Category: Serbia

Offering of securities to company employees through some form of employee profit sharing plan is a common way for companies around the world to reward their top managers and employees.

Employee Participation in Investments Program (hereinafter: “EPIP”) is a generic term taken from the EU Directive 2004/39/EC, and although it is thoroughly regulated in most of the countries of the EU, this legal concept remains to a large extent unregulated in Serbia, and this is also the stance that the Serbian Securities Commission (hereinafter: the “SSC”) has adopted in its only opinion up to date pertaining to the issue of EPIP’s and related investment services, in 2014 (hereinafter: the “Opinion 2014”).

In its Opinion 2014, the SSC elaborated that pursuant to Serbian regulations governing capital markets, every offer of securities, including offers made by foreign entities (with or without a prospectus and regardless of whether it is intended for all investors in Serbia or a certain circle of domestic entities) represents a public offer  which should be implemented by authorized investment companies, through competent institutions, in the prescribed manner and within the set deadlines, in accordance with the provisions of the Capital Markets Act (hereinafter: the “CMA”).

Additionally, in the Opinion of Serbian Securities Commission provided in 2012 (hereinafter: the “Opinion 2012”) SSC pointed out that, bearing in mind the relatively low level of development of the domestic financial market, the CMA does not regulate cross-border issuance of securities, which will have to be regulated in the process of harmonization of national legislation with EU law.  In this respect, the SSC adopted the position that in accordance with existing regulations, offering of securities issued by foreign entities as such is not possible in Serbia, due to the application of lex rei site principle, i.e. application of domestic law, which requires a public offer with or without a published prospectus.  This should be particularly relevant in the case when shares of a foreign founder are offered to employees of its Serbian subsidiary.

By Milos Velimirovic, Partner and Sanja Dosen, Senior Associate, Samardzic, Oreski & Grbovic

Biomass represents the most widespread source of energy in Serbia, making for around 60% of the total potential renewable energy resources.  However, national biomass estimations indicate that it is not sufficiently exploited.  In order to increase the share of biomass, Serbia is investing significant efforts in the development of this valuable energy resource.

In 2013, Serbia adopted the National Renewable Energy Action Plan (the “Plan”).  The Plan projects that by the end of 2020 Serbia will increase exploration of renewable energy resources up to 27% (an additional 5,8% compared to 2009).  The main goals of the Plan are: to reduce the import of energy, to develop the energy market in the framework of the EU energy market, and to establish an overall sustainable energy sector.

Currently, Serbia is importing significant quantities of energy, even though it has the potential to become an energy independent country.  From the long term perspective, it may be expected that the import of energy will be reduced to a minimum and that Serbia will become a significant exporter of energy.  Since biomass is a major source of renewable energy, it may be one of the main sources of energy production.

In order to improve the biomass market in Serbia, the Chamber of Commerce established the Green Energy Portal – the first online portal for biomass stock market in Serbia.  As announced, the portal will inform professionals on all relevant facts regarding the dynamics on the biomass market, as well as allow e-trading in various types of biomass.  It is expected that the portal will be activated for online transactions by the end of the year.

Bearing in mind that the Serbian Government, in cooperation with EU and international organizations, is working on attracting domestic and foreign investments through financing projects for the development of the energy sector, it is to be expected that the Serbian biomass market will continue to grow in the future.

By Milan Samardzic, Partner, and Nevena Milošević, Senior Associate, Samardzic, Oreski & Grbovic

On 20 October 2017, Serbian Business Registry Agency (the “SBRA”) initiated a nationwide process of statutory winding-up of all companies which operate and exist contrary to the Serbian Companies Act (the “Act”).

Specifically, the Act enumerates 11 key reasons for an ex officio initiation of wind-up proceedings which include, inter alia, failure of a company to (i) appoint an authorized representative within 3 months as of the date it has dismissed the previous one, (ii) maintain its basic capital in accordance with the limits set out in the Act, (iii) provide to the SBRA financial statements of the company for the previous year by the end of the following year.  Although the Act has been in force since 2014, the SBRA has only now started enforcing these provisions and issues over 1,000 decisions on a daily basis which result in initiation of wind-up proceedings of various companies.

The implication of statutory wind-up proceedings is quite straight forward – all creditors of any such company have a 6-month period (starting from the date the SBRA announced the winding-up of a company on its internet website) to initiate bankruptcy proceedings against the company in order to collect their due, but unpaid receivables.  If the SBRA does not receive a notification from the court that bankruptcy proceedings have been initiated against any such company within 1 year from the date it has announced the winding-up thereof, it will remove the company from the companies’ registry.

Therefore, it is highly advisable that all creditors (especially ones having non-performing loans towards Serbian companies) keep their eyes wide open and track the SBRA’s notice board continuously as to avoid losing the opportunity to collect their due, but unpaid receivables.

By Milan Samardzic, Partner, and Igor Radovanovic, Senior Associate, Samardzic, Oreski & Grbovic

The Companies Act introduced in 2011 the obligation of the Serbian Business Registers Agency (SBRA) to institute compulsory liquidation over companies for failure to comply with legal obligations under the statute.

SBRA is, inter alia, obliged to initiate compulsory liquidation over a company which has failed to:

(a)  submit its annual financial statements for the previous year until the end of the current year;

(b)  register a new statutory representative after the expiry of three months following the deletion of the previous representative from the register; or

(c)  increase its capital after it has fallen below statutory minimum.

It is not entirely clear whether the reason under (c) refers to the notion of registered capital or to net equity requirement. It is currently interpreted by SBRA to refer to the former and is therefore of no consequence, given that it is not possible to register decrease of registered capital below the statutory minimum.

