Boris Babić, Senior Partner in Babic & Partners law firm and Vice-Chair of Real Estate Committee of International Bar Association (IBA) and attended the 8th Annual Bar Leaders’ Conference held in Zurich from 22-23 May 2013. The conference was organized by IBA in association with the Zurich Bar Association and the Swiss Bar Association. This conference brought together bar presidents, senior officers, bar executives, law firm and individual practitioners from all around the world to discuss the latest developments and issues affecting the law profession. The speakers included leading officers of IBA and American Bar Association (ABA), as well as leading officers of several national bar associations.

Ministry of Economy, as the registry authority for the Croatian representative offices of corporations seated outside Croatia officially announced that, as a result of amendment to the Croatian Trade Act, the representative offices of corporations seated in EU member countries will cease to exist by operation of law as of the date of Croatia’s accession to EU. Under the Ministry’s announcement, the founding entities of such representative offices who intend to continue or extent their business operations in Croatia are required to change local corporate form by way of establishing a local branch office or an affiliate. Given that the announced termination of the representative office is expected to occur on 1 July 2013 (by Croatia’s accession to EU) and that no grace period has been provided to the founding entities in this regard, the above announcement of the Ministry will strongly affect the business of all corporations seated in EU having established representative office in Croatia.

Babić & Partners are proud to present their brand new website (http://www.babic-partners.hr/). The website is designed primarily to better inform clients and potential clients about Firm’s legal services as well as to outline news and trends important for the business and legal community. In an effort to provide a stronger client experience, we have focused resources on building a content-rich website with an emphasis on our commitment to clients and their interest, including steady stream of legal news, updates, expert publications and other resources.

The Act on Financial Operations and Pre-Bankruptcy Settlement entered into force on 1 October 2012. The Act regulates financial operations of companies, periods for settlement of monetary debts, status of companies in case of illiquidity and insolvency and pre-bankruptcy settlement procedure. It was expected that the Act will not only improve previous inefficient restructuring model (many bankruptcy proceedings have lasted for more than 10 years) but that its enactment will solve the problem of illiquidity and insolvency of many Croatian companies as well.

The new model introduced by the Act allows debtors to accept a restructuring plan and agree to a pre-bankruptcy settlement with creditors. The initiative for the procedure lies with the debtors, i.e. illiquid or insolvent companies, that are required to initiate the pre-bankruptcy settlement procedure within 60 days as of becoming illiquid (if restructuring efforts would have failed) or latest within 21 days as of becoming insolvent. The proceedings are initiated before and primarily run by the Croatian Financial Agency (“FINA”). Noncompliance with an obligation to initiate the pre-bankruptcy proceedings exposes a debtor to misdemeanor fines (monetary fines for the company and the responsible person within the company). The duration of the pre-bankruptcy procedure is limited and the procedure has to be completed within 120 days.

However, immediately upon its entry into force, numerous deficiencies and ambiguities arose in the application of the Act and affected its initial success (e.g. content and form of documentation necessary for opening of the pre-bankruptcy procedure were not well sufficiently defined, relationship with the bankruptcy procedure was not regulated, etc.). More specifically, while the Government expected that FINA would have received over 20.000 requests for pre-bankruptcy settlement procedure by the end of 2012, FINA had actually received only about 240 requests by December 2012. The Government therefore decided to amend the Act swiftly and directly by enacting the Ordinance on 21 December 2012. The amendments to the Act mostly relate to procedural issues of pre-bankruptcy settlement with the aim of simplifying the whole procedure. For example, some of the changes to the Act include: (i) less documentation required for initiation of the pre-bankruptcy settlement procedure; (ii) the possibility (in exceptional cases) of freeing the debtor’s bank accounts even prior to the ruling on the opening of the pre-bankruptcy procedure; (iii) changes related to the effects of the settlement, etc.

It appears from the preliminary available data that the amendments have achieved some success. Specifically, by the end of January 2013, FINA received more than 3.000 requests for initiation of pre-bankruptcy settlement procedure. However, as the initial hearings were scheduled for February 2013 it remains to be seen how these procedures will end and whether the Act will ultimately fulfill its intended goals.

Overview: The Act on Financial Operations and Pre-Bankruptcy Settlement

According to press reports, the Croatian Government is planning to sell shares in 300 companies by the end of 2013 and in further 300 companies by the end of 2014. The income from the first round of sale is expected to reach HRK 3bn (approximately EUR 396m).

The state portfolio is divided in three categories. The first category covers companies of special state interest and the Government intends to retain a controlling shareholding (e.g. 25%+1 share). The most significant income from this group is supposed to come through the sale of Hrvatska poštanska banka (Croatian Postal Bank) and Croatia Osiguranje (largest Croatian insurance company). The Government has discussed privatization of these companies ever since taking office in 2011 and initial steps in the process have already been taken. Such privatization route is envisaged for some other major companies such as INA (national oil company), Jadrolinija (shipping), Luka Rijeka (port management) and Đuro Đaković (industrial machinery). The second category consists of companies proposed for recapitalization. Out of these companies only ACI (marinas management) received publicity up to this date.

The third category will reportedly cover companies that consistently produce losses and which should be fully privatized. The Government plans to offload all of its stakes in several hospitality/tourism companies (including hotel companies Medena, Maestral, Makarska, Korčula, Orebić) as well as in Borovo (footwear manufacturer), Tiskara Vjesnik (printing company) and Brijuni Rivijera (real estate development).

1. Background

The Western Balkans is a region on the move. Croatia became the 28th EU member country on 1 July 2013. Accession negotiations are gathering pace with Serbia, Montenegro and the Former Yugoslav Republic of Macedonia (“FYROM”). Bosnia, Albania and Kosovo are moving steadily towards candidate status. These developments will trigger significant changes in the way these economies are run. But after some decades of reconstruction on a national basis, businesses and governments will have to adapt to a European approach and competition policy will have an important part to play. This seminar, organized by law firm Babić & Partners, Zagreb, Croatia looked at the reality of competition law enforcement in the region, key trends and developments as well as practical tips based on previous transactions and matters handled by the speakers.

2. Faculty

2.1 Introduction

Alison Hook, Director, Hook International, London

2.2 Facilitator

Margaret Doyle, Columnist, Reuters Breakingviews, Thomson Reuters

2.3 Speakers

Dag Johansson, Policy Co-ordinator, International Relations, European Commission, Brussels, gave a personal view on the topic: “Pitfalls and Challenges for Emerging Competition Regimes”.

Boris Babić, Senior Partner, Babić & Partners, Zagreb, Croatia, spoke on antitrust law and enforcement issues across the Western Balkans (in Croatia, Serbia, Bosnia and FYROM especially)

Iva Basarić, Senior Associate, Babić & Partners, Zagreb, Croatia, presented a case study: “Multi-jurisdictional Merger Control Filing in the Region”.

3. Some of the topics discussed:

–  Convergence as a balancing act: must allow flexibility and be adapted to country-specific circumstances;
–  Oversimplification and misinterpretations (e.g. definition of dominance);
–  Competition authority’s, priority setting and project management;
–  Multi-jurisdictional merger control filing in the region: case study;
–  Cartels and leniency: how does it work and what industries are likely targets;
–  Relationship between EU competition law and local laws;
–  Regional convergence: is there in fact a model law in the region and how this affects the enforcement;
–  Landmark cases, enforcement record and trends.

4. Additional information

For further information, including presentations from the Seminar, please contact us at office@babic-partners.hr