Category: Issue 10.12

Moldova faces significant challenges in terms of insolvency in the future. In exploring the factors influencing this area of law, we examine the current state of affairs, anticipate trends, and look at how legal practitioners are gearing up to meet the expected rise in demand. Let’s break down the key points.

Weathering Economic Shift

Despite concerns about a surge in insolvency cases due to the lasting effects of COVID-19, Moldova’s economy has proven resilient against insolvencies. Official data from September 2023 shows a slight increase in insolvency proceedings for the previous period starting in January compared to the 2022  period. However, the prolonged war in Ukraine might lead to a rise in insolvency filings. As Ukraine is one of Moldova’s strategic business partners, the economic aftermath of the conflict, coupled with the state of emergency declared in February 2022 (extended to December 2023), has exacerbated existing financial challenges. Despite the inflation rate surging to 30.24% in December 2022, National Bank’s intervention during 2023 reversed the trend, leading to a deflation of 5.45%.   Unfortunately, this has not translated into reduced borrowing costs or improved credit access for businesses. Therefore, businesses are struggling to secure favorable credit terms or renew existing ones.

Moldova’s vital agricultural sector faces challenges from two consecutive years of drought and persistent low grain prices. Farmers have been proactively submitting various requests to the government through their associations. Their appeals include measures to reduce the tax burden, prevent the import of low-priced grain from Ukraine, and secure state subsidies. The government is actively seeking viable solutions to meet these demands and address the agricultural community’s pressing issues.

Building Capacities for Anticipated Demand

Moldovan lawyers are gearing up for a rise in financially troubled companies. They offer services to identify and address insolvency risks, primarily focusing on salvaging struggling companies through reorganization. The aim is to prevent insolvency rather than address it once it becomes inevitable. The economic situation in the region is challenging, with problems like logistical issues, higher interest rates, and less access to credit. Banks too are acting to help struggling businesses. They’re adjusting loans, selling claims, and dealing with distressed assets to avoid long-term insolvency procedures. This teamwork between lawyers and banks is all about creating a solid system. The goal is to spot insolvency issues and actively find ways to solve them.

Upcoming Legislative Changes to Business Concerns

Acknowledging the challenges faced by Moldova’s business community, the Ministry of Economy has announced plans for legislative changes related to business insolvency in 2022. These proposed changes address issues such as the need for a minimum threshold for creditors, delays in the insolvency process, evaluation of pledged assets, and non-compliance with restructuring plans. While the contemplated legislative changes have yet to materialize, a notable update in 2023 introduced a technical enhancement to proceedings. Now, the court must transmit data directly from the judgments to open insolvency proceedings to the public registers of state records, improving efficiency in the legal processes. A more efficient legal framework for insolvency remains a priority.

Critical Legislative Needs for the Future

Looking ahead, legal experts emphasize the urgent need for a comprehensive revision of Moldova’s Law No. 149 on Insolvency dated June 29, 2012. To tackle ongoing challenges, the government is urged to adopt measures tailored to the viability of businesses. Viable companies could benefit from loan moratoria and payment flexibility, while non-viable ones may require faster liquidation rules and more straightforward insolvency procedures to reduce time and costs. Additionally, it’s crucial to establish explicit provisions regarding over-indebtedness, including the legal presumption of late payments persisting for more than 60 days. This should lead to the initiation of the insolvency procedure by specific creditors who must substantiate their claims. Clear guidelines are crucial for imposing financial sanctions to counter bad-faith misuse of insolvency filing rights. In practice, certain creditors exploit this institution to hinder the debtor’s activity by applying interim measures during the examination stage and compelling transactions for their benefit. This abusive practice may trigger intentional insolvency in today’s economic conditions.

As Moldova grapples with the complex dynamics of insolvency in 2023, legal practitioners are pivotal in guiding businesses through these challenging times. Legislative reforms, collaborative efforts between policymakers and the business community, and proactive consultancy services lay the foundation for a resilient legal framework adaptable to evolving business needs amidst economic uncertainties. Government interventions, safeguard measures, and community initiatives are essential for providing a safety net for businesses facing financial strain, ensuring the long-term sustainability of Moldova’s business backbone.

By Adrian Sorocean, Head of Restructuring, Insolvency, and Bankruptcy, ACI 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.

The Ukrainian economy has endured unprecedented shocks resulting from the unprovoked invasion by Russia, which led to the seizure of assets in the occupied territories, massive destruction of or damage to assets throughout Ukraine, closure of a number of markets, disruption of various transport routes, huge losses in trade, flight of capital and human resources, etc.

Consequently, many businesses have been negatively affected by several of these factors, resulting in a number of restructuring and distressed asset scenarios. In spite of this, to date, we have yet to see many big debt restructurings compared with those seen during and after the 2008 and 2014 crises. Below are the factors which we believe are leading to this not happening.

First, a number of big players had already disappeared during those previous upheavals. These include steel giants like Industrial Union of Donbass and Donetsksteel, a number of agricultural groups, such as Mriya and Creative, and some 100 banks, wiped out or nationalized by the state in 2014-2015 and later.

Secondly, the status of the war makes it practically impossible to provide feasible new business plans to achieve a meaningful restructuring.

