BANKRUPTCYPROCEEDINGS
- INTRODUCTION
The procedureof conductingthe bankruptcy proceedings isestablishedby the Lawon Bankruptcy Proceedings-revised text("Official Gazette of the Republic ofSrpska" no.26/10). Relevant provisionsof the Law on Civil Procedure are applied in the course of bankruptcy proceedings.
Bankruptcy proceedingsshallbe conducted for thepurpose of satisfying the bankruptcy creditors collectively through the encashment of his property and distribution of the proceeds to the bankruptcy creditors, which isthe first objective of the bankruptcy proceedings. The second objective, as stipulated by the Law, is reorganization of the bankruptcy debtor for the purpose of defining the legal status of the bankruptcy debtor and his relationship with the creditors, and in particular for the purpose of maintaining his business operations.
Bankruptcy proceedingsshall be opened by a writtenproposal/petition. Right to file the petition is granted to the bankruptcy debtor and all creditorswhohave alegal interest inthe implementation ofthe bankruptcy proceedings. The creditoris obliged to present his claim and thepayment inabilityof the debtorand to submitthe relevant documentsregarding it. Thecreditor mustalso pay a deposit.
The reasonfor startinga bankruptcyproceeding is the payment inabilityof the debtorwhich means thatthe samecannot meethis accrued and outstandingpayment obligations. In general the debtor is considered to beinsolventifhas not paid his outstanding paymentobligationsfor 60 days continuously.
If a legal entity becomes insolvent, the authority authorizedto representshall,without delayand no laterthan 30days from the date of theinsolvency, file a petition to start bankruptcy proceedings.There is even prescribedresponsibility of theauthorized representativefor damagesas provided for in Article4, paragraph2 of the Law. The court is obligedto review the petitionwithin15 days ofits receipt. Prior tothe expiration of15 days from the date of duly filed petition the Bankruptcy Judgeshall decideon the amount ofthe deposit requiredto fund the preliminary proceedings.
Bancruptcy proceedingsshall be carried out against the property of:
(i)a legal entity,
(ii)an individual (a general partner in a limited partnership and member of a partnership company),
(iii)public legal entities (except against the property of the Republic of Srpska, municipalities, public funds that are in whole or partially financed from the state budget).
For opening the bankruptcy proceedings against adebtor who in the capital structure has a majority state owned capital it is necessary to obtain the prior approval of the Government of the Republic of Srpska.
Bankruptcy proceedings shall be carried out by the competent court within whose area the debtor is located. District Commercial Courtsarecompetent courts which in the first instancedecideinbankruptcy and liquidation proceedings as well as in alldisputeswhich arise duringandon the occasion ofthe implementationof bankruptcyandliquidation, in accordance with Article33paragraph dj)of the Lawon Courtsof the Republic ofSrpska.
Bankruptcy proceedingsareurgentand usuallylast for one year. Exceptionally, theLaw providestwo yearsincases when theBankruptcyTrustee managestwobankruptcyproceedingsat the same timein accordancewith Article28, paragraph 1of the Law. If thebankruptcy proceedings last longer than a year,the Bankruptcy Judge shall inform thepresident of the court aboutthe reasons forextension of thedeadline. All proceedingsbefore the courtandadministrative authorities, whicharerelatedto the bankruptcy proceedingsareurgent.
- PRELIMINARY PROCEEDINGS
Preliminarybankruptcy proceedings, asone of the firststagesof bankruptcy proceedings, can be considered as aprocess of verification of debtor's solvency, orchecking ifthere is any reasonfor initiating bankruptcy proceedings.
Based onthe petition to open thebankruptcy proceedings, the BankruptcyJudgeshall issue a decisionon the initiation ofthe preliminary proceedingsto determine requirementsfor openingthe bankruptcy proceedings. With the same decisionthe BankruptcyJudge appointsan Interim Bankruptcy Trusteewhois required todetermine whetherthere are groundsandconditionsforopening and managingthe bankruptcy proceedings. Furthermore, the Bankruptcy Judge may orderother measuresto secure the futureof the bankruptcy estate(Article15 of the Law). Against thedecision of the BankruptcyJudge, brought on the basisof the above said Articleof the Law, an appeal may be filed bythe bankruptcy debtororthe Interim Bankruptcy Trustee provided that the appeal of the bankruptcydebtordoes notdelay the execution of the decision.
