Category: Serbia

The Belgrade-based Subotic & Jevtic law firm has changed its name to Subotic Law.

According to the firm, as of May 1, 2024, the name and brand changes were adopted to reflect the “departure of our long-time colleague and friend Julijana Jevtic. The rest of our team as well as the scope of the firm’s activity remain unchanged.”

Jevtic has, since, set up her own law firm in Belgrade: Jevtic Legal.

Remaining at the helm of Subotic Law is Partner Milica Subotic, who co-founded the firm with Jevtic in 2017 (as reported by CEE Legal Matters on June 17, 2017). Earlier, Subotic spent almost 12 years with JPM & Partners, almost nine of which as a Partner. She specializes in competition law.

NKO Partners has advised Igepa Cartacell on a 33% minority shareholding buyout from shareholder Radivoj Cvetic.

According to NKO Partners, “the buyout involved the acquisition of the minority shareholding of Radivoj Cvetic, who held a 33% stake in the company. This buyout comes on the heels of Igepa Group’s recent acquisition of Oracal Polikarbonati in Serbia earlier this year” (as reported by CEE Legal Matters on April 17, 2024).

The Igepa group is a specialist wholesaler active in Europe, catering to over 50,000 customers from various industries. The group specializes in trading products like graphic paper and board, packaging, and media for advertising technology, including technical equipment and services.

The NKO Partners team included Partners Djordje Nikolic and Branko Jankovic and Senior Associate Goran Mihajlovic.

In an era where social media has become an integral part of daily life, the issue of privacy protection is gaining increasing importance. Typically, social media platforms offer mechanisms to control access to the content which individuals share on their profiles, including the so-called profile “locking”. On the other hand, content on “unlocked” profiles is accessible to an unlimited number of people, allowing anyone who visits a particular profile to view the content created or published by its owner.

Additionally, one of the current topics is the permissibility of publishing photos from “unlocked” profiles of individuals by the media, which are then used to complement articles published in newspapers and on internet portals. In other words, does such behavior by the media constitute a breach of privacy?

This question has quickly become the subject of judicial consideration, and thus the Court of Appeal in Belgrade, in its judgment ref. no. G_ž3 170/23 dated June 1, 2023, expressed its stance on the violation of privacy rights through the publication of photos taken from social media.

The court concluded that the fact that the photos were taken from the plaintiff’s private profile on social media is not crucial, and that their publication in the media constitutes a violation of privacy rights. Furthermore, the court explained that the fact that the photos were published on social media by the plaintiff himself is insufficient because it does not imply that the individuals depicted in them have given consent for their use in other ways or for other purposes.

Legal Framework

The Law on Public Information and Media stipulates that information from private life, including photograph of individuals, cannot be published without the consent of the individual whose private life the information/photograph concerns, if it can be inferred from the publication which individual it is.

An exception exists in situations where the public interest in knowing the information or photograph outweighs the interest in preventing its publication, which the court will assess based on all circumstances of the case.

It is also considered that the public interest outweighs the interest in preventing the publication of information from private life, especially if the individual has intended the information or photograph for the public or has provided it to the media for publication.

Therefore, in the mentioned case, the legislator assumes that by their implicit actions, individuals have consented to the publication of their photograph. However, considering the aforementioned stance of the Court of Appeal in Belgrade, the use of a published photograph in other ways or for other purposes will constitute a violation of privacy rights.

It can be reasonably assumed that this issue will continue to be subject to judicial consideration, particularly in the context of interpreting the legal standard that the photograph is intended for the public, as well as which circumstances should be considered when determining the intent of the person who posted the photograph on their “unlocked” profile.

Conclusion

It is evident that obtaining the consent of the individual is a prerequisite for publishing photographs of the person depicted in them.

The stance of the Court of Appeal in Belgrade implies that such consent cannot be deemed to have been given by implicit actions (publication of a photograph on a social media platform and publicly accessible) because the photograph cannot be used in any way or for any purpose without the explicit consent of the individuals depicted in it.

Moreover, the use of photos taken from social media may also be contentious from the perspective of the photographer’s rights, i.e., copyright protection, which may also be subject to legal action, something that media outlets should also consider.

This article is to be considered as exclusively informative, with no intention to provide legal advice. If you should need additional information, please contact us directly.