Thirdly, Ukrainian martial law imposes a number of restrictions for foreign lenders (with certain exemptions for international financial institutions and foreign development or export agencies) to repatriate loan proceeds ahead of the agreed amortization schedules while martial law is in effect. Creditors can, in theory, accelerate and commence insolvency, but they will not be able to repatriate the funds from Ukraine. The lack of perspectives of obtaining good returns in the current environment is another general deterrent.

As a result, with just a few exceptions, now typical means to resolve distressed situations are quick amend-and-extend solutions or the sale of an NPL. Recently, there was also a high-profile refinancing of Eurobonds by loans from several international financial institutions and a foreign development institution. The transaction providing for ‘new money’ to restructure payment obligations of the large agricultural group was truly remarkable in the midst of the war in Ukraine. A unique element of that transaction was usage of off-shore bank accounts structure, which is not typical for Ukraine.

Also, recently, the National Bank of Ukraine allowed state-owned enterprises to transfer funds abroad to fulfill their obligations to a non-resident under a loan that has been restructured on terms agreed by the Cabinet of Ministers of Ukraine.

By Olexiy Soshenko, Managing Partner, Redcliffe 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.

In a time of economic turmoil, company directors and owners focus on maintaining their businesses as going concerns, ensuring financial stability, and managing relationships with their creditors, contractors, and employees. When necessary, that includes considering strategic debt management options. On the other hand, creditors and contractors concentrate on properly assessing and understanding the risks associated with a dynamically changing commercial environment, evaluating their strategies toward clients, and implementing adequate safeguards and responses to emerging threats.

Polish law provides for two types of court proceedings that may be initiated when a company finds itself in crisis: (1) semi-court or court restructuring and (2) bankruptcy. Bankruptcy proceedings are initiated when a company becomes insolvent and are governed by the Bankruptcy Act 2003 (as amended). As an alternative to bankruptcy proceedings, it may be possible for the debtor to enter into one of the restructuring procedures available under the Restructuring Act 2015 (as amended). This act provides for four types of restructuring proceedings: (1) proceedings for approval of an arrangement, (2) accelerated arrangement proceedings, (3) standard arrangement proceedings, and (4) remedial proceedings. Restructuring procedures are available to insolvent debtors and also to debtors threatened with insolvency. The law specifies two different criteria for establishing company insolvency: (1) insufficient liquidity and (2) over-indebtedness.

The main objective of restructuring proceedings is to save the debtor from having to declare bankruptcy by allowing it to restructure under an arrangement with its creditors. In Poland, restructuring processes are given precedence. If a restructuring application and a bankruptcy application are submitted simultaneously, in general, the court will first examine the former.

The restructuring of a company’s liabilities may provide for, in particular: postponements of payment deadlines, scheduling repayments via instalments, a reduction in the total amount, a conversion of creditors’ claims into shares, or changes, replacements, or repeals of collaterals. Arrangement proposals may also provide for the satisfaction of creditors through the sale of the debtor’s assets (referred to as a “liquidation” arrangement). The law provides for certain restrictions with regard to debt restructuring, for example with regard to the debtor’s liabilities relating to state aid, liabilities under employment contracts, or liabilities for social security contributions.

On the other hand, the purpose of bankruptcy proceedings is to ensure that creditors’ claims can be met to the fullest extent possible and that, if reasonable considerations allow, the debtor’s enterprise is preserved. Bankruptcy proceedings generally conclude with a total liquidation (sale) of the bankrupt’s assets and, in the case of entities entered in the register of entrepreneurs, the deletion of the bankrupt entity from the National Court Register. It is possible, however, on an exceptional basis, to conclude a non-liquidation agreement with the bankrupt’s creditors, providing for the restructuring of the bankrupt’s debt and continuation of the business.

The Bankruptcy Act provides that any entity entitled to file a bankruptcy petition against a debtor is also authorized to file an application for approval of the terms of a pre-packaged sale of the debtor’s assets. This includes, among others, the debtor itself or a personal creditor, including a creditor secured on the debtor’s assets. An entity planning to apply to the court for approval of a pre-packaged sale of the debtor’s assets may search for a potential buyer and negotiate therewith the terms of the sale. A pre-packaged sale to a buyer affiliated with the debtor is permissible. The applying creditor may also become the buyer. Consent of the bankrupt debtor – the owner of the assets – is not formally required. The terms of sale agreed with the potential buyer are subject to approval by the bankruptcy court along with the announcement of the debtor’s bankruptcy.

Filing a bankruptcy application is the duty of the company’s directors. The application should be filed no later than within 30 days of the date of the event of insolvency. Persons obliged to file the application for a declaration of the debtor’s bankruptcy are liable for damage caused by failure to submit the application within the prescribed time limit. Failure to file a bankruptcy application on time may also result in the director’s liability for the debts of the company, a temporary ban on conducting business activity, or criminal responsibility.