Decision to open the preliminaryproceedings against thejoint stock company shall be submitted tothe stock exchangeonwhich theshares of the company are traded,either in writtenorelectronic form, not later than the next dayfrom the dayof its adoption.
Ifthe petitioner is thebankruptcy creditor, then the same shall be required topay a depositto cover the costsof preliminary proceedingsin the amountdetermined by the BankruptcyJudge, whichlater becomes part ofthe costsof the bankruptcy proceedingsif the same isopened. Ifthe creditor does notpay the deposit within15 days, the Bankruptcy Judge shall make the decision to reject thepetition.
Ifthe petitioner is thebankruptcy debtor, the BankruptcyJudgemay exempt the same fromthe payment of the deposit ifthe debtor manages to prove that he has sufficient resourcestofund the preliminary bankruptcy proceedings.
Deposit for the costsof preliminary proceedingsforthe petitionercanbe paid byany other legalornatural entity.
The Interim Bankruptcy Trustee secures the property of the bankruptcy debtorand takes care ofit, assesseswhether thebusinessoperation of the debtormay be continuedin part or whole, as well as performs other tasks and dutiesinaccordance with the Law. The Interim Bankruptcy Trustee is required toexaminewhether thedebtor's assetscan cover thecosts of the proceedingsandwhether there are groundsforopening the bankruptcy proceedingsand shallsubmit a report tothe courtwithin 30days of the appointment. Afterreceiving the report,prepared by the Interim Bankruptcy Trustee, the Bankruptcy Judgeshall schedule a hearingto discussthe petitionfor openingthe bankruptcy proceedings. On the basis ofdiscussionson the petitionforopening the bankruptcy proceeding, the Bankruptcy Judge shall issue a decisionon the openingof bankruptcy proceedingsordecision on the rejectionof the same within three daysfrom the end of the hearing.
- PARTIES IN THE BANKRUPTCY PROCEEDINGS
Bankruptcy Judge–manages and controls the bankruptcy proceedingsfrom submission of petition for opening the bankruptcy proceedings until it ends, also in charge for all issues regarding the bankruptcy proceedings. The Bankruptcy Judge appoints experts, Interim Bankruptcy Trustee, members of the Interim Committee of Creditors and the Bankruptcy Trustee, and performs legal supervision of the work of the Interim Bankruptcy Trustee as well as Bankruptcy Trustee in accordance with the Law. Thus, the Bankruptcy Judge is an operational and supervisory authority of the bankruptcy proceedings.
Bankruptcy Trustee-can be defined asa separate authority inthe bankruptcyproceedings who under the supervisionof the Bankruptcy Judgeandthe creditors performs tasks in the name of the bankruptcy debtor, which includes the collection andliquidationof debtor's assetsand thesettlement of creditors.This person is to be appointed on the basis of the decisionon opening the bankruptcy proceedings, and from that momentrepresentsthe bankruptcy debtor. Rightsandobligations ofthe Bankruptcy Trustee are stipulated inArticle29of the Law, and italso prescribes theresponsibilityof the Bankruptcy Trusteesoif the one violates the said obligationshe shall be required to compensatethe damage causedto allparties in the bankruptcyproceedings(Article30 of the Law). The Law further stipulatesthat theBankruptcyTrustee shall immediately afteraccepting the position conclude a contract with an insurance company as an insurance of liability forall risksassociated with his activities. The amount of insurance shall be determined bythe BankruptcyJudge, depending on what isexpectedvalue of bankruptcy estate, and taking intoaccount the particularcircumstancesof the proceedingsprovidedthat the minimuminsured amount is50,000.00 BAM. Provisions on liability insurance do not apply tothe bankruptcy proceedingsof small value.