SBRA has not followed through the mandate to conduct compulsory liquidation until very recently because in 2012, the Ministry of Economy ordered it not to. The Ministry had concerns that the statute does not provide enough leg for compulsory liquidation process to stand on its own (see below).

On 20 October this year, the Ministry changed its mind and gave SBRA a green light to start implementing the provisions on compulsory liquidation. Since then, SBRA has initiated over 800 procedures.

Compulsory liquidation is in principle meant to purge the register from inactive companies. However, concerns that halted the implementation of the procedure in 2012 remain.

No grace period

The Companies Act does not require SBRA to provide any warning notice or a remedy period (where non-compliance is remediable) to the company or its shareholders before it initiates compulsory liquidation procedure. SBRA has announced, however, that it would in practice allow one-year grace period starting from the non-compliance.

Unclear status of a company pending compulsory liquidation

The law does not address at all the scope of the company’s permitted activities pending compulsory liquidation proceedings.

Treatment of creditors

The Companies Act completely lacks provisions on treatment of creditors pending compulsory liquidation. As a result, a company can be deleted from the register before it pays its creditors, who are left to pursue their claims against shareholders.

Distribution of liquidation proceeds

Liquidation proceeds are distributed to shareholders pro rata to their participation in the liquidated company’s capital. However, the procedure for liquidation or distribution of non-cash assets is underregulated. It is not clear whether SBRA can decide on distribution of non-cash assets in case shareholders fail to reach an agreement on the manner of distribution.

What to expect in the future

Amendments to the Companies Act are currently being debated and it remains to be seen to what extent they will rectify the deficiencies in the regulation of compulsory liquidation. Draft amendments propose that SBRA must give a 30-day notice to the company to remedy the incompliance before it can commence compulsory liquidation. It is also proposed that pending the proceedings, the company may wrap up its existing business but may not enter into new deals. However, the proposed amendments in their current form do not adequately protect interests of creditors. There is no obligation to prepare initial and closing balance sheet and a liquidation report, and there is no procedure for registration and examination of creditors’ claims. The present draft also omits to prohibit distributions to shareholders and closure of liquidation until all creditors are paid. Finally, the draft amendments keep unchanged the provision mandating compulsory liquidation in case capital falls below statutory minimum, thus perpetuating the dilemma whether this provision refers to registered capital or to net equity requirement.

 

The digital era brought us new ways of distribution of media content, one of them being the performance of services of online media platforms. Since this is a relatively new kind of business activity, it is necessary to analyze the way it fits within the provisions of Serbian legal system. The major question in this respect pertains to potential copyright and related rights infringement.

Generally speaking, media piracy falls within one of two categories – physical or digital. Physical media piracy represents a traditional form of copyright infringement, and includes illegal duplication and distribution of copyrighted content by, for example, burning it onto mediums such as CDs and DVDs.

However, the issue of copyright infringement has gained renewed importance recently with the advent of new digital video recording and distribution technologies brought by the digital era, and with the widespread phenomenon of Internet piracy. This new kind of piracy – digital piracy – consists of illegal duplication and distribution of copyrighted content via network streams. With this in mind, the creative industries have frequently expressed concerns that they cannot compete with freely available copies of their content.

Even though it might look complicated at the first sight, Internet piracy functions in a simple manner. The provider of electronic media services installs an online platform upon which it sets a variety of links directing users to an array of websites on which they can watch numerous TV shows, TV channels, etc. By doing this, they provide online services for broadcasting and distributing all sorts of authorship or related rights works. However, in order to get access to these links, users need to be subscribed; i.e., usually, they first need to pay an amount of money to these providers in exchange for access to the links on the platform. As a result, providers can earn significant amounts of money. What the users do not know, however, is that they have been deceived, by paying subscriptions to false providers who do not have licenses to provide the said platform.

Indeed, these online media platform providers do not consider it necessary to obtain any kind of license to provide these online services. Instead, they justify (or excuse) their actions on the ground that they are conducting Internet marketing activities, for which they do not need to acquire any permission whatsoever from the owner of the copyrighted work. The problem with this statement is that even if we suppose that these providers are right and that their activities in fact are Internet marketing activities, there are no provisions under Serbian law entitling them to broadcast and distribute another’s authorial work without permission. Instead, the applicable provisions under Serbian law are those in the Criminal Code, which establishes (in Article 199) the criminal act of Unauthorized Exploitation of Copyrighted Work or other Works Protected by Similar Rights, and provides that “whoever without permission publishes, records, copies or otherwise presents in public, in part or entirety, a copyrighted work, performance, phonogram, videogram, broadcast, computer program or database, shall be punished with a fine or imprisonment up to three years.” Paragraph 3 of Article 199 states that “if the stated act is committed with intent to acquire material gain for oneself or another, the offender shall be punished with imprisonment from three months to five years.”

This provision of the Criminal Code makes the broad set of non-authorized actions, including the potential acts of providers via Internet platforms, a crime. Therefore, it goes without saying that if a provider exploits another’s copyrighted work (with or without aim of acquiring material gain) without authorization, the conduct can only constitute a criminal act, and as such, cannot be treated as performing Internet marketing or any other allegedly lawful business activity. In addition, these actions could introduce the question of compensation of damages, which arises from infringement of copyright and related rights. Still, a crucial question remains how the Serbian courts would approach this issue and assess it in day to day practice.

By Nemanja Ilic, Partner, and Bojana Bilankov, Associate, MIM 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.