By Marija Muzevic, Counsel, and Minja Mucic, Junior Associate, PR Legal

The Zunic Law Firm, working with California-based Fenwick & West, has advised Wonder Dynamics on the sale of the company to Autodesk.

According to Zunic, “co-founded by Nikola Todorovic and Tye Sheridan, Wonder Dynamics has revolutionized access to advanced VFX tools for artists, solidifying its status as an industry leader. This strategic alliance integrates Wonder Dynamics’ innovative cloud-based AI technology into Autodesk’s suite, revolutionizing 3D content creation across diverse media and entertainment sectors.”

Autodesk is an American software corporation servicing the architecture, engineering, construction, manufacturing, media, education, and entertainment industries.

The Zunic team included Partners Tijana Zunic Maric and Nemanja Zunic, Senior Associates Jelena Djukanovic, Jelena Obradovic, Ivan Kostic, Aleksandra Jacimovic, and Marija Medic, and Associates Kristina Jevtic and Danilo Spasojevic.

Zunic was unable to provide additional information on the deal.

In Serbia, most of the exclusivity arrangements between pharma companies need to be, prior to their implementation, individually exempt by the Serbian Competition Authority (“SCA”). Most recently, the SCA issued two decisions in the individual exemption process. In one it denied, while, in the other it only conditionally approved individual exemptions for exclusive distribution agreements between pharmaceutical companies. These developments show a noticeable shift in the SCA’s stand towards exclusivity arrangements with the SCA taking a stringent approach, limiting the parties’ ability to contract exclusivity arrangements in the sector.

Below we provide an overview of the individual exemption application requirement, the key aspects of SCA’s review of exclusive arrangements in the pharma sector and we digest the two most recent decisions of the SCA. 

Parties to exclusive relations are not entitled to a self-assessment 

Serbian competition law is similar to the EU competition regulations, as it follows the EU competition law concepts and analysis of vertical agreements and restraints, including the exclusivity. When reviewing the individual exemption applications, SCA examines the anti and pro-competitive effects of exclusivity arrangements applying similar criteria as those set out in the EU Vertical Guidelines. Further, vertical restraints can be automatically exempted from the prohibition of restrictive agreements if the parties and the agreement meet the criteria of the Serbian Vertical Block Exemption Regulation.

Nevertheless, unlike in the EU, if the criteria of the Serbian Vertical Block Exemption Regulation are not met, and one of the criteria is that each participant to an agreement has a market share of less than 25%, there is no self-assessment. In such a case, parties are obligated to file an individual exemption application and go through an approval process before the SCA. The SCA reviews the application and decides on whether to exempt the restrictive practice. The SCA may exempt a restrictive agreement for a maximum period of eight years. In this process parties need to demonstrate that the agreement in question: (i) contributes to improving the production or distribution of goods or to promoting technical or economic progress, while (ii) allowing consumers a fair share of the resulting benefit, and (iii) does not impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives and (iv) does not afford such undertakings the possibility of eliminating competition in respect of a relevant market or its substantial part.

SCA’s strict approach to individual exemption applications in the pharma sector

Most individual exemption applications in the pharma sector relate to parties considering to enter into an exclusive distribution model either for some medicines or for an entire portfolio. The SCA’s process of review of such applications has been quite lengthy and complex, both in terms of procedure and in terms of analysis. The key feature of this process is outlined below.

• Long review process and the SCA’s deep-dive analysis: The individual exemption applications in the pharma sector have been scrutinised in detail. In response to an application, the SCA comes back with detailed requests for further information, it surveys other market participants and conducts an in-depth analysis of potential market effects. This process usually takes more than six months.
• Narrow relevant market definition: The SCA has been inclined to narrow the definition of a relevant market, making it more challenging for parties to demonstrate that their market share does not exceed 25%. SCA is moving away from the relevant product market using the ATC 3 classification, and is adopting a narrow approach looking also the ATC 5 classification. This makes it difficult for the parties to defend an argument of no serious market impact and of the fact that competition is not eliminated in respect to a substantial part of the relevant market.
• Detailed analysis of how exclusivity effects sales via tenders in the pharma industry: In Serbia, in the distribution of medicines, there are two main sales channels: (i) public tenders called mainly by the Serbian Health Insurance Fund (“SHIF”) and (ii) commercial sales outside of public tenders to private sector entities (to pharmacies, other wholesales). SCA particularly scrutinizes the tender sales of the SHIF. It analyses exclusivity effects and whether they hinder the ability of wholesalers to make competing tender offers to SHIF, foreclosing intra-brand competition on SHIF public tenders.