Assembly of Creditors–shall be convened bytheBankruptcy Judge who manages thesame. The Law does notregulatein detailthe powersof Assembly of Creditors. The firstAssembly of Creditorsis to be convened on the basis of the decisionon opening the bankruptcy proceedings but later can be convened either at the proposal of the Bankruptcy Trustee, the Creditors’ Committeeorat the proposal ofat leastfive creditorswhojointly representat leastone-fifthof all reportedamountsreceivable. Entitled to votein theAssembly of Creditors are onlybankruptcy creditorswhohave filed claimsandwhose claims were notdisputed. Alldecisions of the Assembly of Creditorsshall be brought on the basis of an absolute majority ofthe present bankruptcy creditors, but theamount of theclaims of creditorswho have votedfor a particulardecisionmust be higher thanhalf of theclaimsof the present creditors.
At thefirst Assembly of Creditorsafter the appointment ofthe Bankruptcy Trustee, the Assembly of Creditorsmayelect another Bankruptcy Trustee if proposed by at leastfive bankruptcy creditorswhojointly representat leastone-fifthof all reported claims.BankruptcyJudge decideson the engagement ofa newanddismissal of the previousBankruptcy Trusteeand by the previousBankruptcyTrustee, bankruptcy debtorandany creditorhave right to appeal against such decision provided thatthe appeal does notdelay execution of decision.
Creditors’ Committee–is primarily an authority that in bankruptcy proceedings represents the interests of creditors. Members of the Creditors’ Committee shall be chosen among the creditors but it must include the following groups of creditors: bankruptcy creditors with the largest claims, bankruptcy creditors with small claims, representatives of workers’ of the bankruptcy debtor and the secured creditors. Exceptionally, persons who could contribute to the work of the Creditors’ Committeedue to their professional expertise may be appointed as members of the same.
Bankruptcy Judge mayappoint an InterimCreditors’ Committeethat will operateuntil the election ofthe Creditors’ Committeeifit isin the interestof bankruptcy creditors.
Creditors’ Committeesupervises(has the right to exercise immediatecontrol) and direct, but alsosupports the work ofthe Bankruptcy Trustee. The Committee is also entitled to requirereportingandaccountabilityofthe Bankruptcy Trustee. For certainimportant legalactivities of the Bankruptcy Trusteesuch asalienationandacquisition ofcompany's real estate, initiation andrepresentationinlitigation andotheractivitiesprescribed by the Law it will requirethe consent ofthe Creditors’ Committee, and if the same is not established, then theAssembly of Creditors shall becompetenttogive the said consent. Ifin the course of thetwo consecutive sessions ofthese two authorities decision on providing the consent is not reached, then such consent maybe obtained from the BankruptcyJudge.
Bancruptcy Judge shall be in charge of dismissing a member of the Creditors’ Committee and the same shall bring decision to dismiss, either ex officio or at the request of a member of the Creditors’ Committee or Assembly of Creditors. The dismissedmember of the Creditors’ Committee has the right to appeal against such decision, provided that the appeal does not delay the execution of the decision.
Creditors’ Committeeis consisted of an uneven number of members but not more than seven. The Creditors’ Committeeshall conduct its work through its sessions, and they have to elect the president ex officioat the first session which shall be convened by the Bankruptcy Judge at the proposal of the Bankruptcy Trusteeor the majority of members of the Creditors’ Committee. The Creditors’ Committeeis obliged to invite the Bankruptcy Judge to every session. The session may be held if a majority of thetotal number of Creditors’ Committee members is presented, and decisions are to be adopted by simple majority of present members.
- CREDITORS
Bankruptcy creditorsare creditors of the bankruptcy debtor, whose claims arise out of legal relationships with the bankruptcy debtor. These claims, which were created before the bankruptcy proceedings, shall be paid in the bankruptcy proceedings after the payment of the costs of the bankruptcy proceedings from the so-called general bankruptcy estate in the narrow sense. Claims of bankruptcy creditors existed at the time of opening the bankruptcy proceedings. The basic condition toconsiderbankruptcy creditors as such is that there are existing claims.
