It has been more than a year since the Serbian Appellate Commercial Court attempted to ruin the Serbian NPL market: it had established a much criticized interpretation of the now famous Article 48 of the 2015 Enforcement Act, which made it impossible to directly enforce an assigned claim based on an enforceable title or a directly enforceable document.

Namely, previous legislation provided for a possibility to initiate enforcement based on an enforceable title whereas the enforcement creditor (or enforcement debtor as the case may be) is not stated therein, in case the enforcement creditor proves with a public document or a document certified by a competent authority (court or notary public) that the claim (or obligation) was assigned (in Serbian “prenos”) or otherwise transferred (in Serbian “prelaz”) onto the enforcement creditor (or enforcement debtor as the case may be). The same principle was applied in case a claim or a debt was assigned during enforcement proceedings. This possibility was the foundation of efficiency of enforcing NPLs in Serbia.

However, the 2015 Enforcement Act, which came into application as of 1 July 2016 slightly changed this provision, so it allows enforcement of an enforceable title or a directly enforceable document whereas the enforcement creditor (or enforcement debtor as the case may be) is not stated therein, in case the enforcement creditor proves with a public document or a document certified by a competent authority (court or notary public) that the claim (or obligation) was transferred (in Serbian “prelaz”) onto the enforcement creditor (or enforcement debtor as the case may be).

The twist happened in November 2016, when the Appellate Commercial Court (wrongly) used a historical method of interpretation of the said provision and two synonyms assignment (prenos) and transfer (prelaz), started to interpret that these two terms have a different meaning. According to the Appellate Commercial Court’s decisions (that started to be a common practice by the end of 2016) assignment (prenos) is a transfer of a claim or an obligation based on a contract, and transfer (prelaz) is a transfer based on law, such as corporate reorganization, inheritance etc. This interpretation was not remedied even after the Authentic Interpretation of the National Assembly of Serbia was published in December 2016, as this interpretation failed to deal with difference between assignment (prenos) and transfer (prelaz).

Although the Serbian NPL market saw a couple of huge portfolio transfers in 2017, this interpretation endangered the NPL market, because it took away the enforceability of NPLs and pertaining collaterals, if they were transferred to a new creditor through a loan portfolio purchase agreement. Investors became unable to enforce purchased NPLs without waging long term litigations in order to establish their positions as new creditors.

The interpretation of the above mentioned provision of the 2015 Enforcement Act is wrong because it disregarded the meaning of a similar provision in the previous Enforcement Act. Namely, it allowed enforcement in case of assignment (prenos) of the claim or obligation, or other manner of transfer (prelaz), which means that previous legislation treated an assignment (prenos) as a manner of transfer (prelaz), i.e. such transfer is a broader term than, and includes assignment. Therefore, the Appellate Commercial Court had no grounds to conclude that the legislator intended to exclude assignment (prenos) and to allow enforcement only in case the creditor, or debtor changed by way of transfer (prelaz). The Appellate Commercial Court also disregarded other manners of interpretation by failing to determine whether these two terms are different in material law, i.e. Contracts and Torts Act. Had it done so, it would have found that the legislator did not use both assignment (prenos) and transfer (prelaz) as different terms in this act, but as synonyms.

However, it seems that there is a light at the end of a tunnel for enforceability of assigned claims, including NPLs: the National Assembly is about to adopt and publish a new Authentic Interpretation of Article 48 of the Enforcement Act that will treat the transfer (prelaz) as a broader term which also includes assignment (prenos). This will allow creditors that are not stated in the enforcement title or directly enforceable documents as creditors, to initiate, or to step into existing enforcement proceedings based on such title or document, and on an agreement on assignment of the claim which is certified by the competent authority, i.e. by the notary public. This should remedy the NPL market in Serbia and make it more attractive to investors, at least in the same way it was before the 2015 Enforcement Act.

The said Authentic Interpretation is listed on the Agenda of the 5th Meeting of the 2nd Ordinary 2017 Session of the National Assembly of Serbia, and it is expected to be discussed, adopted and published by the end of December 2017.