Category: Serbia

In recent times, more and more international companies are outsourcing their call centres and data processing facilities to Serbia.

This has opened a practice area which has, until recently, been relatively unknown to Serbian law professionals – transferring of personal data out of Serbia.

If the data collected and stored in Serbia is transferred to a country that is a party to the Council of Europe Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data, the process is a simple one, possibly impeded only by technical matters.

However, if the data is to be transferred to a country not a party to the said Convention, among others USA, Canada and Australia, the process could turn out to be lengthy and demanding.

The transfer is supervised by the Commissioner for Information of Public Importance and Personal Data Protection. The Commissioner has the final saying on the demanded transfer and can authorise it or deny it.

In order to start the process, a company has to be registered as a personal data processor. This is done by registering at least one database with the Commissioner. This is done both on-line and in hard copy. It is an unwritten rule that the first database registered is an employee database.

For each database the Commissioner reviews legal basis for collection of the data and the justification of data collection. The legal basis and justification for data collection and transfer are under even more detailed scrutiny when it comes to data transfer outside of the Convention area.

The Commissioner has the discretionary right to deny a transfer if he deems it unjustified, or if he finds that the data security and the right of privacy of an individual will be put in jeopardy with the requested transfer. The consent forms are also put under detailed scrutiny, especially in cases where the Commissioner finds that the individual giving consent is not in position to refuse the consent, for example employees.

It is a common practice that a data transfer agreement and a consent form are redrafted several times before the consent is given.

According to unofficial estimates of the Commissioners own employees, from the moment when the procedure for database registration starts to the authorisation of data transfer, there is an average period of at least 6 to 8 months.

Therefore, it is a prudent business decision for a company planning to set up operations in Serbia that require data transfer to initiate the procedures for authorization on the first day after they receive their company registration from the Serbian Business Registers Agency.

By Marija Oreski Tomasevic, Partner, and Dusan Dincic, Senior Associate, SOG / Samardzic, Oreski & Grbovic

Sensationalism – a word that often causes the media to “forget” about the law and ethics and trade them in for greater circulation/ratings. Serbia is not an exception to this phenomenon, unfortunately, especially when it comes to reporting about public figures.

Does a public figure have the right to privacy?

Public figures who deprived themselves of a greater degree of privacy as part of their jobs should definitely expect a lesser degree of privacy than “ordinary” citizens. When deciding whether someone’s right to privacy should prevail over free expression, the following main criteria, developed from the case law of the European Court of Human Rights, should be taken into account: a) whether somebody performs a public/official duty; b) whether that person is in a place and/or situation where he/she has a reasonable expectation of privacy; and c) whether the purpose of the reporting is to contribute to a public debate (for example, because it relates to information which appears to conflict with the function which he/she holds) or serves only to entertain. 

Additionally, the mere fact that readers/viewers want to know about a public figure’s private life is not sufficient justification to publish such information. Furthermore, the fact that something happens outside of a public figure’s home does not constitute an adequate reason to disseminate it to a wider public. However, although taking these general rules can be very useful, a unique pattern for all cases cannot be made.

The Serbian Law on Public Information and the Media (LPIM) and the Code of Serbian Journalists are generally aligned with these rules. Although LPIM provides additional criteria when determining which right should prevail, it also has one questionable provision. Namely, it stipulates that the right to freedom of expression should prevail over the right to privacy if an individual, through his/her public statements or conduct in private and professional life, attracts public attention and thus provides a motive for publication of certain information. This does not offer clear guidelines to the media or to the individuals involved about what kinds of “conduct in private and professional life” can attract “the attention of the public.”

Last year there were several instances of misconduct by different media involving public persons in Serbia, such as severe intrusions into the private lives of deceased actors, among many others. None of the information published had the purpose of contributing to a public debate, per the mentioned criteria.

What to do if your right to privacy is breached?

Individuals who believe their right to privacy has been breached have two ways to claim their rights: (1) To refer claims to the Press Council (the “Council”) or the Regulatory Authority for Electronic Media (RAEM), depending on the type of media involved; or (2) to initiate a lawsuit in the Higher Court in Belgrade.