Consequently, parties need to make a good case defending the existence of cumulative conditions necessary for an exemption in order to obtain approval of their exclusivity relationship, and to exempt the agreement.

 Below we provide an explanation of this argumentation, with reference to the two most recent cases: (i) the Roche – Phoenix Pharma case and (ii) the Novo Nordisk Pharma – Phoenix Pharma case. In both cases parties were planning to establish exclusivity arrangements.

Case law digest

Case background

In 2018, Roche as manufacturer and Phoenix Pharma as a distributor entered into an exclusive distribution agreement in Serbia. The SCA, on party request approved the agreement for a five-year period. In 2023, the two companies filed a request to extend the term of the agreement for another three years, however this time, SCA denied the request.

In 2023, Novo Nordisk Pharma, as manufacturer and Phoenix Pharma as distributor initially requested individual exemption of the exclusive distribution agreement. However, following the rejection of this request (due to the inability to demonstrate fulfillment of relevant conditions), the applicants modified their request, requesting exemption for a period of three years only of the commercial agreement that governs sales of medicines out of public tenders.

In both cases, the analysis of the SCA revolved around the following arguments.

• Narrow definition of the relevant market

The parties in both cases tried to define the relevant market according to the ATC 3 classification which was also the previous practice of the SCA. However, the SCA defined the relevant product market more narrowly, as per the ATC 5 classification, while keeping the relevant geographical market as the territory of Serbia. In such a narrow markets parties had a large market share, and as a result, block exemption was not possible.

The SCA’s reason for defining the market according to the ATC 5 classification was that the ATC 3 products in question have significant differences between each other and are therefore not interchangeable (the active substance, method of administration, or the distributed medicine in question was not the same). Also, SHIF tenders called for procurement of specific medicines, so ATC 5 was relevant for review of effects on particular SHIF tenders. In the Roche – Phoenix Pharma case, the products in question were medicine from L01XC02 and L01XC03 classification groups, while in Novo Nordisk – Phoenix Pharma case, the agreement included many types of medicine on the insulin and antidiabetic market, including the Ozempic, Flexpen, Penfil, and Flextouch.

• Market foreclosure

SCA has upfront analysed the last cumulative condition for exemption which it considered most critical. Namely, it looked at whether the agreements restrict competition on the relevant market or its essential part, and concluded that, in case of sales via tenders the agreements do restrict competition. Following an investigation into the tender process and interviews with competitors, SCA determined that the exclusivity led to Phoenix Pharma being positioned to make a better tender offer compared to other potential bidders/wholesalers particularly in relation to termination rights, issuance of bank guarantees and payment deadlines. This, in effect, led to other wholesalers not being interested to submit offers in public tenders. This was evidence for the SCA that exclusivity eliminated intra-brand competition on public tenders as an essential part of the relevant market. Thus, the SCA concluded that the agreements did not fulfill the fourth condition for an exemption to be granted. This was the key reason why SCA rejected the application for exclusivity in tenders. In the Roche – Phoenix Pharma case, the medicines in question were mostly sold in tenders so the request was rejected in full. In Novo Nordisk – Phoenix Pharma case, SCA directed the parties to revise the request, approving exclusivity arrangement only for sales out of tender.

• Improvements and benefits

The applicants in both cases presented the argument that exclusive distribution would result in lower costs, but according to the SCA, no sufficient evidence was provided to support this claim. In the Roche – Phoenix Pharma case, the applicants stated that testing of the new molecules would be established in Serbian hospitals by Roche, resulting in the promotion of technical progress on the market. However, according to the SCA, applicants failed to demonstrate the connection between this progress with the relevant agreement.

In the Roche – Phoenix Pharma case, the applicants argued reduced price and the existence of the rebates. However, the SCA determined that in this instance, the rebate was designed to stimulate demand, rather than reduce prices. Furthermore, the SCA asserted that such relevant rebates also exist outside of exclusive distribution. Additionally, by examining the prices of the relevant medicines in both cases, the SCA did not identify any improvements or clear benefits for consumers.

Nevertheless, in the Novo Nordisk case some of the benefits and improvements claimed were enough for the SCA to grant an individual exemption for exclusive relations to sales out of tender. In this case the SCA found that security of supply and reduced costs paired with the SCA assessment that competition was not restricted for out of tender sales was enough for the SCA to allow exclusivity arrangement for this channel of sales.  