By Karol Czepukojc, Head of Restructuring and Insolvency, Baker McKenzie

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 Croatia, the legal landscape governing insolvency and restructuring is meticulously outlined in the Insolvency Act (Official Gazette no. 71/15, 104/17,36/22) providing a comprehensive framework for the initiation and execution of pre-insolvency and insolvency proceedings, outlining the ensuing legal consequences, and delineating the respective rights and obligations of debtors and creditors. With the recent amendment to the Insolvency Act introduced in 2022, solutions from the European Union have been adopted to encourage early restructuring of sustainable businesses, maintaining the continuity of company operations, and preventing insolvency. With these new changes, emphasis is being placed on insolvency prevention while also providing a strong framework for the protection of the creditors.

In line with recent developments, a noteworthy change is that now, only debtors have the authority to propose the initiation of pre-insolvency proceedings and restructuring plans. Additional changes pertain to the substance of the proposal in the restructuring plan, the timeframe for submitting the plan to the court (set at 21 days following the decision on acknowledged and contested claims), and the voting procedure (creditors who fail to submit a voting form at the start of the session will be presumed to have voted in favor of the plan). The law clearly outlines the essential elements of a restructuring plan, including details on planned costs and measures for operational and financial restructuring. Additionally, the plan must provide a rationale, demonstrating how it is likely to effectively prevent the debtor’s illiquidity and ensure long-term business sustainability. Once the plan is accepted, the court decides whether to approve it. The amendments specify conditions for court rejection of approval, such as when the debtor can settle debts without impending insolvency. The court no longer oversees the scrutiny of reported claims, deeming them established unless challenged by the debtor, pre-insolvency administrator, or a creditor within the stipulated timeframe. It now oversees the examination hearing. Pre-insolvency proceedings duration has been reduced from 300 to 120 days (an extension of up to 180 days is permissible under exceptional circumstances).

The latest amendments enhance existing solutions, promoting and encouraging restructuring as a viable option. Ultimately, a well-crafted and feasible restructuring plan remains a powerful strategy for mitigating the negative consequences of insolvency, providing an efficient, impactful, and cost-effective approach.

It’s crucial to recognize that in certain scenarios, insolvency may be the sole viable option. Insolvency proceedings can be initiated through a proposal submitted by the debtor, creditor, and in some cases, the Financial Agency. Reasons for initiating insolvency include incapacity for payment and over-indebtedness, but the procedure can be conducted even when these circumstances are not met if it seems likely that the debtor will not be able to fulfill its obligations in a timely manner. Before the actual insolvency proceedings, a preliminary procedure can be initiated by a decision of the competent court. The purpose of this procedure is to determine whether conditions for initiating insolvency proceedings are met, and if so, insolvency proceedings are initiated. Also, it allows the court to implement protective measures preventing detrimental changes in the debtor’s financial position.

A recent change allows the debtor to submit the insolvency plan concurrently with the proposal for initiating insolvency proceedings. Additionally, following the commencement of insolvency proceedings, both the insolvency administrator and the debtor hold the right to present an insolvency plan to the court. This plan can deviate from legal provisions on cashing out and distributing the estate. Secondly, it’s crucial to highlight that the insolvency administrator takes over control of the business, inheriting the rights of the debtor’s bodies. Creditors play a role by registering claims, subject to validity examination. The overall process involves monetizing the debtor’s assets or implementing the insolvency plan. Finally, distribution occurs, settling creditors based on varying payment orders. Following the court’s decision and successful distribution, the company is deleted from the court register, resulting in its cessation.

In conclusion, Croatian legislation diligently oversees insolvency proceedings, striking a balance between safeguarding creditors’ interests and providing opportunities for the debtor’s business survival. Aligned with European legislation, legal regulations on restructuring and insolvency proceedings are tailored to practical needs, with a notable emphasis on preventing insolvency. The intention here is to spotlight achievements and positive attributes, with future discussions possibly exploring challenges or refinements. 

By Dora Horvat, Partner, Petra Marijanovic, Senior Associate, and Nela Perisic Varosanec, Junior Associate, Ilej & 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.

The extended deadline for the implementation of the Directive (EU) 2019/1023 has expired on July 17, 2022. More than a year later, in August 2023, the amendments to the Bulgarian Commercial Act concerning, among other things, insolvency and restructuring rules and procedures were finally published in the Bulgarian State Gazette. Apart from pure alignment with the European legislation, the amendments are aimed at certain long-standing shortcomings of the Bulgarian insolvency and restructuring regime.

Amendments to the Insolvency Regime

An important change concerns the legal concept of over-indebtedness as a ground for the opening of insolvency proceedings. Over-indebtedness now encompasses the inability of a company to meet not only its monetary obligations but all its liabilities, thus introducing the negative equity balance-sheet test.

The procedural rules for the insolvency process are also amended. In particular, the competent court to hear the case will be determined based on the debtor’s seat, provided that it has not been changed in the previous six months. This is aimed as a measure against so-called “forum shopping” practices where debtors change their seats shortly before insolvency proceedings.

In the past, the first meeting of creditors, based on those listed in the trading books of the debtor and held in the early stages of the insolvency proceedings, has proven to be inefficient. As a result, this step is eliminated altogether, allowing creditors with accepted claims to meet and decide on the appointment of the permanent insolvency administrator.

