Category: Issue 10.12

An in-depth look at Iva Miskovic of Miskovic & Miskovic covering her career path, education, and top projects as a lawyer as well as a few insights about her as a manager at work and as a person outside the office.

Career:

• Miskovic & Miskovic Law Firm; Partner; 2018-present

• Law office Iva Miskovic; Owner; 2010-2018

• Dlacic & Partners; Legal Associate; 2006-2009

Education:

• University of Zagreb; Faculty of Law; Graduate Jurist (dipl.iur.); 2006

Favorites:

• Out of office activity: Learning Italian and creative writing but, most of the time, just being a mom

• Quote: “Whatever you do, don’t congratulate yourself too much, or berate yourself either. Your choices are half-chance. So are everybody else’s.” – Mary Schmich

• Book: My Brilliant Friend by Elena Ferrante

• Movie: In the last decade, I’ve become more fascinated by TV series. To start, Breaking Bad – an all-time classic. I’d add the disturbing dystopia of The Handmaid’s Tale and Billions for the exciting world of high finance, power, and legal battles.

Top 5 Projects:

• Advising on the joint venture process of Porsche Digital Croatia d.o.o. of Infinum d.o.o.  and Porsche Digital GmbH.

• Advising Erste&Steiermarkische Bank d.d., Privredna banka Zagreb d.d., and Raiffeisenbank Austria d.d. as joint lead managers in the bond issuance process by INA – INDUSTRIJA NAFTE d.d. in total amount of approximately EUR 265 million.

• Advising Erste&Steiermarkische Bank d.d., Privredna banka Zagreb d.d., and Zagrebacka banka d.d. as joint lead managers in the first issue of SLB bonds with municipal risk in the CEE region ever by the issuer Zagrebacki holding d.o.o. in total amount of EUR 305 million.

• Advising Erste&Steiermarkische Bank d.d., OTP banka d.d., Privredna banka Zagreb d.d., Raiffeisenbank Austria d.d., and Zagrebacka banka d.d. as joint lead managers and acting as transactional legal advisor in the process of issuing the first ever Retail bond issued by the Republic of Croatia in the total amount of EUR 1.85 billion.

• Advising a club of six Croatian banks (Erste&Steiermarkische Bank d.d., Nova Hrvatska banka d.d., OTP Banka d.d., Privredna banka Zagreb d.d., Raiffeisenbank Austria d.d., and Zagrebacka banka d.d.) as lenders (and Zagrebacka banka d.d. as agent and coordinator) in the EUR 240 million loan facility to Zagrebacki Holding d.o.o.

CEELM: What would you say was the most challenging project you ever worked on and why?

Miskovic: Acting as transactional legal advisor in the first-ever Retail bond issued by the Republic of Croatia was our team’s most demanding project to date. The groundbreaking nature of this first-of-its-kind endeavor introduced an additional layer of legal complexity further heightened by substantial public and institutional interest. We had to navigate a complex regulatory landscape, address a wide array of legal aspects, manage high levels of public and institutional interest, coordinate a two-stage offering, and meet stringent timelines. The genuine assessment of the viability of the entire legal framework became evident as questions arising in the field following the project’s initiation were successfully and smoothly addressed during the seamless progression of this successful project.

CEELM: And what was your main takeaway from it?

Miskovic: Being involved in a project with such significant public interest, I’ve experienced firsthand how unforeseen challenges can emerge from public reactions, inquiries, or regulatory responses influenced by media and public perception, introducing a layer of complexity. In navigating this dynamic landscape, flexibility in legal approaches becomes paramount when managing public expectations and potential reputational risks.

CEELM: What is one thing clients likely don’t know about you?

Miskovic: They might not know that being a lawyer was never my dream. I envisioned myself as a judge or a university professor, but I’m glad that life led me to where I am today.

CEELM: Name one mentor who played a big role in your career and how they impacted you.

Miskovic: Navigating a professional partnership with my spouse demands a delicate balance, and publicly labeling him as my mentor would disrupt the equilibrium we’ve successfully maintained for five years now. Nevertheless, the fact remains that his inspiring role in my career is undeniable.Pavo’s corporate background has given me valuable insights that I wasn’t privy to during my solo entrepreneurship before the establishment of our law firm. Moreover, his inclination to “dream big” has nudged me away from my natural cautiousness.

CEELM: Name one mentee you are particularly proud of.

Miskovic: Though I am genuinely proud of every member of our team, I would like to take this opportunity to highlight our lawyer, Maja Seat, who will become a Partner in our law firm at the beginning of next year. Maja has been with us for the last three years, during which she has refined her legal skills and, just as important, embraced a strong sense of professional ethics in line with our highest standards. This step is a recognition of Maja’s dedicated work and significant legal experience but also a clear indicator that the future of our company is being developed with people and around people. We are all excited about this new chapter in the history of our firm, which we view with great optimism.

CEELM: What is the one piece of advice you’d give yourself fresh out of law school?

Miskovic: I was in such a rush to complete law school that I overlooked the opportunity to fully enjoy my college years. I wish somebody told me earlier that it’s better to spend an extra year as a student than to add an extra year to your retirement.