In accordance with the Law, the bankruptcy creditors are classified into payment priorities:
1)bankruptcy creditors ofgeneral payment priority-bankruptcy creditorswhoat the time ofopening the bankruptcy proceedingshavejustified propertyclaims against the bankruptcy debtor, and are not classified into thehigher or lowerpayment priority.
2)bankruptcy creditorsof higher payment priority– (i) bankruptcy creditorswhose claims belong to the periodof interim administrationand which could not be settledneither by Interim Bankruptcy Trustee norBankruptcy Trustee; (ii) employeesof the bankruptcy debtorwithclaimsarising from employmentnot longer than forthe last ninemonths before opening the bankruptcy proceedings, but only to thelegal minimumwage.
3)bankruptcy creditorsof lower payment priority–shall be settled inthe followingorderandatthe same rankin proportiontotheirrelativeamounts: (i) interest on the claims of the bankruptcy creditors incurred since the opening of the bankruptcy proceeding; (ii) costs of particular bankruptcy creditors incurred during their participation in the proceedings; (iii) fines, punishments, penaltiesandmonetaryrestraints,as aconsequences ofa criminal act or misdemeanor that require cashpayments; (iv) claims related to particular gratuitous activities of the bankruptcy debtor; (v) claims relatedto therepayment of a loanthat replacescapitalof afounderorclaims whichareequatedwith that.
Creditors with an exclusion rightarethe bankruptcy creditors who are entitled to property or obligation right, onthe basis of whichthey may require thatcertain items, whichare not assetsof the bankruptcy debtor, should be excluded from thebankruptcy estate. Right to exclusion cannot be achievedin the previous procedure but can be achieved after the reporting hearingat the earliest. If the subject of exclusion is necessary for the continuationof businessoperation of the bankruptcy debtor, the Bankruptcy Trustee may delaythe request for exclusionfor a period of90 daysstarting from the reporting hearing. If, after expiration of this periodthe subject of exclusion in the following 90days is still requiredforcontinuation of business operationof the bankruptcy debtor, it is necessary to obtain the consentof the Bankruptcy Judge. Decision on the same shall be delivered tothe Bankruptcy Trusteeandthe bankruptcy creditor with exclusion right,whohavethe right to appeal.
Untilreporting hearingthe creditorswith exclusion right are entitledonly toclaims due to excessive deterioration ofitems which are subject to exclusion. After the reporting hearingthe creditorwith exclusion right is entitled to be compensatedforuse of the subject itemandis entitled to befullycompensated for any loss related to the item which is subject to the exclusion right. If the Bankruptcy Trusteeis unableto pay thevalue ofthese items, then the bankruptcy creditor with exclusion right is entitledtoexclude the item after a period of eight days given to the Bankruptcy Trustee.
Secured creditorsarecreditorswhohave the rightto separate recoveryofcertainitemsor other assetsof the debtor.
Secured creditors are the following:
1)the mortgagecreditorsandthe creditorsof the landdebt;
2)the creditorswhoaccording to the law, or due to the seizure, court settlement or legalaction obtained a lienright;
3)the creditorsto whom the bankruptcy debtorin order to ensureproperty conveyedsome rights;
4)the creditorsthatare entitled to the right of retention.
However, if themonetary claimof the secured creditorexceeds the valueof itemsorrightswherethere is a rightto separate recovery, foroutstandingexcessthe creditorparticipates in the proceedings.
Creditorsof the bankruptcy estateare the bankruptcy creditorsof the bankruptcy debtor, whose claimsare included in the costsanddebtsof the bankruptcy estate. Whatisspecific withthesecreditorsis thattheir rightsariseafter theopening of bankruptcy proceedings, regarding the collection, preservationandliquidation ofthe bankruptcy estate. Claims of thesecreditorsare to be settledin full, before the claims of bankruptcy creditors. So, these claimsare to be settledprimarilyinrelation toother claims.