One of the main reasons for delays in the insolvency process under the previous regime was the variety of grounds for suspension of the proceedings. Now, the use of suspension grounds is refined, bringing the insolvency framework closer to achieving efficiency.

Important changes are introduced also in the process of liquidation and sale of assets from the insolvency estate. Insolvency administrators are now required to prepare a liquidation plan with specific content, including a quarterly forecast of the anticipated disposals of assets. Further, it is now possible to organize the tender for the sale of such assets electronically. This is expected to increase the transparency of the liquidation procedure and lead to a higher collection rate for creditors.

Amendments to the Restructuring (Stabilization) Regime

The latest amendments refine the options available to entities seeking to avoid insolvency. Protection for new and interim financing is introduced, incentivizing creditors to provide much-needed funding.

The period during which the debtor must be at risk of not meeting its obligations is extended from six months to 12 months, and the range of entities that are allowed to benefit from the stabilization proceedings is expanded to include entrepreneurs.

The latest amendments also introduce a number of changes related to the content, submission, and approval of stabilization plans.

Insolvency Proceedings of Entrepreneurs

A major change is the insolvency proceedings for natural persons – entrepreneurs, i.e., craftsmen, self-employed persons, etc., who are not traders. Prerequisites for repayment of debts are introduced, as there are no restrictions or limitations on the subsequent conduct of business activity. For this purpose, a special procedure has been established to verify the prerequisites.

Early Warning Tools

Together with the major changes in the Commercial Act, a new ordinance on insolvency early warning tools has been proposed by the government.

The ordinance aims to provide tools to help businesses assess their current financial situation and be informed about the likelihood of insolvency proceedings being initiated. It also provides for certain support to address the current or future financial distress of companies. The tools under the ordinance include: (a) a free online self-assessment system for enterprises at risk of insolvency; (b) general guidance on options for identifying the likelihood of insolvency and for taking appropriate preventive measures; (c) the use of special consultants in the field of finance, law, accounting, and management that have the required education and professional experience; and (d) educational courses.

Traditionally, insolvency proceedings in Bulgaria have been lengthy, lasting over three years on average, which makes them more costly. Separately, the pre-insolvency restructuring (stabilization) introduced in 2016 has been largely ineffective and very rarely used. It still remains to be seen to what extent the latest amendments to the insolvency and restructuring regime will improve the process to not only save time and costs for the parties involved but also ensure greater efficiency, greater use of restructuring options, and preservation of viable businesses.

By Svilen Issaev, Co-Head of Restructuring & Insolvency, Kinstellar

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.

The Romanian High Court has recently settled a long-standing legal debate over the conditions for holding administrators personally liable in cases of improper bookkeeping of an insolvent company. This issue has been a point of contention within the legal system since 1995, creating divergence in jurisprudence that required resolution.

One of the primary challenges in insolvency proceedings is to maximize the value of the debtor’s assets and facilitate debt recovery. When traditional methods prove insufficient, insolvency practitioners and creditors often explore alternative avenues, such as pursuing claims to hold a company’s administrators or directors personally liable for the debtor’s insolvency.

Some unscrupulous administrators attempt to obscure the company’s financial trail and impede the identification and liquidation of all debtor assets through improper bookkeeping practices. Recognizing this, the Romanian insolvency rules, initially outlined in Law no. 64/1995 and then updated in Law no. 85/2006 and the current Law no. 85/2014 on insolvency prevention and insolvency proceedings, penalize administrators or directors who maintain fictitious accounts, conceal accounting documents, or fail to adhere to lawful accounting practices.

A significant point of contention in jurisprudence revolved around whether liability could be established when administrators or directors failed (or refused) to comply with the legal obligation of providing accounting documents to the insolvency practitioner. This handover is crucial for analyzing the debtor’s economic situation and identifying the root causes of insolvency.

Law no. 85/2014 aimed to enhance existing legislation and harmonize conflicting case law by simplifying the task for judicial practitioners handling liability claims related to the failure to provide accounting documents. The law introduced a relative legal presumption that, in the event of such a failure, both fault and the causal link between the act and the damage would be presumed. Prior to this presumption, plaintiffs often faced the daunting task of proving that accounting records, which were unavailable, were not maintained according to the law (probatio diabolica). Despite this legislative effort, a complete unification of case law has not been achieved. The law addressed the presumption of fault and the causal link between the act and the damage but did not specify the link between the failure to keep accounting records in accordance with the law and the company’s insolvency, considering that the liability established by the judge cannot exceed the damage causally linked to the act in question. 

Some have argued that the law established a relative legal presumption regarding the conditions of tort liability. In their view, if the defendant did not hand over the accounting documents, the plaintiff’s claim should be admitted without the need to prove an additional causal link between the act and the state of insolvency. Others have argued that the mere failure to provide accounting documentation could not lead to personal liability. According to this perspective, the plaintiff must present evidence of the act’s existence, of the damage, and evidence substantiating a second causal link, namely the fact that the failure to fulfill the obligations laid down in the accounting regulations contributed to the insolvency. In a recent landmark decision, the Romanian High Court addressed this protracted legal debate through Decision No. 14/June 27, 2022, an interpretative appeal for the unification of the law.

