to stop the established practice of large retail companies forcing their suppliers to sign contracts with very long terms for payment, even up to 365 days. It also addressed the complaints from the private sector of public sector demanding prompt payment of taxes and other public revenues and on the other side delaying payments to their supplies and thus making the conducting of their business more difficult.

Public sector entities used a loophole in the legislation by simply not registering received invoices, thus making them “invisible” to the controlling authorities. This has been fixed by shifting the obligation to register the invoices onto the creditors.

However, although the maximum terms are stipulated, enforcement thereof is within the discretion of creditors. And they often choose not to enforce them in order to maintain “good relations” either with their largest customers or with public sector entities whose goodwill (or the goodwill of their management) is still often needed in various areas of conducting business in Serbia.

By Milan Samardzic, Partner, and Dusan Dincic, Senior Associate, Samardzic, Oreski & Grbovic