Please note: The content of this article is intended to provide general information on the subject matter. Specialist advice should be sought about your specific circumstances.

By Olga Sipka, Special Counsel, and Dusan Duric, Junior Associate, Kinstellar

Cvjeticanin & Partners has advised health influencer Nastasja Nedimovic – known as the Cancer Influencer – on intellectual property matters. 

According to Cvjeticanin & Partners, the work included the registration of three trademarks and the protection of a supplement formula developed and marketed by Nedimovic’s company, Suplemania.

The Cvjeticanin & Partners team included Managing partner Nenad Cvjeticanin and Associate Djordje Miljkovic.

Companies are not obliged to use the stamp while doing business, as stated in Article 15 paragraph 1 of the Company law of Montenegro (“Company Law“). The legislator’s intention when prescribing freedom while regulating use of stamps in doing business was to unburden the Company’s business, i.e. to not burden the business with additional formal conditions, as well as to leave the issue of the use of the stamp to the company to regulate it by a general or special internal act.

In Article 114 of Company law, it is defined what must be included in the articles of association (“AoA”) of a joint stock company, i.e. a limited liability company, in paragraph 1, item 13, it is made clear that the AoA contains other provisions of importance for the functioning of the company.

If a company decides to further protect its business with third parties and to start using the stamp in its regular business, it shall enter such information on the use of stamps in the company’s AoA.

If the company subsequently decides on the use of the stamp, within 7 days from the date of the change, the Company is obliged to submit the documentation and data on changes in relation to the AoA and a special act, i.e. the Act on incorporation, to the Central Registry of Business Entities (“CRBE“).

Thus, there are two possible situations in which: (i) the company provides for the use of stamps in the AoA and (ii) the company does not provide for the use of stamps.

In the first case, when a company has provided for the use of a stamp in the AoA, such a provision is considered as an imperative natured provision and the company is obliged to use the stamp in business operations without exception, i.e. arbitrariness in the use of the stamp is not allowed. When the AoA defines the use of stamps, additional protection is given to the legitimacy of the signature and actions in legal transactions. In this case, the company may refer to the use of the stamp in business and other transactions with third parties, provided that the stamp information is duly registered in the CRPS and published in the Official Gazette of Montenegro.

If the company does not provide for the use of the stamp in the AoA, then it is definite that the use of the stamp is not allowed, since the general internal act does not define its use. As in the case when the use of a stamp is provided for in the AoA, it is also not allowed in this case to apply the stamp arbitrarily in business transactions with the third parties, i.e. it is not allowed for the company to sometimes use and sometimes does not use the stamp in a situation when the Company has not provided for the occurrence of any kind of stamp.

In both cases, whether the company (does not) decides to prescribe a provision on the use of stamps in the AoA, there is an explicit obligation for the company to be consistent in the application of what is in the AoA, i.e. that if it has provided for the application of the stamp, it regularly uses the stamp in the legal affairs and business operations, as well as in a situation when the use of the stamp is not provided so that it does not appear in legal transactions,  nor to certify the documentation with any stamp.

By Amra Ademovic, Partner, JPM & Partners

When talking about notable recent developments in Serbia, Bojovic Draskovic Popovic & Partners Senior Partner Uros Popovic reports of an evolving business landscape in the country, marked by the substantial influence of foreign companies and dynamic sector activities, with a burgeoning real estate market and a quickly developing renewable energy sector.

Focusing on the transaction landscape in Serbia, Popovic says that “the last few months have seen a shift toward smaller-scale transactions, many of which are propelled by capital that has left Russia, enabling the investors to continue being able to operate worldwide.” There has also been a noticeable increase in cross-jurisdictional cooperation and synergy, he notes. “For example, PEPCO has been expanding successfully in Serbia, with well over 100 stores now open here and already dozens in Bosnia,” he reports, adding that this dynamic has kept their firm’s workload heavy and diverse.

“Over the past two years, we’ve observed a significant increase in companies leaving Russia to establish a presence in Serbia and continue trading with their international partners,” Popovic shares. “This wave of new entrants has reached its peak, and while the number of new setups has begun to subside, the impact of these early movers, particularly major players backed by capital leaving Russia, continues to shape the market. These companies, often with headquarters in various European countries, have brought substantial influence, especially in sectors like software and electronics,” he explains.