The High Court ruled that the first judicial opinion was the correct one and affirmed/explained that the legal presumption relieved the plaintiff of the obligation to prove the conditions for patrimonial liability. In their deliberation, the judges highlighted that the violation of the legal obligation to provide accounting documents cannot be construed as a defense for individuals whose legal responsibility is to hand over such documents, as allowing such an assumption could potentially incentivize them to refrain from submitting the required accounting documentation and would be contrary to the intention of the law. Furthermore, the High Court clarified that the defendant could challenge the presumption by providing evidence that they were not notified that they had to deliver accounting documents, or that non-delivery resulted from circumstances beyond their control.

The decision not only clarifies a long-standing legal ambiguity but also underscores the importance of complying with accounting regulations to avoid personal liability in cases of insolvency. Administrators and directors should take heed of this ruling, ensuring transparency in accounting practices and cooperation with insolvency practitioners to mitigate legal risks. The decision marks a significant step toward a more coherent legal framework in Romania’s insolvency landscape, providing clarity for practitioners, creditors, and stakeholders involved in the intricate process of insolvency proceedings.

By Sorina Olaru, Partner, and Razvan Savin, Managing Associate, NNDKP

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.

For a long time, the Slovak insolvency law landscape was overshadowed by deep structural problems that resulted in a dire outlook for creditors in insolvency and restructuring proceedings.

On the insolvent liquidation side, an overwhelming portion of corporate insolvencies were entered into at a very late stage (deep insolvency), leaving the creditors no possibility of utilizing any assets. Consequently, in most cases, the proceedings were terminated due to insufficient assets on the debtor side.

On the other hand, the restructuring option offered an effective delaying strategy for debtors. Too often did restructuring measures focus merely on limiting creditors’ repayments as a sole solution rather than a last resort option after exhausting other restructuring options.

Previous attempts by the legislator to react and remedy the worst excesses led to a severe limitation of restructurings – a minimum statutory threshold of 50% satisfaction for unsecured creditors introduced in 2017 still is the most visible and criticized limit that effectively prevents most restructurings from being successful.

The necessity to implement the EU Directive on preventative restructuring frameworks (PRD) has given the Slovak legislator a much-needed impetus to review the (pre-)insolvency regulation. The law introducing preventive restructuring procedures entered into force in July 2022. In addition to insolvent restructuring that can be attempted by insolvent corporate debtors, it offers two options for companies that face imminent illiquidity and are threatened with insolvency.

Public preventive restructuring provides for a possible stand-still against creditor enforcement actions. Similarly to insolvent restructurings, it includes voting of the creditors on a public plan (the 50% satisfaction rate threshold does not apply, however, the plan must be approved by at least 75% of each class of unsecured creditors).

Non-public preventive restructuring is aimed at restructuring debts owed to financial institutions and requires creditors’ consent. In the case financial creditors and the debtor reach an agreement, it is approved by a court.

There have been no cases of successful preventive restructurings since their introduction. The main obstacle regarding the use of the regulation remains the unfavorable tax treatment of debts discharged in preventive restructuring schemes compared to those discharged in an insolvent restructuring. Nevertheless, market actors such as advisors to distressed companies already indicate that preventive restructuring is regularly considered, and it is only a matter of time until we see preventive restructurings in practice.

Even more important for the future of Slovak restructuring and insolvency practitioners, in our view, are further amendments to the insolvency law that were also part of the implementation of the PRD. It is important to note that, for the first time, the regulation emphasizes the role of advisors who are responsible for the viability of the proposed preventive restructuring plan. This opens the door for specialized professionals to become advisors to the debtor.

The legislator has also finally recognized the requirement for specialized courts and insolvency administrators. Judges from only three courts (the District Courts in Nitra, Zilina, and Kosice) currently handle preventive or insolvent restructurings and large insolvent liquidations concerning companies with assets or turnover exceeding EUR 10 million. Restructurings and large insolvent liquidations, though, can only be administered by insolvency administrators who have passed a special exam and operate in an office that safeguards the handling of complex cases. Currently, there are five special insolvency administrators in Slovakia and the regulation foresees that there should be at least 10 in the future. This specialization should provide for more legal certainty and professional administration of difficult restructuring and insolvency cases that affect large groups of creditors and employees and that have an impact on the business environment.

The next, much-anticipated, step is the Ministry of Justice announcing the digitalization of all insolvency procedures. This is a much-needed measure as the current state of insolvency registers and insolvency files is very user-unfriendly. Creditors face substantial technical obstacles when filing their claims or trying to receive full information on the state of proceedings. Digitalization will stir up discussions about the benefits and risks connected to a much higher degree of transparency, which it will inevitably bring. Digitalization will be introduced by the end of 2024 as it is a milestone of the Slovak National Resiliency and Recovery Plan.

By Radovan Pala, Co-Managing Partner, and Michal Michalek, 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.

In The Debrief, our Practice Leaders across CEE share updates on recent and upcoming legislation, consider the impact of recent court decisions, showcase landmark projects, and keep our readers apprised of the latest developments impacting their respective practice areas.