This article was originally published in Issue 10.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

An in-depth look at Armen Khachaturyan of Asters covering his career path, education, and top projects as a lawyer as well as a few insights about him as a manager at work and as a person outside the office.

Career:

• Asters (Shevchenko Didkovskiy & Partners untill 2008); Partner, Senior Partner; 2002-Present

• Squire, Sanders & Dempsey (Kyiv, Ukraine); Associate; 1999-2001

• Squire, Sanders & Dempsey (Columbus, Ohio, USA); Associate; 1995-1998

• Jones, Day, Reavis & Pogue (New York, USA); Associate; 1993-1994

• Sills, Cummins, Zuckerman, Radin, Tischman, Epstein & Gross (Newark, New Jersey, USA); Intern; 1991-1992

Education:

• Yale Law School, USA; LL.M; 1993

• International Law Institute, USA; Course in U.S. Legal System; 1991

• Kyiv National University; Ph.D. in Private International Law; 1990

• Kyiv National University; Master of Law; 1983

Favorites:

• Out of Office Activity: Travelling and having fun with my family, collecting art

• Quote: “There is justice but it must be fought for.”

• Book:  The Little Prince by Antoine de Saint-Exupery

• Movie: Breakfast at Tiffany’s starring Audrey Hepburn

Top 5 Projects:

• Advising Aval Bank on its over USD 1 billion equity sale to Raiffeisen International Bank-Holding AG – the first and largest banking M&A transaction with a foreign purchaser in Ukraine.

• Advising the National Bank of Ukraine on the nationalization of Privatbank (the largest Ukrainian commercial bank) – the first nationalization via a bail-in procedure in Ukraine, as well as subsequent representation of nationalized Privatbank in complex restructuring and legal proceedings related to nationalization.

• Advising Swedbank in connection with its USD 735 million acquisition of TAS-Kommerzbank and TAS Investbank and establishing the first Ukrainian bank holding group Swedbank Finance.

• Advising Ukrainian state company Nadra-Uzivska LLC on entering with Shell into a first shale gas product sharing agreement with the Ukrainian government.

• Advising Ukrainian Railways (the largest Ukrainian company) on restructurings of its loan participation notes in the total amount of USD 895 million and the USD 500 million new Eurobonds offering.

CEELM: What would you say was the most challenging project you ever worked on and why?

Khachaturyan: The nationalization of the insolvent largest Ukrainian private commercial bank – Privatbank in 2016. The procedure was based on then practically unexplored bail-in mechanism involving a wide group of regulators and state agencies coordinating and streamlining their efforts within a very short period of time. The preparatory work also required the amendment of many regulations to comply with the underlying statutory requirements. Last but not least, the procedure inevitably envisioned strong resistance and opposition from the bank’s UBOs and their related parties who were subjected to bail-in leading to the loss of significant assets. The working group meetings at the headquarters resembled a war zone where everybody forgot that humans generally needed to sleep for some time, at least once in a few days. The tension was at a peak within three days of converting the legal mechanism into reality but lasted for over seven years, during which the nationalization had to be defended in numerous judicial proceedings in multiple jurisdictions – all challenged by extremely hostile opposition.   

CEELM: And what was your main takeaway from it?

Khachaturyan: During real challenges, teamwork seems to be the only solution. It is so rewarding to be a part of a mighty team; you keep these relations for years to come. You should never give up where the circumstances are against you and you shouldn’t lose your self-confidence even if everybody around attempts to undermine it. 

CEELM: What is one thing clients likely don’t know about you?

Khachaturyan: My credo has always been to practice law as an art. Art inspires. I like to talk with artists, visit galleries, and buy artwork. I am proud of having a large home collection of porcelain figurines. It is a privilege to lead a project designated to exhibit Ukrainian visual art within Asters’ Kyiv office. The project named ArtAsters exhibited dozens of renowned and unknown Ukrainian artists over the last 15 years and undoubtedly inspired many of Asters’ clients and employees.

CEELM: Name one mentor who played a big role in your career and how they impacted you.

Khachaturyan: Vladimir Lechtman, a Jones Day Partner (now Of Counsel). Vladimir was mentoring my kick-off as a law practitioner in the US law firm in 1993, following my academic career as a law professor and researcher in Ukraine. That substantive practical training with his careful supervision and insights into the profession laid such a solid foundation on which I built my future in law, that it worked brilliantly both for me and for many of my younger colleagues to whom I kept passing the legal magic and skills well learned from Vladimir. He was an exceptional mentor with great charisma and a very big heart. He had exemplary vision, BD skills, a talent for converting an opportunity into reality, and attention to legal detail, logic, and style. I am happy that he remains active in the Washington office of Jones Day, sharing his extraordinary experience with the younger generation of lawyers who are truly lucky to still have such a great mentor.

CEELM: Name one mentee you are particularly proud of.