To cope with such a vibrant workstream, Popovic reports that their office has been investing in personnel education, primarily focusing on artificial intelligence and technology. “AI’s potential and implications are immense, prompting us to invest heavily in educating our lawyers,” he says. “We regularly send our team to training sessions and seminars to ensure they are well-versed in the legal aspects of technology.”

As far as specific sector activity of note is concerned, Popovic tackles the always-active real estate market. “Belgrade’s real estate market has been booming for the last two decades, with significant acceleration in the past two years. We’ve seen a massive influx of people, some staying temporarily and others settling down permanently, which has driven up rent and acquisition prices,” he reports. “Although there have been talks of a bubble, prices continue to rise. Recently, there’s been a slight adjustment, but demand still far outstrips supply; we’re heavily involved in commercial leases and some sales, mostly through special purpose vehicles.”

Furthermore, the renewable energy sector, as alluring in Serbia as it is anywhere else, has been generating more and more traction. “The legislation surrounding renewable energy in Serbia has been cumbersome and incomplete, but we are seeing it gradually improve,” Popovic says. “Recent years have brought progress in wind and solar projects. However, some legislative changes, such as those proposing storage capacity to manage balancing capacities, are adding significant costs to these projects,” he stresses. “On the other hand, while securing grid connections has been a challenge of late, recent reforms are expected to streamline this process.”

NKO Partners has advised Dr. Max on its acquisition of the Miletic Plus pharmacy chain consisting of eight retail units from Biljana Miletic. Sole practitioners Rade Terzic and Milan Cvijovic reportedly advised the seller.

NKO has recently advised Dr. Max on its acquisitions of Pet-Sar Farm (as reported by CEE Legal Matters on February 15, 2024), the Melem Pharmacy (as reported by on December 1, 2023), the Dr. Ristic Pharmacy Chain (as reported on November 9, 2023), the Uniprom pharmacy chain in Zajecar (as reported on October 4, 2023), Nova Pharm (as reported on March 28, 2023), Beolek (as reported on March 9, 2023), Cvejic (as reported on January 31, 2023), as well as AU Medis Lek (as reported by CEE Legal Matters on January 6, 2023).

The firm had also advised the Dr. Max Group on its acquisition of several other pharmacy chains in Serbia in 2022, including Pancevo-based AU Kod Suncanog Sata and Veliko Gradiste-based AU Selic (as reported on October 11, 2022), Belgrade-based K-Pharma (as reported on June 8, 2022), the Janja pharmacy chain (as reported on March 28, 2022), and the Zlatni Lav pharmacies (as reported on January 5, 2022).

The NKO team included Partners Djordje Nikolic and Branko Jankovic and Senior Associate Goran Mihajlovic.

The Companies Act of the Republic of Serbia (“Off. Herald of RS”, Nos. 36/2011, 99/2011, 83/2014 – other law, 5/2015, 44/2018, 95/2018, 91/2019 and 109/2021; hereinafter: “the Law”) prescribes a circle of persons who have certain special duties towards the company:

– due diligence (Art. 63),

– duty to report transactions and actions in which there is personal interest (Art. 65),

– duty to avoid conflict of interest (Art. 69),

– duty to keep business secret (Art. 72) and

– duty to abide by ban on competition (Art. 75);

in question are:

(1) general partners;

(2) members of a limited liability company who own a significant share in the company’s share capital or limited liability company member who is the controlling member of the company in terms of Art. 62 of the Law;

(3) shareholders who own a significant share in the company’s share capital or a shareholder who is the controlling shareholder of the company in terms of Art. 62 of the Law;

(4) directors, supervisory board members, representatives and procurators and

(5) liquidator.

Other persons may also be designated as persons with special duties towards the company by means of a memorandum of association, or articles of association (Art. 61 of the Law). However, it is important to keep in mind that special duties towards the company do not necessarily include the same circle of persons. For instance, due diligence obliges directors, supervisory board members, representatives, procurators and liquidator; duty to report transactions and actions in which there is personal interest refers to every person from Art. 61 of the Law; duty to abide by ban on competition concerns every category from Art. 61 of the Law, except for liquidator.