- OPENING THE BANKRUPTCY PROCEEDINGS
Bankruptcy Judgeopensbankruptcy proceedingsover the assetsof the bankruptcy debtorif the petition isallowed, ifthere isa reason for bankruptcy and ifthedebtor's assetsaccording to the projectionsare sufficientto cover thecosts of the bankruptcy proceedings. In the eventthat the debtor's assetsare not sufficient, and the petition isacceptable and justified, the Bankruptcy Judge may decideto open the bankruptcy proceedingsonlyifthe person concernedpay a depositto cover the costs.If the assets ofthe bankruptcy estateare insufficientto repay the depositfor thecosts of the proceedings, the person whopaid such a depositmay request to be refunded by any personwho was obligedbutfailedto file a petition by his own faultforopening the bankruptcy proceedings.
The BankruptcyJudgemay decide todirectlyopen the bankruptcy proceedingswithoutconducting preliminary proceedingsif thepetition: (i) has been submitted by a Liquidatoror(ii) by a bankruptcy creditor who holds a final writ of execution and that writ of execution has remained unsatisfied for 60 days. In the latter case the Bankruptcy Judge presumesthat it was proventhat there is existence ofthe obligationsof the debtoras well as the debtor'sinabilityto pay.
Decision to Open the Bankruptcy Proceedings –contains (i) the bussines nameor personal name, the place of business or the address of the debtor's residence; (ii) the name and address of the Bankruptcy Trustee; (iii) the date and hour of opening the bankruptcy proceedings. If the hour of opening of the bankruptcy proceedings is not stated, the noon of the day on which decision was issued shall be considered as the moment of opening.
Decision on opening the bankruptcy proceedings also contains notifications for bankruptcy creditors requiring them to file their claims within a period of 30 days from the date of posting announcement or receipt of the decision. Also, creditors are invited to notify the Bankruptcy Trustee which rights they claim over the assets of the bankruptcy debtor. It is necessary to state the item to which a lien is asserted, type and basis of the insurance right as well as secured claim. Decision to open the bankruptcy proceedings also notifies persons who owe to the bankruptcy debtor to meet their obligations against the bankruptcy debtor.
In the decisionto open the bankruptcyproceeding, the BankruptcyJudge must set dates for hearings for the Assembly of Creditors (reporting hearing). At the reporting hearingthe Assembly of Creditors reviews the report of the Bankruptcy Trustee anddecides onthe further courseof the bankruptcy proceedings. It may not be held before or later than fifteen days after the hearing date for the examination of the filed claims but can be heldsimultaneously.
Reportedclaims shall be reviewed at the examination hearing. Theperiodbetweenthe deadline for filingandexamination hearingshall be at least8and maximum 30 days. Announcement (decision) on the openingof the bankruptcy proceedingsshall be posted on the court's noticeboard. Also, the same shall be publishedon the same dayinthe Official Gazetteof the Republic ofSrpska. From this momentlegal consequences ofthe openingof bankruptcy proceedings ariseandthe same may lastuntilthe completion of the proceedings.
A copy ofthe decisionshall be submitted tothe competent prosecution office which is to be informedalso in the case that the openingof bankruptcy proceedingsdoes not occur as a result ofthe lack ofbankruptcyestate. Decision onthe opening ofthe bankruptcy proceedings against thejoint stock company shall be submitted tothe stock exchangeonwhich thecompany’s shares are traded,in writtenorelectronic form, not later than the next dayfrom the dayof its adoption.The Bankruptcy Courtshallorder theregistration in the appropriatepublic registersas follows:(i) the registrationof opening the bankruptcy proceedings;(ii) the registrationof rejection of the petitionto opendue tothe lack ofestate in theevent thatthe bankruptcy debtor isa legal entity thatceases to existby refusal due to the absenceof bankruptcyestate; (iii) the registration of closing the bankruptcy proceedings.