Khachaturyan: I am proud that my professional path crossed with that of Evhen Kravtsov, whom I met as a young Associate who joined Asters in 2008 and got under my mentorship. His professional talents were noticeable immediately when we started working together and I tried to support his career all-around sharing with him my “secrets” on lawyership. I am happy that it was my recommendation that promoted him to partnership in 2014 (at the age of 28) and secondment to the largest Ukrainian company Ukrainian Railways in 2015 as an advisor to the Ukrainian Railways’ CEO, assisting in the state company’s corporatization. His efficiency and managerial skills were appreciated there, leading to his appointment as the head of a department, board member, and acting CEO within less than a year. That was followed by the appointment as the first deputy minister of infrastructure of Ukraine, the chairman of the board of Ukrainian Railways, and then the company’s formal CEO (all within another three years).

CEELM: What is the main advice you’d give yourself fresh out of law school?

Khachaturyan: Never say never. Be curious. Diversify your knowledge and skills. Work hard to enhance your personal brand – you will not be disappointed when the brand starts working for you. Work with people as well as you work with papers. Be prepared to sacrifice a lot, but do not sacrifice yourself.

This article was originally published in Issue 10.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On November 1, 2023, the amendment to the Slovenian Insolvency Act (ZFPPIPP-H) entered into force and introduced a series of significant changes that should not be overlooked.

The amendment, among other things, incorporated Directive (EU) 2019/1023 on restructuring and insolvency into Slovenian law. This integration has led to the introduction of the concept of threatening insolvency. This concept, which is applicable when a company is in danger of not being able to fulfill its financial obligations within a year, has brought an element of uncertainty into Slovenian law since it is not clear when this situation actually arises.

In Slovenian law, a company is going to be considered insolvent if it is in a situation of long-term illiquidity or long-term insolvency. This is different to some other jurisdictions where the legal prerequisite for opening an insolvency proceeding is only long-term illiquidity. Consequently, in those jurisdictions, a situation of long-term insolvency (capital inadequacy) is similar to a “likelihood of insolvency,” unless the company has already become permanently illiquid. Slovenian legal academia therefore links the newly introduced concept of threatening insolvency to situations of capital inadequacy and unsustainable debt (long-term insolvency), which is also used as a benchmark for the purpose and reasonableness of restructuring.

In addition, by introducing the concept of threatening insolvency, the ZFPPIPP-H also elevated the responsibilities of the company and its management in tackling financial issues and ensuring short- and long-run solvency. The main responsibilities are outlined below.

In situations of threatening insolvency, the management and other bodies of the company are now required to constantly monitor the company’s operations and identify any developments that could jeopardize its existence. If such risk is identified, management is required to take financial restructuring measures to prevent the threatening insolvency and promptly report these measures to the supervisory body. If the necessary restructuring measures fall under the responsibility of other corporate bodies, the management must ensure that the relevant corporate body discusses and acts on the proposed measures.

Furthermore, even at this stage, the management and other corporate bodies already have specific responsibilities concerning their business conduct to safeguard the legitimate interests of creditors against management decisions that could affect the company’s estate. This is particularly important when such decisions could further reduce the value of the assets available for restructuring or distribution to creditors. In such circumstances, it is crucial that management acts with due care and diligence of a prudent businessperson and for the benefit of the company.

Management must therefore, in both pre-insolvency and insolvency scenarios, ensure equal treatment of creditors (unless breaching this rule is justified and essential for preventing insolvency), consider the interests of creditors, shareholders, and other relevant parties that may be affected, and refrain from actions that could jeopardize or reduce the company’s assets or its very existence.

Given the increased pre-insolvency responsibilities, the previous requirement for management to prepare a financial restructuring report in case of insolvency has been deemed redundant and removed by the amendment. In addition, the time limits for actions upon the occurrence of insolvency have been changed. Management must now initiate insolvency proceedings immediately, but at the latest, within a month of insolvency (previously, the management had the obligation to file for compulsory settlement proceedings within three months if the probability of a successful restructuring was more than 50%, or filing for a bankruptcy proceeding within three business days if the likelihood of successful financial restructuring was less than 50%). In the case of an exceptional event causing insolvency, the deadline is three months. 

Finally, an important change of the new law that should not be missed is the extension of the contestation period in insolvency proceedings. Transactions or legal acts of the insolvent debtor that took place in the period of 12 months, or 36 months for gratuitous disposals, prior to insolvency proceedings can be challenged. With the new law, transactions and legal acts can be challenged even beyond these periods if it can be proven that the debtor was already insolvent at the time of the respective transaction or that such transaction caused the insolvency. This change has introduced additional legal uncertainty for companies since, in theory, creditors will now have the possibility to challenge any legal act of the company beyond defined contestation periods if they can prove that the company was at the time of the relevant transaction insolvent.

By Maja Erker Zgajnar, Partner, and Neza Voncina, Attorney at Law, CMS

This article was originally published in Issue 10.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Austria implemented Directive (EU) 2019/1023 on preventive restructuring frameworks with the Restructuring Regulation, which came into force on July 17, 2021, and introduced (further) judicial proceedings for preventive restructuring. Practice, however, has shown that the reorganization plan in insolvency proceedings and out-of-court restructuring remain the methods of choice in Austria.

