Category: Serbia

According to the Stabilization and Association Agreement between the EU and the Republic of Serbia¹ (hereinafter:”SAA”), Serbia has an obligation to address the issue of the acquisition of the real estate property in Serbia by foreign citizens and to enable such practice by no later than the fourth quarter of 2017.

The basic European principle and the entire rationale of EU accession is the free movement of people, goods, services and capital. Therefore, in order to fully enter the EU and become a rightful member of the single internal European market, Serbia is expected to remove the ban of sale and purchase of farmland on its territory for foreign citizens.

Serbia is bound to create a sustainable, liberalized system that would enable foreigners to acquire real estate in Serbia. This obligation is due on 1 September 2017. However, it is still unclear whether such obligation could be enforced and maintained in this constellation of circumstances.

Namely, according to the statement given to “Politika” by the Institute of Economic Sciences of the Republic of Serbia (hereinafter: the “Institute”), it is hypothetically possible for Serbia to request another extension of the period of time necessary for proper application of agreed standards. Such position of the Institute is based on the study conducted for the purposes of Serbian negotiations on accession.

These conclusions are drawn mainly from the fact that none of the Member States that had to transition to a market-based economy harmonized with these obligations before actual accession to the EU. Serbia could be the first one to implement such measures before joining the EU. Besides, EU should find a mechanism that would cover this gap and decide whether the status of EU citizens and Serbian citizens would differ in the event of real estate acquisition in Serbia before Serbia joins the EU.²

The fact that Serbia has still not finished the process of restitution is also not negligible and considerably slows down the whole process. Besides, as the Institute iterated in its statement, privatization of former state-owned companies raised eyebrows in certain cases and additionally complicated ownership issues in Serbia. Farmland in Serbia is not duly classified or registered and this problem directly prevents tax authorities in Serbia from controlling potential transfers.

Therefore, this issue is of specific importance and demands prompt action of Serbian authorities. EurActiv Portal already addressed this issue in 2013 and revealed that Serbia is indeed considering the extension of the period of time for another 8 years (starting from 2017) during which foreign citizens would be prevented from acquiring farmland in Serbia. Such information was obtained from the Ministry of agriculture of the Republic of Serbia.³

Finally, this issue requires a meticulous approach that could pacify conflicted interests of individuals and the public interest for preservation of the farmland in the ownership of Serbia and Serbian citizens. After all, as stated by the Institute: “this is a natural, limited resource and once sold, it becomes, practically, the property of another country.”⁴

1. Stabilization and Association Agreement between the European communities and their Member States of the one part, and the Republic of Serbia, of the other part, OJ L 278, 18.10.2013, p. 14–471;
2. Ivana Alibunović, “Sve manje vremena za zaštitu srpskih oranica”, 05.01.2017. 08:30h, Politika Online
3. Maja Poznatov, “Predlog da stranci do 2025. ne mogu kupovati zemljište”. 31.08.2013, EurActiv.
4. Supra, 2

By Radovan Grbović, Partner, and Katarina Grga, Associate SOG / Samardzic, Oreski & Grbovic

The Serbian Parliament has recently adopted amendments to the Criminal Code. The amendments include a significant overhaul of the legal framework for white collar crimes, touching upon the rules relevant for antitrust enforcement as well.

While the Serbian Criminal Code previously penalized antitrust infringements spearheaded by the responsible managers, the relevant provision was relatively vague and targeted chiefly dominance abuse. Although a few investigations were initiated under these rules, no final criminal judgement was ever issued by the courts in relation to antitrust breaches.

However, the new rules only target the conclusion of restrictive agreements related to price-fixing, limitation of production or sales or market-sharing. Naturally, agreements exempted from prohibition under the competition framework are also exempted from criminal sanctions. Criminal penalties for concluding a prohibited restrictive agreement include prison from six months to up to five years, as well as a monetary fine. As is common in an antitrust regime, leniency applicants are also afforded leniency under the criminal rules (which was not explicitly regulated previously). The relevant amendments are expected to enter into force on 1 March 2018.