If the Council establishes that someone’s right to privacy has been breached, it publicly warns the specific media to cease the actions that caused the breach. The intention is to create some sort of a guide for the media and to prevent them from taking similar actions in the future.

In 2016, more than 1500 cases of misconduct relating to someone’s right to privacy were discovered in the Council’s annual monitoring of eight newspapers. However, the number of complaints submitted to the Council by the affected individuals was substantially smaller.

The RAEM has the authority to terminate the broadcast of a form of electronic media found in violation of an individual’s right to privacy and to revoke its broadcast license. 

However, it seems that the efforts and sanctions of the Council and the RAEM are not being implemented in the most suitable way, as they have not had the desired impact on the media.

Annually, approximately 300-400 individuals submit a request for non-pecuniary damages due to emotional suffering, violation of honor, reputation, and privacy rights in Serbia. However, the media’s financial power must be taken into consideration when imposing a fine. That penalty should not hamper the future business conduct of the company it is imposed on and must be reasonable and proportionate.

Still, a crucial question remains: how far can any type of reimbursement go towards healing emotional pain, repairing a damaged reputation, or compensating for what is often referred to as irreparable damage? 

By Uros Popovic, Partner, and Tamara Momirov, Associate, Bojovic & Partners

This Article was originally published in Issue 4.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Reorganization was introduced in Serbian bankruptcy legislation in 2010 and is very often used to restructure claims, as it provides an opportunity for a debtor to continue operating if the settlement proposed through a reorganization plan is more favorable to creditors than liquidation.

A reorganization plan may be filed either in bankruptcy proceedings or as a prepackaged reorganization plan (UPPR). However, judicial unfamiliarity with complicated commercial and financial issues and an unclear legal framework often hamper an effective administration of the process.

Reorganization in Serbia is a court-administered process, but creditors have the final say, as the plan will be adopted only if the majority of creditors in each class (formed for the purpose of voting) support it.  Serbian Bankruptcy law provides bankruptcy judges with significant authority to ensure the legality of reorganization proceedings. Still, even though it is a court-administered process, the outcome of it – i.e., an adopted reorganization plan – is essentially a financial document that affects how the future business of the reorganized company will run and how debts with existing creditors will be settled. So the main challenge for judges is understanding the financial aspects of the reorganization plan. Unfortunately, because judges are often unprepared and ill equipped to understand complicated financial and commercial matters, they rarely perceive which tools from the existing legal framework would be the most adequate. This is why they are often reluctant to use certain tools to effectively examine the reorganization plan and all of its implications. For instance, no judge has ever yet held a special hearing allowing the creditors to discuss the plan and elaborate their objections to its provisions. In practice, this has led to a mere outvoting contest between the supporters and opponents of the plan.

Other difficulties experienced by judges stem from the existing legal framework on reorganization in Serbia, which is still undeveloped and imprecise and sometimes untested in practice. For example, the most controversial issue in every reorganization process is the treatment of disputed claims when it comes to voting. The rule is that creditors with disputed claims may not vote for the reorganization plan. However, they are entitled to request from the judge an assessment of the value of their claim for the purposes of voting. It is not clear whether the judge is supposed to assess their claim by himself or is to engage an expert on this. In practice this has often led to disputed claims not being assessed for the purposes of voting at all.

Another controversial issue is “cramdown.” The term cramdown derives from the US bankruptcy system, and it is usually defined as involuntary imposition of a reorganization plan over the objection of some classes of creditors by – for instance – reducing their claim to such an extent that they cannot outvote other creditors from the same class and prevent reorganization. In Serbia, this is used by authors of the plan when they do not tailor the classes of creditors according to the basic principle of reorganization (more favorable settlement of creditors compared to liquidation) but in order to achieve the plan’s adoption at all costs. The main challenge for the judges is to recognize when there is a cramdown in place. Improving the financial skills of judges would increase their understanding of this issue and ultimately allow them to prevent its misuse.

To conclude, the lack of special skills needed for comprehensive review of proposed terms and measures for reorganization often limits judges only to reviewing reorganization plans from a legal perspective, making them hesitant about observing them from a commercial and financial point of view. This leads to the adoption of infeasible reorganization plans that only postpone the inevitable outcome – liquidation in bankruptcy.