Even after the introduction of preventive restructuring proceedings, the reorganization plan – essentially a debt cut subject to the approval of creditors as part of insolvency proceedings – continues to be the central element in the reorganization of companies under Austrian insolvency law. Around one-fifth of Austrian companies’ insolvencies end with a reorganization plan. The basic prerequisite is the offer of a 20% quota (or 30% in the case of self-administration) to all insolvency creditors, with the claims of secured creditors remaining unchanged. The instrument is flexible and can be used not only in proceedings that have been applied for by the debtor itself but also during bankruptcy proceedings (even if applied for by a creditor).

Although not regulated by law, out-of-court restructurings also continue to be of significant importance. According to a study conducted by JKU Linz University Professor Stefan Mayr, 70% of attempted out-of-court restructurings in Austria are successful.

In contrast, preventive restructuring procedures have always been a wallflower in Austria. Back in 1998, Austria introduced the pre-insolvency restructuring Corporate Reorganization Procedure (Unternehmensreoganisationsgesetz). While it is still in place, it has never become mainstream. In the last 25 years, there have only been roughly six proceedings under this law. Solely the crisis indicators created alongside its introduction (equity ratio below 8%, notional debt duration over 15 years) are of practical relevance. Even after Austria implemented the directive on preventive restructuring frameworks, the situation did not change. The newly created Restructuring Regulation (Restrukturierungsordnung) has been in force for more than two years, but there have not been any proceedings to date.

Why have pre-insolvency reorganization proceedings yet to become well-established in Austria? The answer seems simple.

On the one hand, companies are often not prepared to take (early) court-ordered restructuring measures. Even within traditional insolvency proceedings, restructuring measures are usually only applied for when there is no other way out and when the statutory obligations to file an application (i.e., within 60 days of the occurrence of insolvency or over-indebtedness) can only barely be met, if at all.

On the other hand, there simply seems to be no need for pre-insolvency restructuring proceedings as the advantages of preventive restructuring proceedings over other debt relief options are hardly recognizable.

Judicial reorganization proceedings, provided they are well prepared, can be completed within four months. They therefore last just a little longer than the pre-insolvency proceedings available in Austria, which are required by law to last between 30 and 60 days. Austrian insolvency law is also flexible enough to allow debtors to discharge their debts by offering a reorganization plan for the entire duration of bankruptcy proceedings.

On the other hand, many restructurings are conducted out of court and customized agreements are made with the respective main creditors. Those are much more flexible than preventative restructuring procedures. Although out-of-court restructurings are not regulated by law, the INSOL Principles were adapted to Austrian specifics in April 2013 upon the initiative of three major Austrian banks and a law firm.

Although these guidelines, consisting of eight principles, are not legally binding, they document the common understanding of best practices. They are to be applied in cases with liabilities of more than EUR 30 million and the involvement of at least three banks.

It should be noted that the restructuring procedure created in 2021 would be a suitable instrument, especially for larger companies with financial liabilities, especially if a settlement has already been reached with the majority of financial creditors and only a few so-called “chord disruptors” are preventing the completion of the restructuring. Due to the well-functioning practice of out-of-court restructurings based on the above-mentioned principles though, the preventive restructuring procedure is obviously still not perceived as an actual alternative in Austria. However, the expected future developments suggest that this could change.

By Susanne Fruhstorfer, Partner, and Andreas Howadt, Senior Associate, Taylor Wessing

This article was originally published in Issue 10.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

As a result of the challenges that the local market has been facing over the past years brought on by the recent pandemic, wars, and other changes in the market, the majority of businesses are faced with losses and accumulating high levels of debt. Consequently, enormous pressure is imposed on businesses, including on their viability, which, in turn, pushes the need to explore methods for overcoming these obstacles.

Different trends aimed at avoiding liquidation are present globally, such as: so-called “out-of-court restructuring agreements with creditors” – a US concept that reduces leverage by exchanging existing debt for new securities; or the Australian concept of a Small Business Restructuring Process entailing benefits that include directors maintaining day-to-day control over the business, lower professional costs, higher success rates, and simpler reorganization plans during the restructuring process.

Reorganization, unlike company liquidation, facilitates the revitalization of financially ailing companies. It allows debtors to retain operational control while renegotiating financial obligations. This strategic maneuver enables debt restructuring, fostering collaboration between debtors and creditors to salvage economic value, enhance stakeholder interests, preserve the company, and mitigate potential job losses. While a positive contributor to the economy, reorganization demands a concerted commitment from stakeholders, translating into protracted, resource-intensive legal proceedings.

Although Macedonian legislation tries to keep up with emerging trends, it has yet to be aligned with the EU acquis. Our Law on Bankruptcy introduces the concept of a Reorganization Plan. Namely, upon passing the report on the economic and financial standing of the debtor (i.e., the company in distress) on the first reporting creditors’ assembly, creditors are able to decide whether to proceed with closing the business or its temporary continuation. If decided that the business is to continue, a Reorganization Plan is prepared by the bankruptcy administrator. As an exception favorable for the creditors, the initiative for passing a Reorganization Plan or a proposal for such a plan may be submitted to the court by each bankruptcy creditor and creditor with segregation rights prior to the creditors’ assembly. The reorganization procedure prior to the initiating of the bankruptcy procedure may be conducted solely if the debtor, alongside the proposal for initiating a bankruptcy procedure, also submits a Reorganization Plan.