In conclusion, the new provisions are more precise, decriminalize a range of behaviour (concerning dominance abuse) and are more in line with overall competition regulations. Accordingly and taking into account the ongoing proceedings before the Competition Commission, the first criminal cases for antitrust breaches may well be expected in Serbia in the near future.

By Bojan Vuckovic, Partner, and Veljko Smiljanic, Senior Associate, Karanovic & Nikolic

The new Serbian Housing Act is a long-awaited codification of all the statutes pertaining to housing. The Building Maintenance Act and Housing Act were passed in its original texts more than two decades ago, and were rendered obsolete by the changes in society and economics climate. But the big question is – will there be enough funds for carrying out all the ideas laid out by the legislators?

The new act covers three areas – maintenance and management of buildings, the usage of housing units and social housing.

The system of maintenance and management of buildings has basically not been changed since the socialist times and state-run economy. The owners of the units will elect among themselves the president of the tenants’ association who shall be responsible for running the day to day operations of the building.

The first change is in terminology only. The name of the tenants’ association is now the housing community, and its president is now called manager, but the responsibilities are basically the same.

The first major change is the introduction of a possibility for the housing community to have a professional manager. A professional manger has to have a license issued by the Chamber of Commerce and shall be hired by a company which will in turn have a contract with the housing community. This will provide a significant business opportunity for companies providing both management and maintenance.

The law stipulates that the collection of the maintenance fees can be delegated to the entity which collects public utilities’ fees. In Belgrade, this is the “Infostan” public company. They will charge the owners of the housing units and, in turn, transfer money, to the association’s account. In some time, this will destroy the de facto monopoly of the public company for building maintenance, because its only advantage over its private owned counterparts was the fee collection by “Infostan”.

The new law brings an eagerly awaited possibility – it enables local governments to allocate funds for subsidizing energy efficiency programs in cooperation with housing communities.

One provision has created a rather large public debate. Under the provisions of the new law, every building is required to appoint a manager – either among the owners of the units in the building or a professional one. If the housing association does not comply, the local government will appoint a professional manager. The ratio behind this provision is to have a person responsible for management and maintenance in every single building, which has been a great problem in the last decades.

One problem which is not solved by the new act is eviction. It has been a problem for a long time – an ever-going conflict of jurisdictions between local government and courts. In theory, the local government is responsible for evictions of persons that occupied the housing units by force or when the legal title expired, became void or is nonexistent. In practice, local government interprets the nonexistence of legal title very narrowly and only deals with forcible taking of flats. All other cases are transferred to courts where they dwell for a long time. The new act has not changed these provisions, so it is likely that this situation will remain the same.

The act also put in a new position the so called protected tenants (persons living in privately owned flats at least since 1973), as well as persons living in flats nationalized from foundations which have been revived since the 1990s. The previous act set the deadline for flat owners to apply for public funded displacement of their tenants until 1993, so hundreds of families – both the owners who missed the deadline and their tenants – have been left in a legal limbo. People living in foundations-owned flats only had the right to continue living in the flats with a controlled, below market-value, rent.

All the people still living in these units have been deemed as “persons without a suitable flat” and are now eligible for displacement financed jointly by the local government and national budget. The deadline for submitting the displacement request is set for 6 months after the Act comes into force.

The provisions on public housing are much more elaborate than under the previous Act that dealt with this matter. However, the key problem are the funds needed for carrying out these provisions, which will be declining if the adequate budget appropriations are not provided, especially in the local governments’ budgets.

To sum it up, the new Act brings some badly needed and belated updating in the management and maintenance of the buildings. In other areas, changes are not so revolutionary and will ultimately depend solely on the availability of public funds.

By Dusan Dincic, Senior Associate, SOG / Samardzic, Oreski & Grbovic

There are different ways to acquire a majority stake in a joint stock company, and each of them has its particularities, pros and cons. However, notwithstanding the specific acquisition method, each process requires the undergoing of stringent procedures by the acquirer, which can often be lengthy and complicated, involving dealing with various minority shareholder issues and rigid supervision by regulators.

Depending on the transaction structure, a majority stake in a Serbian joint stock company may be acquired directly or indirectly, solely or by acting in concert, with the specific form likely to affect the overall duration and complexity of the acquisition process.

