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New Law on Consensual Financial Restructuring

November 2015 - Finance. Legal Developments by Karanovic & Nikolic.

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As of 3 February 2016, the new Law on Consensual Financial Restructuring (“Law”) will introduce an improved framework for voluntary debt restructuring in Serbia (“Restructuring”). The Law was adopted as a part of a national strategy to address the increasing number of non-performing loans in the country, which was adopted in August 2015 (“Strategy”).[1] The Law will replace the existing Law on Consensual Financial Restructuring of 2011, which produced modest results in practice.

The new Restructuring model provided for in the Law will not be available for certain entities (e.g. for banks; insurance companies; entities which are subject to bankruptcy proceeding; etc.) as was previously the case, but will be applicable to entrepreneurs.

The basic intention of the Law is to provide a framework for debt restructuring which should enable the stabilization and turn-around (i.e. recovery) of businesses affected by financial difficulties.

Pursuant to the Law, a request for Restructuring may be submitted to the Serbian Chamber of Commerce (“Chamber”) by: (i) the debtor, or (ii) one or more creditors. Afterwards, the Chamber acts as an institutional intermediary and undertakes several administrative activities for establishment and realisation of a Restructuring.

Compared to its predecessor, the Law introduces several novelties which aim to relax the procedure for Restructuring. For example:

  • it is no longer required to have two banks as participants in the Restructuring (depending on the situation there are several options available);
  • the conclusion of an agreement on standstill of debts is presented as an option, not as a mandatory element; 
  • the debtor does not have an obligation to deliver the agreement on consensual financial restructuring to the commercial registry (the records of such agreement is kept with the Chamber); and
  • the category “Intermediary” (in Serbian: “Posrednik”) is introduced as an authority who will objectively mediate during the procedure for Restructuring.

It remains to be seen in practice whether the intended goal of motivating debtors and creditors to sit down and work out a restructuring plan before the situation escalates to the bankruptcy stage will be achieved through this change in legislation. In parallel with the Law, various other measures are being adopted and developed in accordance with the Strategy.

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