The law stipulates a strict form and content of the Reorganization Plan as well as precise procedures preceding the approval of such a plan (i.e., assessment of the plan). This also includes procedures that involve separate discussions, the opening of the restructuring procedure, a preliminary procedure for the termination of the conditions for the initiation of bankruptcy in accordance with the Reorganization Plan, etc., ending with the adoption of the Reorganization Plan. Once approved by the court, the Reorganization Plan is considered to be an enforceable deed. All parties involved are then obliged to strictly follow all stipulated obligations, steps, and provided methodology. The bankruptcy administrator is responsible for strict supervision and controls the implementation of the Reorganization Plan to ensure it is executed as adopted.

When defining the rights of the creditors, the Reorganization Plan must make a distinction between creditors with the rights and creditors of a higher payment rank. Creditors with segregation rights are to be settled separately and are not part of the Reorganization Plan. Another mechanism favored by creditors is the possibility to sell the debtor or parts of the business of the debtor, subject to strict limitations (i.e., prior approval by the creditors’ assembly, limitations with regard to the buyer, etc.).

In contrast to reorganization, liquidation is a pragmatic solution viewed favorably when financial situations are irreparable. Assets are systematically sold and proceeds are used to discharge outstanding debts through court-initiated proceedings, concluding with equitable distribution among creditors. However, this leads to the cessation of business activities and entity dissolution, potential asset value depreciation during the process, compromising overall stakeholder recovery, etc. Though swifter, liquidation demands acceptance of business closure and compromises on asset realization. In practical terms, creditors usually get less in bankruptcy cases compared to reorganizations due to a longer and more expensive process than a reorganization.

Aligning with European Union trends, a shift toward favoring company revival through restructuring is evident. Anticipating future legislation in North Macedonia, it is expected that updates will provide better legal options for restructuring, improve the business environment, and preserve employment and property values. Simultaneously, it should address legal solutions for the swift removal from the market of companies posing insolvency risks to others.

By Marija Filipovska Jelcic, Partner, and Martin Ivanov, Attorney-at-Law, CMS

This article was originally published in Issue 10.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

If someone is unable to pay their outstanding and due debts (or is just partly able to do so), that person is considered insolvent. This applies to companies and to natural persons as well. The number of companies that had to cease operations because of insolvency increased in 2023. Although the Hungarian legal environment provides several solutions to this problem, these have different effectiveness and have different consequences for both debtors and creditors. Below is a general overview of the four typical procedures for dealing with insolvency in the current Hungarian law.

If the Debtor Is Not a Natural Person: Bankruptcy, Liquidation, or Restructuring Proceedings

After the change of the regime in 1989-90, the development of the market economy made it necessary to establish procedures tailored to the insolvency of enterprises, so the law regulating bankruptcy and liquidation proceedings was adopted in 1991. Since then, it has undergone numerous amendments, but it still retains the traits that characterized Hungarian legal-economic thinking at the time of its creation, which, in fact, poses many problems today.

Bankruptcy Proceedings

Bankruptcy is the first of the two procedures that can be considered by a company in payment difficulties. Bankruptcy proceedings are based on the fact that the debtor is still solvent and is only threatened with insolvency, in view of which the debtor is granted a moratorium on payments when proceedings are opened and is also given the possibility of reaching an arrangement (bankruptcy agreement). The bankruptcy procedure is a highly formalized public procedure in which the parties have less room for maneuver. A bankruptcy agreement between the debtor and the creditor(s) is approved by the court and can be enforced at a later date, but if no such agreement is reached, or it does not comply with the legislation, the court orders the debtor’s liquidation.

Liquidation Proceedings

Liquidation proceedings come into the picture when the debtor becomes insolvent, so instead of saving it, the court has to terminate the company. In this regard, liquidation proceedings are – potentially – the last stage in the life of a company, with a dual purpose: to terminate the debtor’s operation and the debtor’s capacity to act as a registered person (i.e., to remove it from the economic mainstream) and to provide at least a partial satisfaction to the creditors’ claims. Although it is possible to reach an arrangement between the debtor and the creditors in liquidation, thereby saving the entity from dissolution, this occurs rarely. The after-effects of liquidation proceedings can be very serious. For instance, members or directors may be later prohibited by the court to hold such functions or titles in other companies.

Restructuring Proceedings

Among other things, to address these problems in compliance with Directive (EU) 2019/1023, a long-awaited new solution, the restructuring procedure (SZAT), was introduced in Hungary from July 2022. The SZAT is conceptually very similar to bankruptcy proceedings, but there are some essential differences. One advantage of the SZAT is that it is mostly non-public, and the debtor can choose which creditors to involve. It may also involve a restructuring expert who is able to support the debtor and take into account the fair interests of the creditors. During the procedure, the agreement can be reached by the majority of the votes, so creditors cannot really form a blocking minority. Finally, once the court approves the agreement, it becomes a compulsory agreement, so it is in the interest of all parties to cooperate.