As the purpose of reorganization is settlement of creditors through a continuation of the debtor’s business, judges need not only to have legal knowledge but also to be equipped with appropriate financial, commercial, and economic skills to understand when reorganization is feasible and able to ensure a better settlement for all creditors in comparison to bankruptcy proceedings. Equally relevant is for judges to recognize the opposite situation: when reorganization is aimed only at the debtor’s survival, without any economic justification.

By Milan Lazic, Partner, Vedran Ceric and Milica Savic, Attorneys at Law in cooperation with Karanovic & Nikolic

This Article was originally published in Issue 4.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In the last decade, as a result of the global economic crisis and the accompanying recession, there has been a significant increase in NPL ratios throughout the SEE region.

In Serbia, the NPL ratio has been steadily increasing from 2008 onwards, reaching its peak in the third quarter of 2015, when NPLs constituted 22.8% of the total gross loan portfolio in the country. Despite the fact that the NPL ratio in Serbia has decreased by 3% from that time, standing, as of the third quarter of 2016, at 19.5%, the country still has one of the Europe’s highest and most persistent levels of NPL stocks, which undermines the stability of its banking sector and the capacity of its banks to undertake new lending. 

Yet, in spite of its potential, the Serbian NPL market is still underdeveloped, lacking substantial trade volumes. Unlike the market leaders in the trade of NPLs, Serbia has been restricting cross border transfers of non-performing loans, has been reserving the trade of retail NPLs for banks, and has, for a long time, been reluctant to officially recognize and regulate advanced trade techniques such as sub-participation arrangements and synthetic sales of NPLs, with their associated legal effects.

In response, and in an attempt to overcome these problems, boost development of the local NPL market, and further decrease the NPL ratio, in August 2015 the Serbian Parliament adopted the NPL Resolution Strategy, precisely identifying the means for remedying the impediments for NPL market development and setting out the rules and incentives for improving the applicable regulatory framework. 

As a result, by the end of 2016, Serbia had undergone a plausible regulatory reform. Under the amended banking regulations, bank supervision and reporting obligations have been improved, and the rules on the trade of NPLs extended to loans under which payments of interest and principal were not past due for 90 days or more but were nevertheless seen as uncollectable. Tax regulations have been amended so as to facilitate banks’ execution of write-offs resulting from NPLs. The new Law on Financial Restructuring has been adopted, improving possibilities for certain companies in financial distress and their creditors to amicably redefine their relationships and move towards resolving debtors’ financial crises. The Serbian Banking Association has adopted the INSOL Principles to provide national guidelines for restructuring distressed clients. 

The regulatory reform has continued in 2017. The year started with the adoption of the Law on Valuators of Immovable Assets, designed to prevent banks from further accumulating NPLs by extending loans to ineligible borrowers based on over-valuated collaterals, which was a common practice in the past. As of July 2017, banks are to become officially entitled to engage in synthetic sales of NPLs and able to properly reflect transfer of credit risks arising thereunder in their books. Most importantly, liberating the regime applicable to trade of retail NPLs has been set as a goal for the year end. While it is uncertain in which manner and to what extent this trade will be unhampered, the establishment and operation of the so-called non-depositary institutions that would be entitled to trade retail NPLs is largely anticipated. These institutions would not hold banking licenses, but would be under the supervision and scrutiny of the National Bank of Serbia. This option is also strongly supported by the major international financial institutions. The announcement of the anticipated liberation of the trade of retail NPLs has, though, raised concerns among customers; as a result, assurances have been given by the National Bank of Serbia that retail borrowers will retain the rights and protection provided to them under the Law on Protection of Consumers of Financial Services. 

With the total volume of NPLs of approximately EUR 3 billion and continuous regulatory reforms aimed at improving the sphere of trade of NPLs, Serbia is expected to soon become the next “hot market” in this industry.

By Natasa Lalovic Maric, Partner, Wolf Theiss Serbia

This Article was originally published in Issue 4.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.