Certainly, special duties towards the company can be breached; in that case, the company, as well as members of the company, upon fulfilment of the prescribed conditions, are guaranteed judicial protection against the person(s) who breached the special duty (consequently causing damage to the company, for instance). This judicial protection is provided according to the specific rules of company law, i.e. through special, company law actions. One of them is derivative action, whose legal scope and applicability in practice is the subject of this text. 

I Whose right to derivative action is? 

It is important to understand that when a special duty towards the company is breached harmful consequences are caused, in the first place, to the company itself. If the director of the company uses, in his own interest, the company’s business opportunities (thereby breaching the duty to avoid conflicts of interest), the company may file an action due to breach of the duty to avoid conflicts of interest, requesting either compensation of damages or transfer to the company of the gain that person i.e. its affiliated person made as a consequence of such breach of duty. In other words, given that the damage was caused to the company itself, it is to be expected that it is the company that should seek judicial protection of its own rights, in its own name and at its own expense. Considering the essence of the breach at issue and the legal consequences it caused, the most natural right to address the court belongs to the company itself.

Or does it?

Yes, but it is not always the case in practice. Derivative action is a special form of judicial protection of the company’s rights: it is brought by one or more members of the company in their own name, and on behalf of the company, against a person who breached the special duty towards the company. Hence the name of this action (derivative in the sense of derived, the company’s member derives the right to file an action against persons with special duties from the company’s own right). The most important rules that apply to this action are explained below. 

II What is derivative action and under which conditions can it be filed?

First of all, it is not fully accurate to say that the right to file a derivative action belongs to the member of the company. This statement needs to be more specific. Primarily, it is to be noted that a company may file an action for breach of due diligence, action due to a breach of rule on approving transactions which involve personal interest, action due to breach of the duty to avoid conflict of interest, action against a person who violates the duty to keep the business secret and action due to breach of rule on ban on competition. Only subsidiary, subject actions can be filed by one or more members of the company in their name, and on behalf of the company only if:

• at the time of filing the action, they own shares or stocks which represent at least 5% of the company’s share capital, regardless of whether the grounds for taking derivative action occurred before or after acquiring the company member status and
• if, before filing derivative action, they requested in writing from the company to file the action on these grounds, and that request was rejected, i.e. this request was not acted upon within a term of 30 days of the day of submitting the request (Art. 79, Para. 1 of the Law).

This provision leads to several very important conclusions.

First, for the filing of derivative action, the law prescribes a capital-census of at least 5% of the company’s share capital, which means that it is a means of protecting minority shareholders and represents a procedural condition for taking the action. On the contrary, when it comes to the action of a company member due to breach of special duties (individual action from Art. 78 of the Law), the condition regarding the capital-census is not prescribed.

Second, as it is irrelevant whether the grounds for taking derivative action occurred before or after acquiring the company member status, it should be noted that possible manipulations regarding the acquisition of the status of a member of the company and “adjustment” of that moment in relation to the possibility of taking the action are not an obstacle to the use of derived right (for instance, someone may become a member of the company precisely because of and after learning that derivative action can be filed), meaning that the legislator does not condition the filing of derivative action in good faith.

Third, derivative action can be filed either by one member or two or more members of the company together (their capital-shares are then added together in order to exceed the threshold prescribed for filing the action). For instance, if one member owns shares that represent 3 percent of the company’s share capital and another own shares that represent 4 percent of the company’s share capital, individually, these members would not be allowed to file the action; however, if they act together, their shares combined fulfil the capital-census condition and derivative action is allowed to be filed.

Fourth, before filing derivative action, shareholder or stockholder (members) must request the company to be the one to seek judicial protection of its rights, and they can file the action only if the company rejects this request, i.e. this request was not acted upon within a term of 30 days of the day of its submission. With this request, the company is “warned” to use the right that primarily belongs to it, and only if it refuses or fails to demand protection of its own rights, the path is opened for its members to file the action and protect the company from the harmful consequences of the breach. For example, it is possible that a controlling shareholder, who breached a certain special duty, is blocking the company from filing a derivative action, which is why the company is not filing the action itself. It is precisely in such situations where derivative action is used as a means of protecting minority shareholders.

Fifth, the fulfilment of the requirement regarding the capital-census is assessed before the moment of filing the action. It is necessary, therefore, that at the time of filing the action, the member of the company owns prescribed percent of the company’s share capital. A possible “drop” below the prescribed threshold or even the loss of the status of a member of the company afterwards will not have a negative impact on the dispute following the action.

