In brief: liquidation and reorganisation processes in Croatia

Types of liquidation and reorganisation processes

What are the requirements for a debtor commencing a voluntary liquidation case and what are the effects?

There is no voluntary liquidation under Croatian law.

What are the requirements for a debtor commencing a voluntary reorganisation and what are the effects?

A voluntary reorganisation may be achieved through pre-bankruptcy proceedings, extraordinary administration proceedings and self-administration proceedings. Self-administration proceedings have to date never been used. The effect of all these proceedings is an immediate stand-still, a stay on enforcement procedures and the obligation of the creditors to register their claims within the procedures.

Pre-bankruptcy proceedings can be initiated by the debtor. Pre-bankruptcy proceedings may be initiated if there is an impending inability to pay.

The opening of pre-bankruptcy proceedings will result in:

• a prohibition of non-essential payments and asset disposals without prior approval from the court or pre-bankruptcy trustee;
• stay on civil, arbitration and enforcement proceedings against the debtor; and
• interruption of pending proceedings.

Enforcements by existing secured creditors, proceedings for employees’ claims, security measures in criminal proceedings and certain tax inspection proceedings are not affected by the stay of proceedings.

How are creditors classified for purposes of a reorganisation plan and how is the plan approved? Can a reorganisation plan release non-debtor parties from liability and, if so, in what circumstances?

A reorganisation plan has few restrictions as long as it observes the principle of equal treatment of creditors of the same class. In pre-bankruptcy and bankruptcy proceedings, creditors are classified into the following groups:

• secured creditors if the reorganisation plan affects their rights;
• unsecured creditors;
• lower-ranking unsecured creditors in certain cases;
• stockholders, shareholders and holders of other founders’ rights in legal entities if the reorganisation plan affects their rights; and
• employees.

Additional groups of creditors may be created according to the similarity of their economic interests (eg, financial creditors, suppliers and so on). Creditors with small claims may be classified in a separate group.

The reorganisation plan does not release non-debtor parties of their liabilities.

What are the requirements for creditors placing a debtor into involuntary liquidation and what are the effects? Once the proceeding is opened, are there material differences to proceedings opened voluntarily?

There is no involuntary liquidation proceeding under Croatian law, only normal bankruptcy proceedings.

An unsecured creditor may file a petition to open bankruptcy proceedings if it makes the existence of its claim and the grounds for bankruptcy probable.

In bankruptcy proceedings, the management board of the company is replaced by the insolvency administrator, while during the (voluntary) pre-bankruptcy procedure the existing management remains in place with the supervision of the court and the pre-bankruptcy administrator.

What are the requirements for creditors commencing an involuntary reorganisation and what are the effects? Once the proceeding is opened, are there any material differences to proceedings opened voluntarily?

There are no involuntary reorganisation proceedings. The creditors may order the insolvency administrator to prepare the bankruptcy plan.

Do procedures exist for expedited reorganisations (eg, ‘prepackaged’ reorganisations)?

In theory, self-administration proceedings could be used for expedited reorganisations, but this type of proceedings has never been used in practice.

How is a proposed reorganisation defeated and what is the effect of a reorganisation plan not being approved? What if the debtor fails to perform a plan?

In pre-bankruptcy proceedings, a proposed reorganisation plan is deemed accepted by the competent court if the debtor gives its consent, and:

• the majority of all creditors voted in favour of the plan; and
• the sum of the claims of creditors who voted in favour of the plan exceeds twice the sum of the claims of creditors who voted against the plan in each group of creditors.

If the reorganisation plan is not accepted by the creditors, a cramdown of a single class of creditors is possible if:

• the creditors in this class are in no worse position than without the reorganisation plan;
• the creditors adequately participate in economic benefits that are afforded to the parties in the reorganisation plan; and
• the majority of voting classes have voted for the reorganisation plan by the required majorities.

There are several situations in which the competent court may refuse the pre-bankruptcy reorganisation plan (the debtor can pay the claim amount, the procedural rules for the adoption and content of the reorganisation plan have been breached, the reorganisation plan is detrimental to creditors’ interests and so on), which is especially so if the creditor, debtor, stakeholder, shareholder or holder of other founders’ rights in legal entities are put in worse position than if the plan did not exist.

If the debtor fails to perform the pre-bankruptcy reorganisation plan following the conclusion of the procedure, the pre-bankruptcy trustee must report this to the court and the creditors affected by the pre-bankruptcy proceedings, provided the court established the supervision over the fulfilment of the plan. Creditors may then initialise the commencement of the bankruptcy proceedings against the debtor.

If the plan is not approved, the pre-bankruptcy proceedings will be suspended and bankruptcy proceedings will be opened with respect to the debtor.

In bankruptcy proceedings, a proposed bankruptcy plan is accepted by the court if the creditors cast their vote as described above, including the cramdown of a single class of creditors.

If the bankruptcy plan is not accepted, the assets of the debtor will be sold and the debtor will be liquidated. If the debtor fails to perform the bankruptcy plan, creditors may initialise reopening of the bankruptcy proceeding.

Both reorganisation plan and the bankruptcy plan may be used by the creditors to commence the enforcement proceeding against the debtor to collect their claims.

Are there corporate procedures for the dissolution of a corporation? How do such processes contrast with bankruptcy proceedings?

Yes, the Companies Act provides for the voluntary dissolution of a company. After successful liquidation, the company will be dissolved.

The dissolution is initiated voluntarily by the shareholders of the company who wish to wind down the company. This procedure may be conducted only if the company has sufficient assets to repay all of its creditors in full. Voluntary liquidation is not feasible for companies in financial distress.

How are liquidation and reorganisation cases formally concluded?

Liquidation and reorganisation cases are formally concluded by the court’s decision. In bankruptcy procedures, the entity is deleted from the court registry. In the reorganisation cases, the entity may survive or be deleted from the registry depending on what is envisaged by the reorganisation plan.