This House – Implemented Legislation

Wolf Theiss Poland Associate Sonia Kurpiel and Drakopoulos Partner Mika Lalaouni start by highlighting recently implemented legislation in Poland and Greece, respectively. “Major changes for employers occurred in Poland,” Kurpiel says, underlining that “on November 17, 2023, the Ordinance of the Minister of Family and Social Policy of October 18, 2023, came into force, amending the ordinance on occupational safety and health at work in workplaces equipped with screen monitors.” She emphasizes that employers have six months to bring existing workstations into compliance with the new regulations.

According to Kurpiel, the changes are of significant importance to employers hiring remote employees, “as employers must provide desktop monitors or laptop stands to employees who use a portable computer system and use it for at least half of their daily working hours. In addition, a workstation equipped with a portable computer system must be equipped with an additional keyboard and mouse. Another new requirement is to equip employees with seats with regulated armrests.” Additionally, “a further change applies to employees who have a visual defect,” she explains. “Until now, employers were required to provide employees with glasses if the results of an eye examination conducted as part of preventive health care showed the need for them while working at a monitor. The new regulations require employers to provide employees with glasses as well as contact lenses.”

In Greece, “Law 5066/2023 entered into force on November 14, 2023 (Law 5066),” according to Lalaouni. It inter alia “transposes Directive EU 2021/2101 amending Directive EU 2013/34 as regards disclosure of income tax information by certain undertakings and branches into Greek law and updates national legislation on companies’ publicity obligations.” According to her, “Law 5066 aims to promote financial and corporate transparency, ensuring the full functioning of both the Greek market and the internal market of the EU, providing equivalent safeguards throughout the EU for the protection of investors.”

Lalaouni explains that “according to Law 5066, multinational groups, and where relevant, certain standalone undertakings, are obliged to publicly report income tax information where they exceed a certain size, in terms of the amount of revenue, over a period of two consecutive financial years, depending on the consolidated revenue of the group or the revenue of the standalone undertaking, unless the above entities fall within the exceptions set out in the relevant law provisions.” In case of non-compliance, she notes that “fines ranging from EUR 10,000 to 100,000 may be imposed on members of the administrative, management, and supervisory bodies.” Furthermore, Lalaouni says that “Law 5066 obliges capital companies of the non-financial sector which receive financing from credit institutions lawfully operating in Greece and listed companies to submit their financial statements to the Bank of Greece.”

This House – Under Review

CMS Sofia Managing Partner Kostadin Sirleshtov points to potential recent changes to Bulgarian renewable energy legislation, particularly focusing on new wind projects and battery storage solutions. According to him, “the second attempt of the Bulgarian Parliament to pass the Offshore Wind Act started at the beginning of December 2023, and will be closely watched by the investment community, as the Ministry of Energy has already received the first application for a 1,000+ megawatt and EUR 2+ billion commitment.”

This House – The Latest Draft

PRK Partners Attorney at Law Milan Sivy highlights that an “important and complex amendment to the Czech ‘Mergers’ Act (i.e., Act No. 125/2008 Coll., on Transformation of Business Companies and Cooperatives, as amended) is being prepared. The primary objective of the proposed amendment is to incorporate requirements of EU Directive 2019/2121 concerning certain transformations with cross-border elements (cross-border transfer of registered seats, mergers, and separation) into the Czech legal order.” However, Sivy also underlines rather controversial parts, with “some changes of the amendment comprising the possibility of executing a demerger through a spin-off of a listed joint-stock company with an unequal share exchange ratio and a demerger through spin-off with the termination of minority shareholders’ participation with the consent of 75% of the votes of the shareholders present at the general meeting (under certain additional conditions).”

Schoenherr Bulgaria Partner Tsvetan Krumov highlights that “in November 2023, the Bulgarian Ministry of Finance completed a two-year project of drafting a close-out netting legislation, supported by the EBRD and legal consultants that is expected to be soon submitted to the Parliament.” Krumov further stresses that the purpose of this long-awaited draft is “to increase the legal certainty around lots of transactions where close-out netting is used as a standard mechanism for credit risk reduction – as derivatives, repos, securities lending, and other securities financing transactions.”

Eversheds Sutherland Slovakia Managing Partner Bernhard Hager notes that in Slovakia, “a draft on so-called ‘to-go zones’ confused many clients.”

In the Works

Komnenic & Partners Managing Partner Milos Komnenic reports Montenegro has seen notable 5-star hotel-related project developments recently. “There is ongoing development of a number of large-scale hotels,” he notes. “These include the Montis Mountain Resort in Kolasin, Galeb in Ulcinj, and Riviera Montenegro in Budva. All these investments are over EUR 50 million and are at different stages of development.” Komnenic also mentions that “due to the economic citizenship program and significant developments in the south and north of the ski centers in Montenegro, 25 larger hotels are currently under various stages of development of which all projects are 5 and 4 stars. Notably, major operators such as Rixos, Swiss Hotel, Iberostar have entered the Montenegrin market, resulting in a substantial boost to the hotel and real estate market.” Additionally, “landmark projects such as Lustica Development and Porto Montenegro continue to develop with a successful sale and expected pricing of even EUR 15,000 per square meter for certain types of property, while Portonovi is also having a number of sales as this project is fully developed.”