If the Debtor Is a Natural Person: Debt Settlement Procedure for Natural Persons

From 2015, Hungary introduced in its legal system the debt settlement procedure for natural persons, who in many cases face a risk of losing their livelihoods. The regulation was necessitated by the mass expiry and termination of leasing and loan contracts in foreign currency. The essence of the procedure is to achieve a legal arrangement between a natural person and their creditor to ensure bankruptcy protection for the natural person, in which the role of the court is limited mainly to coordinating in order to reach a settlement.

Conclusion

Hungarian insolvency law is evolving. It has undergone many positive changes in its more than 30-year history, but many of its teething problems have persisted over time. The aim should be to create a uniform set of rules that strikes a balance between a sufficient degree of flexibility and firmness.

By Peter Barta, Head of Tax Litigation and Indirect Taxes, Jalsovszky

This article was originally published in Issue 10.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In Kosovo, there has been a diverse blooming of local and international companies. In the daily transactions of these companies, financial institutions continue to act as a catalyst that affects industries’ development. However, as opposed to these companies, financial institutions in Kosovo are regulated exclusively by the Law on Banks and the Law on Insurances. One important aspect of these laws is the procedures for the establishment, recovery, and liquidation of financial institutions in Kosovo, where an active role is foreseen for the Central Bank of the Republic of Kosovo (CBK) as a regulatory body in issuing guidelines and also approvals in cases of restructuring and voluntary dissolution of the financial institutions.

Leaving the establishment of financial institutions aside, in this article, we will focus solely on insolvencies and restructurings in the financial sector in Kosovo, including banks and other financial institutions, and the role of the CBK as a regulatory institution in supervising and, on some occasions, even taking charge of these procedures. One of the reasons for honing in on this matter relies on the specific steps that the Law on Banks and the Law on Insurances require to be taken on a case-by-case basis. Another relies on the authority and powers of the CBK to have full control in leading these procedures.

Any unregulated company in Kosovo that enters the procedure for voluntary dissolution does so upon passing a resolution for winding up and submitting a request to the Commercial Court of Kosovo, which then will appoint an official receiver. Moreover, other companies in Kosovo go through non-voluntary (forced) liquidation only when they’re found to be insolvent by this court. Financial institutions in Kosovo, on the other hand, as regulated companies, go through restructuring and voluntary liquidation only upon approval from the CBK. The law requires that financial institutions in Kosovo should first submit the plan for recovery or voluntary liquidation to the CBK, which then grants approval along with all the guidelines that must be followed during those procedures.

In the applicable laws on financial institutions, three types of procedures are recognized for these institutions to undergo. In two of them, financial institutions are taken under the control of the CBK through an appointed administrator or official receiver. In the third one, financial institutions have to strictly follow the guidelines provided by the CBK and its regulations.

The two occasions where the CBK takes direct charge of the financial institution are when the license for such an institution is withdrawn and the institution is sent into forced liquidation, and also when the CBK considers the necessity of rehabilitation or recovery of the financial institution, so it appoints a temporary administrator to take such measures. During rehabilitation or recovery procedures of the financial institution, the temporary administrator can also propose restructuring plans in order to achieve the rehabilitation or recovery of such institution. The difference between the first two occasions and the third one is that, on the third occasion, the financial institution chooses to declare voluntary liquidation and, throughout that process, it is not taken under the full control of the CBK but just has to follow the CBK guidelines and regulations.

However, insolvency is not the sole criterion for the financial institution to go under these procedures. Even if a financial institution is solvent, the CBK can still withdraw the license of such an institution or send it to a temporary administrator for the mere reason of not being in compliance with the law and CBK regulations. This can also occur in cases when the financial institution is not complying with the CBK guidelines and regulations while going through approved voluntary liquidation.

That said, in the daily practice of our law firm, we recognize the need for the Law on Banks and the Law on Insurances to be amended by providing a certain degree of involvement of the shareholders of the financial institutions in the procedures of forced liquidation. Such amendments might include the rights of the shareholders to access the relevant information from the appointed receiver in the forced liquidation and eventually to oppose the requests of creditors throughout the liquidation procedure that the Law on Bankruptcy gives to the shareholders of a company.

By Mentor Hajdaraj, Partner, and Art Sylaj, Legal Associate, RPHS Law

This article was originally published in Issue 10.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Albania underwent a substantial overhaul in its approach to insolvency and restructuring proceedings with the enactment of Law No. 110/2016 “On Bankruptcy” in 2017. This legislative stride replaced a prior law that had been in effect since 2002, often leading to disputes and difficulties in uniform enforcement.