Sixth, considering that disputes following derivative action are conducted on behalf of the company, the member will have to cede the compensation of damages and other benefits awarded by the court to the company. This is because the member did not conduct the proceeding on his own behalf, regardless of the fact that it was conducted in his own name.

Seventh, the company member who files derivative action bears the risk of failure in the dispute. This means that, if he fails in the procedure, the costs of the dispute will be borne by him personally, and not by the company, which is a circumstance that can act as a deterrent to members who would eventually file the action, but do not want to expose themselves to the risk of incurring the costs of the procedure, in case of failure in the dispute.

III Additional rules 

A company member who acquired a share or stocks in the company from a person who filed a derivative action, may, with that person’s consent, replace him in the dispute following that action until it is finally resolved, as well as in the proceeding following an extraordinary legal remedy (Art. 79, Para. 2 of the Law). In the event that the company exercised its right and filed, at the request of the member, an action for breach of special duty, a member who requested from the company to file that action, may request from the court before which the proceeding is being conducted to intervene in the proceedings on the part of the claimant (Art. 80, Para. 1 of the Law).

Considering the procedural role played by the intervener according to the general rules of litigation, it can be said that the purpose of this provision is to enable a kind of supervision over the way in which the company conducts the proceeding, because it is in the interest of the member that the company conducts the proceeding in the best way possible, i.e. to succeed in the dispute. Similarly, if a company member filed derivative action in accordance with Art. 79, Para. 1 of the Law, another member of the company who meets the conditions from Art. 79, Para. 1, Item 1 of the Law may request from the court before which the proceeding is being conducted to intervene on the part of the claimant (Art. 80, Para. 2 of the Law). 

IV What can be demanded with a derivative action?

Derivative action cannot be filed for just any claim. The claim must be aimed at eliminating the harmful consequences caused by the breach of the special duty: for example, termination of the breach; expulsion of the member who breached the special duty as the company member; compensation of damages; transfer of gains to the company. In any event, what will be claimed in a specific case depends on the type of breach in question. 

V Applicability of a derivative action beyond breaches of special duties

It is very important to bear in mind that derivative action does not serve exclusively to protect the company from breach of special duties. Namely, derivative action is a means of protection in several other cases, which are not related to special duties.

First, if, at the request of the member who holds a share representing at least 5% of the company’s share capital, the general meeting fails to decide on the request for the filing of the action for expulsion of a company member within two months from the day the request was filed or rejects the request or the action is not filed within 30 days from the day when the decision to file the action has been made, the member who filed the request has the right, within a subsequent time limit of 30 days, to file an action to the court in his name, but on behalf of the company (Art. 196, Para. 6 of the Law). As can be seen, the condition regarding the capital-census is also prescribed for this case, as well as the condition regarding the previous request addressed to the company. 

Second, in case of a transfer of shares (or stocks), the transferor and acquirer are jointly and severally liable to the company for obligations of the transferor with regard to the contribution which occurred until the time of that transfer, in keeping with the provisions of the Law for each individual form of a company; the rights of the company are exercised by an action filed to the competent court, which, apart from the company, may also be filed by the company members who own or represent at least 5% of the company’s share capital (Art. 49 of the Law). 

Third, if the stockholder received a payment contrary to the provisions of Art. 275, a return of the same amount to the company shall be made, in case they knew or must have known that payment was made contrary to the provisions of this Article, and the company’s claim regarding this return reaches the statute of limitations within five years from the day when the payment was made. However, each stockholder who is meeting the conditions from Art. 79 of the Law may file a derivative action if the company does not claim the subject return, in his own name and for the account of the company. 

Fourth, in the event of a breach of the provisions on the disposal of high-value assets, the company and the stockholder who holds or represents at least 5% of the company’s share capital may file an action to annul the legal transaction or legal activity of acquisition, i.e. disposal of high-value assets, provided that he held or represented at least 5% of the company’s share capital on the day of conclusion of that legal transaction, i.e. legal activity (Art. 472, Para. 1 of the Law).

VI Deadline for filing a derivative action and the competent court

Derivative action may be filed within a term of six months of the day the committed breach was found out (subjective deadline), and no later than within a term of five years as of the day of the committed breach (objective deadline). The court competent to decide upon the action is the Commercial Court.

By Marija Vranic, Associate, JPM & Partners