Optima Legal & Financial Partner Ilir Daci adds that, in Albania, the state-run KESH aims to lead renewables’ development “with a project for the construction of a new 50-megawatt solar plant in Belsh, central Albania.” According to him, the solar plant just got the green light for financial support from the European Commission.

The most notable project in Hungary in terms of M&A, according to Forgo, Damjanovic & Partners Managing Partner Zoltan Forgo, “is clearly the purchase of the Budapest Airport by a consortium, which includes the Hungarian State.” According to him, the transaction is expected to be signed by the end of December, as “the European Commission has already approved the transaction in a simplified procedure.” The current owners of the Budapest Airport, according to Forgo, are reported to be Germany’s Avialliance GmbH (55,4%), Malton – a subsidiary of Singapore’s State investment fund, GIC (23,33%), and the Canadian Pension Fund Caisse de depot et placement du Quebec (21,23%). He adds that the purchaser consortium is reported to consist of Corvinus Zrt., a 100% Hungarian state-owned vehicle, and France-based Vinci Airports. “It is also expected that Quatar’s state investment fund participates either as a financial or strategic investor,” Forgo says. “The purchase price is expected to be in the range of EUR 4-5 billion.” According to him, “by making this purchase the Hungarian State may fulfill a long-awaited desire of the Hungarian Government to have a majority control over the Budapest Airport.”

Lastly, over the last month, according to Sirleshtov, in Bulgaria, “Lukoil announced that it is selling the largest Bulgarian company – Burgas refinery,” noting that the transaction is expected to be worth billions of euros.

Done Deals

In the meantime, according to Sirleshtov, “greenfield solar investments were on the rise with Astronergy completing its second and third acquisition in Bulgaria in 2023 thus bringing its capacity in Bulgaria to over 200 megawatts.”

Sivy also points to major recent deals in the Czech Republic, noting that “the group Kofola CeskoSlovensko has acquired a controlling stake in the Pivovary CZ group. The transaction is subject to the approval of the antitrust authorities, and completion is expected early next year.”

Daci underlines that Albania aims to “emerge as a regional powerhouse of large-scale renewable projects,” and “one such showcase project is Voltalia’s 140-megawatt Karavasta, promoted as the largest solar power plant in the Western Balkans, which, as announced yesterday, is now fully built and ready to generate power.”

Hristov & Partners Partner Pavel Hristov adds that while recently “several deals have been aborted or frozen for the future by the potential buyers” in Bulgaria, “most of the deals and funding rounds, however, were closed or continue to close. Recently, US-Bulgarian startup LucidLink raised USD 75 million in Series C funding and the green tech start-up Plan A closed a USD 27 million Series A funding round.” In parallel, Hristov adds that “the competition authority delayed beyond the statutory term of review major cross-border merger proceedings, thus creating uncertainty and frustrating the parties. This includes Advent International/myPOS and Emirates Communication/PPF Telecom Group merger cases, pending since October 9, 2023.”

Regulators Weigh In

Krumov says that “the growth of crediting in Bulgaria continues with interest rates being kept at record low levels,” adding that the Bulgarian National Bank has been gradually increasing the “base interest rate.” As of December 1, 2023, he says, “the said index is 3.80% per annum,” and “the Bulgarian banking sector continues to maintain surprisingly low interest rates (significantly below the above figure), a trend that is divergent from many Western European nations.”

Daci also notes, that in Albania, “the regulatory authority reconfirmed the feed-in tariff of LEK10/kilowatt-hour for next year,” on December 15, 2023.

In Related News

Komnenic also highlights the ongoing public discussions on the Construction and Tourism Law. After the recent elections, he says, “the new government plans to review and revise these laws in accordance with its policies, with the expectation of significant changes in the second quarter of 2024.” The major hope, according to him, is that the “new government will revise and modify restriction imposed by the previous government whereas VAT credit was not allowed on residential properties, which also introduced legal concerns in respect of other types of real estate.”

Schoenherr Bulgaria Co-Head of Real Estate Dimitar Vlaevsky draws attention to the recent report made by “one of the largest Bulgarian banks – Unicredit Bulbank on the accessibility of residential properties,” saying that “according to the report the prices of the residential properties are unacceptable compared with the income of the Bulgarians.” Vlaevsky notes that “the report drew heavy criticism from the market and especially from the Bulgarian National Bank since it indirectly alleged that the central bank did not undertake any actions to increase interest rates (currently the average interest on mortgage loans for consumers is 2.6%). According to the National Bank, the interest rates in Bulgaria are low due to the high amount of deposits and profits of the Bulgarian banks (the banks have a profit of more than EUR 1.5 billion by the end of October).”

Lastly, Daci reports that “at the end of this year, the obligation of public service set by governmental decree as an emergency measure due to the energy crisis caused by the war in Ukraine expires.” 

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.

The fifth anniversary of the General Data Protection Regulation (GDPR) in Croatia has ushered in an unforeseen and substantial transformation in the sphere of data protection. This notable shift is characterized by a surge in enforcement actions led by the Croatian data privacy watchdog, commonly known as the Personal Data Protection Agency (DPA – in Croatian AZOP). In stark contrast to the relatively quiet initial three years following the enactment of the GDPR (2018-2021) in Croatia, 2023 has become a turning point, witnessing a seismic shift in Croatian data protection enforcement.