The new law, designed to align with international best practices, represented a pivotal moment in bolstering the country’s economic landscape. Its primary aim was to establish coherent guidelines for debt restructuring, meticulously defining the roles of debtors, creditors, and the judiciary throughout the various stages of the process. By precisely outlining the powers and responsibilities of court-appointed bankruptcy administrators, the law aimed to ensure the efficiency and effectiveness of insolvency procedures. However, owing to its recent introduction, a comprehensive assessment of its impact is yet to materialize, pending further judicial practice and academic scrutiny.

Under this legislation, only the debtor or any creditor possesses the right to initiate judicial proceedings, contingent upon providing evidence of the debtor’s insolvency – either an inability to meet existing obligations or imminent insolvency in the near future. Additionally, the law imposes personal liability on the management of the debtor if insolvency proceedings are not commenced within 60 days after insolvency becomes foreseeable, thereby fortifying creditor interests.

The destiny of the debtor’s assets, both preceding and during bankruptcy proceedings, hinges upon the court’s evaluation of the particular situation. The court might opt to appoint a temporary administrator who either assumes possession of the assets or oversees the debtor’s activities without altering asset possession.

Formal insolvency proceedings are set in motion once the court confirms the debtor’s insolvency status and initiates proceedings. At this juncture, the process may unfold toward either debtor restructuring or liquidation. However, both avenues necessitate that the debtor’s assets cover the proceedings’ costs and the expenses of the court-appointed administrator.

Regarding restructuring, the law offers two distinct options. The regular restructuring procedure entails crafting a comprehensive restructuring plan submitted to the court, contingent upon obtaining majority creditor approval based on claim size and priority ranking. Conversely, the expedited reorganization procedure allows the debtor and qualifying creditors (holding at least 30% of total claims) to negotiate a restructuring agreement before court involvement, although final court examination and certification of the agreement remain obligatory.

While restructuring remains the preferred choice over liquidation, the latter becomes inevitable if restructuring efforts prove unfeasible. In forced liquidation, creditors are classified into five classes, with each higher class enjoying absolute priority over the lower ones. Although the norms predominantly favor creditors, they also strive to balance interests among the involved parties. Creditors are mandated to file claims within a stipulated deadline – late filings diminish entitlements and, in extreme cases, might render claims untreated if submitted too late (a year or more after proceedings commence).

Overall, the prevailing legal framework governing restructuring and insolvency empowers courts with a central role, allowing creditors to safeguard their interests through organized participation in various phases, thus preventing unnecessary delays and rigorously managing assets throughout the process.

The Albanian insolvency law of 2016 stands as a monumental leap in modernizing the country’s insolvency framework, with its aspirations to stimulate economic growth, protect creditors’ rights, and facilitate the recovery of financially distressed entities. Its impact and effectiveness in addressing insolvency issues are destined to continue evolving through ongoing refinements and practical applications in the foreseeable future.

By Anisa Rrumbullaku, Partner, CR Partners in cooperation with Karanovic Partners

This article was originally published in Issue 10.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

All domestic or foreign creditors can lodge claims in insolvency, but international practice shows a stark disadvantage for foreign creditors despite supposed equality.  This article delves into two key aspects – how foreign creditors are informed and lodge claims – shedding light on their status within Serbia’s legal framework. Key insights stem from major international documents like the UNCITRAL Model Law on Cross-Border Insolvency (MLCBI), EU Regulation 2015/848 on Insolvency Proceedings (Regulation), with Serbian insolvency primarily governed by the Insolvency Act (Act).

Informing Foreign Creditors

Informing foreign creditors is crucial for their participation in insolvency proceedings. Without such notification, they cannot register claims as they wouldn’t know about the initiated procedure.  Unfortunately, no global or regional unified registry exists for open insolvency proceedings. The rules of where insolvency proceedings commence (lex fori concursus) define the entity responsible for informing creditors. However, international documents such as the European Convention on Certain International Aspects of Bankruptcy and the Regulation remain neutral, mentioning that it could be the competent court of that state or the appointed liquidator.

Foreign creditors often lack practical means for consistent updates on initiating insolvency proceedings, while occasionally specific rules for informing them are non-existent. Foreign creditors are individuals or entities without an address in the state where insolvency proceedings commence, as per the MLCBI, or creditors whose habitual residence, domicile, or registered office is in a Member State other than the one where the proceedings are initiated, as per the Regulation. Rules on informing foreign creditors constitute specific methods, formats, required elements in notifications, and the timing of informing these creditors.

Lodging Foreign Creditors’ Claims

All creditors of the insolvent debtor, whether domestic or foreign, have the right to lodge their claims. This upholds the insolvency principle of equal treatment and equality among all creditors, thereby preventing discrimination against foreign ones. The MLCBI not only addresses the right of foreign creditors to notify claims but acknowledges their equal rights regarding the initiation and participation in insolvency proceedings. In contrast, the Regulation adopts a narrower approach where foreign creditors are explicitly granted the right to lodge claims.

According to the Regulation, the notification of claims by foreign creditors involves using standard claim forms, ensuring a uniform procedure that typically includes the creditor’s name and address, the basis of the claim, the value of the claim, and the maturity date for that claim. The foreign creditor’s notification must also specify whether their claim holds priority under the rules of lex fori concursus; whether their claim is secured, and which assets serve as collateral following the rules of lex rei sitae; and whether the creditor exercises the right to compensate claims.