In this article, we will explore the acquisition of a majority stake via takeover as compared to block trading.

Pursuant to Serbia’s Takeover Law, a takeover bid must be launched by a person who has acquired, directly or indirectly, solely or by acting in concert, voting shares that, together with the shares already acquired, represent more than 25% of the overall number of the target company’s voting shares. In addition to a mandatory takeover bid, the Takeover Law permits launching of a voluntary takeover bid, which, unlike a mandatory takeover bid, may be conditional upon acquisition of a minimum number or minimum percentage of voting shares in the target company. Following the initial acquisition of a shareholding in the target company, additional takeover bids may be required for its further increase, depending on the previous acquisition methods and/or the amount of shares acquired thereby. In the course of the process, bidders are bound by the rules on the minimum (rather than maximum) takeover price. While the obligation to launch a takeover bid in case of a direct acquisition of shares in the Serbian target arises out of the mere signing of the underlying share purchase agreement, indirect acquisitions of shares in the Serbian target company, made through the acquisition of shares of its parent, require that the launching of a takeover bid be linked to the moment of registration of the share transfer on the parent level. 

An alternative to a straightforward takeover bid is block trading, especially when a direct agreement on the acquisition of a specific portion of shares may be reached with the relevant shareholder prior to initiation of the process. Block trading may thus delay launching of a mandatory takeover bid until the moment the acquirer has already become the majority shareholder of the target company (or a holder of more than 25% of the voting shares therein). Namely, while the rules applicable to block trading (i.e., Belex Rules on Operations) prescribe the minimum amount of shares that must be subject thereto or the minimum value of the relevant block-trading transaction, they do not prescribe the maximum amount of shares to be acquired thereunder. Therefore, this allows the interested acquirer to first acquire the majority stake in the target company without the participation of competitors, and then to launch a takeover bid for the remainder of shares. 

However, block trading rules do impose certain trade restrictions which may, from time to time, prevent the transaction from being completed under these rules. One of the most important impediments to a block-trading transaction relates to the limitation of the discretionary power of the parties to negotiate the price under which they wish to trade shares. Namely, block-trading rules prescribe the highest permissible price deviations for the shares being traded thereunder from the reference values identified in the rules. Therefore, if shares are to be traded via block trading, parties are not free to agree in the underlying share purchase agreement on their price outside of the applicable rules and, very often, are prevented from agreeing on so-called price adjustment mechanisms, as these could result in violations of the share price rules applicable to block trading. This especially occurs in transactions involving acquisitions of shares in a group of companies on a closing date that is different than the signing date.

Accordingly, before proceeding with negotiations for an acquisition of a majority stake in a joint stock company, it is advisable to analyze all aspects of the potential transaction and structure it to best fit one’s specific needs.

By Natasa Lalovic Maric, Partner, Wolf Theiss 

This Article was originally published in Issue 3.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

To the untrained eye, technology and the judiciary sector may seem rather far apart. IT is ever changing and dynamic, while courts are by design deliberate and slow. However, even the most resistant institutions are not immune to change; Serbian courts now appear to be further steps towards incorporating new technology for the ultimate goal of greater efficiency.

Recently, announcements have been made disclosing the development of a new platform for data exchange, which will be implemented within the judiciary system and related governmental authorities. Furthermore, the system is intended to support e-filing and has been modelled after similar practices in Singapore, a widely-considered leader in e-judiciary.

The underlying idea is to simplify the use and exchange of data between the different case management systems by the various entities within the judiciary (e.g. courts of different instances and competences, public prosecutor offices, police, Ministry of Justice, public notaries, etc.). Also, the new platform should represent a data hub, allowing for secure data exchange mechanisms while facilitating more efficient communication with the courts.

Naturally, there are significant challenges to overcome, including a legacy of an overburdened judiciary, lack of capacity and difficulties within the legal framework and enforcement practice. However, a centralized and efficient IT platform should help by making court procedures cheaper, more accessible and efficient, ultimately contributing to an overall improvement in the local rule of law.

By Milica Savic, Associate, Sava Draca, Junior Associate, Karanovic & Nikolic