A standout case in this wave of enforcement actions involves a local debt collection company that incurred a staggering fine of EUR 5.4 million, setting a new record for the highest penalty in the enforcement history of the Croatian DPA. This substantial penalty was imposed due to the company’s failure to implement necessary technical and organizational measures, engaging in the processing of sensitive personal data without having a legal basis, and neglecting to adequately inform data subjects about processing activities. Furthermore, the company was found to have been actively tracking the health status of individual debtors and recording phone calls with them for a period of seven months without any legal basis for such recordings, and in contradiction with its stated privacy policies. In a public announcement regarding its decision, the Croatian DPA additionally offered clarification on the appropriateness of including the phrase “This call may be recorded” in a privacy notice provided during a telephone call with a data subject. Specifically, the Croatian DPA held that such wording did not comply with transparency obligations set out in the GDPR. 

In a separate case involving a different debt collection company, the Croatian DPA levied a significant fine of EUR 2.26 million. The penalties in this instance were a result of the DPA’s findings that the company failed to provide essential information about its data processing practices, make an appropriate data processing agreement with a relevant processor, and implement adequate security measures, leading to a loss of control over data flows. In its press release about the infringement decision, the DPA underscored aggravating factors in this case, including the company’s lack of cooperation and its failure to take remedial actions.

The DPA’s vigilance extended beyond debt collection activities to e-privacy concerns, with a specific focus on the use of cookies on websites. Notably, two fines were imposed on companies operating in the gambling and betting sector, totaling EUR 20,000 and EUR 30,000, respectively. The DPA identified shortcomings in these controllers’ processing activities, citing a lack of a proper legal basis for storing cookies and processing personal data, as well as the controllers’ failure to enable users to freely give and withdraw consent. Criticism was also directed at the controllers’ cookie banners, which were accused of bundling consent for all types of cookies, rather than allowing users to specify their preferences.

In conclusion, the intensified enforcement efforts led by the Croatian DPA mark a turning point for businesses immersed in data-intensive industries. As the regulatory landscape undergoes an evolution, the imperative for organizations to prioritize robust data protection measures grows more critical. Navigating the intricate terrain of compliance and staying clear of non-compliance pitfalls become paramount considerations in this dynamic environment. The recent decisions and clarifications emanating from the Croatian DPA not only serve as a guidepost for businesses but also provide valuable insights. For organizations striving to align their data collection practices with the exacting requirements of the GDPR, these developments underscore the importance of keeping up with the evolving regulatory landscapes. Businesses are encouraged to proactively adapt their data protection strategies, ensuring not only compliance but also safeguarding the privacy rights of individuals in an ever-changing digital landscape.

By Marija Gregoric, Partner, and Lovro Klepac, Senior Associate, Babic & 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.

According to the government, the act is designed to tackle certain perceived downsides of excessive tourism, such as the lack of affordable long-term accommodation for the housing needs of the local population, a negative impact on the environment (especially the sea, sea coast, and islands), as well as a negative impact on cultural heritage sites.

The act proposes various solutions to over-tourism and attempts to encourage a more sustainable development of tourism by providing for more even, year-round, and regionally-balanced tourism, and increasing the resistance of tourism activities to external influences.

One of the most notable – but also the most controversial – novelties of the new act is the possibility of limiting the number, type, category, and capacity of accommodation units. The act grants power to the representative authority of the local municipality facing excessive touristic flows to adopt such limitations. Furthermore, the representative authority of the local municipality may also adopt a decision on the capacities of accommodation units within the destination. Such representative authorities’ decisions have to be based on the destination management plan which is proposed by the tourist boards and should be adopted on an annual basis by March 31 for the following year.

Prior to its adoption, the act already generated a great public debate and divided the opinion of the public and the stakeholders. The Parliament’s Tourism Committee expressed concerns about the potential unconstitutionality of the above-mentioned provision of the act, since it may easily lead to limitations of entrepreneurial freedoms. A similar argument was articulated in the proposed amendment made by a member of Parliament. However, the government did not take these concerns into consideration and did not amend the proposed act, keeping the controversial wording that was ultimately adopted by the Parliament.

The effects of the new Tourism Act on the real estate market in Croatia are multi-layered. The above limitations are likely to discourage investments in currently typical short-term rentals such as vacation houses/villas and apartments. As a result, at least some local players on the tourism market could be switching to investing in boutique or heritage, family-owned small hotels. Another expected outcome (which is also one of the reasons why the act has been introduced in the first place) is greater availability of housing and long-term rentals. A spike in long-term rental availability may, in turn, lead to a decrease in rents and stronger competition on the market for long-term rentals and housing.

Considering the controversy the act has already caused, it will also be interesting to see whether the act is going to be challenged before the Croatian Constitutional Court due to unconstitutionality concerns that so far do not appear to have been adequately addressed by the government. In the meantime, it remains to be seen how the local authorities and various stakeholders will be adapting to the new regime and the new powers that come with it.

By Iva Basaric, Partner, and Marta Telebuh, Associate, Babic & 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.