Position of Foreign Creditors in Serbia

Specific regulation regarding the notification of foreign creditors or the notification of their claims does not exist. This is unsurprising, given that Serbia has not ratified any international agreements governing international insolvency matters. However, this does not mean that the rules of Serbian insolvency law do not apply to foreign creditors. The Act doesn’t explicitly favor or discriminate against foreign creditors; it emphasizes equal treatment. Applying the same rules may, however, unintentionally disadvantage foreign creditors, whose situation differs from that of domestic creditors envisioned during the legislation drafting.

The Act uses public notifications to inform and invite creditors to lodge claims during insolvency proceedings. A notice of the initiation of insolvency proceedings is published on the notice board and electronic notice board of the court, in a widely circulated Serbian daily newspaper, and in the Official Gazette of the Republic of Serbia. It may also be published in other domestic and foreign media outlets.

Although the provisions of the Act concerning international insolvency reflect evident influence from the MLCBI, the legislature opted not to foresee individual notification for foreign creditors as doing so would place foreign creditors in a more advantageous position than domestic creditors. The Act allows every insolvency creditor, whether domestic or foreign, to lodge their claim against the insolvent debtor. However, in all other aspects, foreign creditors are in a subordinate position as there are no specific rules for them regarding the content of the claim or the language in which they can submit it.

By Jovana Velickovic, Partner, Nikola Ivkovic and Vasilije Boskovic, Associates, Gecic Law

This article was originally published in Issue 10.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On September 23, 2023, the Act on Preventive Restructuring came into force in the Czech Republic. It transposes EU Directive 2019/2023 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.

Objectives of the Act

The aim of the new act is to enable entrepreneurs to solve financial difficulties at a time when they’re not yet in insolvency and when it’s realistic that they can restore and maintain the effective operation of the entrepreneur’s business enterprise (going concern). Preventive restructuring will be open to all entrepreneurs regardless of their size and form of business. 

Initiation of Preventive Restructuring

The entrepreneur initiates preventive restructuring by sending out an invitation and rehabilitation plan to its selected creditors (affected parties). The purpose of the rehabilitation plan is to define the scope of the intended restructuring measures, to determine the extent of the interference with the rights of the affected parties, and to provide sufficient information on the operation of the undertaking and the prospects for rescue. Initiating a preventive restructuring must be notified to the restructuring court, but the notification is not public.

Moratoria

Preventive restructuring can be accompanied by a general moratorium of up to three months, with the possibility of extending it for a further three months. During the moratorium period, no insolvency proceedings can be initiated. And creditors can’t take any other formal enforcement action. If the necessary contracts are performed during the moratorium period, the relevant business relationships will be protected from termination. However, by declaring a general moratorium, the entrepreneur will lose the advantage of the non-public nature of the preventive restructuring. Entrepreneurs will also be able to apply for an individual moratorium against specific (a maximum of three) creditors.

Restructuring Plan and Approval

The entrepreneur has to describe the detailed form of restructuring proposed in a restructuring plan. They then have to submit the plan to the affected parties (i.e., the creditors identified by the entrepreneur in the rehabilitation plan) for a vote within six months of the start of the process.

The affected parties will vote on the restructuring plan within the groups defined by the entrepreneur.  A restructuring plan is approved if it’s accepted by all groups, and within groups it’s approved if 75% of the affected parties of the relevant group vote in favor of it. Voting can be replaced by an agreement accepting the restructuring plan in the form of a notarial deed.

The Imposition of a Restructuring Plan (Cram-Down)

If a creditor votes against the restructuring plan (or abstains) but the restructuring plan is accepted by all creditor groups, the restructuring plan must be confirmed by the court under the regime of the accepted restructuring plan. Confirmation is required even if a single creditor disagrees, irrespective of the amount or nature of their claim. If the restructuring plan is not accepted by all creditor groups, it must always be confirmed by the court under the non-accepted restructuring plan regime. In both cases, the court typically assesses whether the restructuring plan complies with the law, whether the process preceding its non-acceptance was proper, or whether the entrepreneur pursued a dishonest intention. The court also assesses any objection by a dissenting creditor according to which it will be in a less favorable position than if the situation of the entrepreneur is resolved in insolvency proceedings.

In addition, in the case of an unaccepted restructuring plan, the court assesses whether: each claim is treated equally within the groups that voted against; any of the groups will not receive more than the total nominal value of their claims; and the restructuring plan is fair to creditors (best interest test). Court approval is also required if the restructuring plan includes the provision of new financing or reduces the number of employees by at least a quarter.

Restructuring Trustee

A restructuring trustee can be appointed. The role of the restructuring trustee is primarily that of control and supervisory.

Tax Aspects

Failure to achieve corresponding tax changes during the legislative process creates a risk that the forgiveness of part of the debt during the preventive restructuring may constitute taxable income for the entrepreneur.

By Petr Sabatka, Partner, DLA Piper

This article was originally published in Issue 10.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.