The new law on bankruptcy enables faster resolution of proceedings

The new law on bankruptcy enables faster resolution of proceedings

As part of the Commercial Department of the Sarajevo Municipal Court (OSS), 149 cases/bankruptcy proceedings were resolved in 2022. At the beginning of that year, there were 220 unresolved bankruptcy cases, and during the year 104 were received, so that there were a total of 324 such cases, of which 175 remained unresolved.

The President of the Commercial Department of the OSS, judge Hakija Zajmović, points out in an interview for Fena that the entry into force of the new law (the FBiH Bankruptcy Act) in mid-July, 2021, has greatly contributed to a more efficient resolution of bankruptcy proceedings compared to the previously valid FBiH Bankruptcy Act from 2003.

The new law eliminated deficiencies such as untimely initiation of bankruptcy proceedings, length of time, high costs of proceedings, low percentage of creditor settlements and the impossibility of reorganization of debtors before the initiation of bankruptcy proceedings, all with the aim of removing legal and other obstacles for further investments.

“The indicators clearly show that the new law has a positive effect in terms of the speed of resolution, and there are fewer disputed situations/cases arising from bankruptcy proceedings,” says Zajmović, reminding that this is evidenced not only by statistics but also by the enforcement procedure itself.

It also reminds that since 2004, there has been a continuous increase in the number of pending bankruptcy cases, and that in the past year 2022, for the first time, that number decreased by as many as 55 cases compared to the situation at the beginning of the year.

In this regard, he is convinced that bankruptcy procedures will be resolved much faster in the future, “because the new bankruptcy law makes this possible.”

In reviewing the new legal solutions, Zajmović states that one of the key novelties concerns the improvement of the status and the increase in the scope of the rights of workers during the bankruptcy procedure, “because in accordance with the current legal solution, they are placed in a higher (first) payment order and have the right to report all claims from the employment relationship”.

Since the new law is not applied retroactively, old bankruptcy cases are still resolved in accordance with the provisions of the old law.

When it comes to factors that influence the duration of bankruptcy proceedings, Zajmović explains that their long duration is a consequence of the slow resolution of disputes arising from bankruptcy.

“When a bankruptcy judge opens a bankruptcy proceeding and a dispute arises from that proceeding, that dispute is not resolved by that judge, but by one of the judges, depending on the type of dispute, whether it is labor, commercial or someone else,” he explained.

Illustrating this situation, he cites the example of a worker who claims something, and the bankruptcy trustee disputes it, “the worker goes to litigation and that litigation is then handled by another judge. Well, when that dispute ends in the OSS in the first instance, then an appeal is filed, then it goes to the Cantonal Court, and the bankruptcy cannot be completed until all those proceedings there are finished”.

“The bankruptcy judge and the proceedings he leads cannot influence the enumerated proceedings on which the completion of the bankruptcy proceedings depends,” clarifies Zajmović, stating that the lack of such information creates a wrong perception in the public about the reasons for the long duration of bankruptcy proceedings.

When asked if this argument also applies to the company “Alhos”, whose bankruptcy, according to media reports, has been being resolved since 2004, he explains that the procedure was completed a long time ago, but also that there may be situations in which a certain employee requests some document for pension etc. and then that item has to be pulled from the archive, so it looks like a new item.

“That case was finished a long time ago. The company was deleted from the court register, the assets were sold off and distributed to creditors, but according to our procedures, we cannot do anything if someone submits a request to us without withdrawing it from the archive and re-registering it as a new one subject, and it is actually finished,” he explains.

When asked what priority should be given to ‘recovery’ or liquidation, Zajmović emphasizes that the new law provides a good opportunity for all companies that have the possibility of recovery/reorganization in an initial crisis, recalling how this issue is treated by the new law as part of a special chapter called – Pre-bankruptcy proceedings.

According to him, interested companies, which have fallen into some kind of crisis, now have a chance to submit a proposal for pre-bankruptcy proceedings in order to try to reach an agreement between creditors and bankrupt debtors in that procedure, on which the Court will then make a decision.

It is a novelty that, on the recommendation of the European Commission, offers a new approach to bankruptcy, which includes a pre-bankruptcy procedure or a restructuring procedure, which is carried out in order to regulate the legal position of the debtor and his relationship with creditors, with the aim of continuing to perform activities.

The new bankruptcy law tightened the conditions for the selection of bankruptcy trustees, and the upper age limit is 63 years of age, while two bankruptcy proceedings are the maximum number of cases that can be handled by one bankruptcy trustee at the same time. The liability of bankruptcy trustees was also tightened, and compulsory insurance of all risks was introduced at the lowest insured sum of 50,000 KM.

When it comes to the decision on the company’s survival, Zaimović explains that the decision is not made by the bankruptcy trustee, and even less by the bankruptcy judge, although the public’s perception is often different.

Namely, the public hears questions like – Why didn’t the bankruptcy administrator or the judge save the company?

“The judge only follows the procedure and may not order reorganization. The judge is the one who monitors the legality of the proceedings, and the decision on whether the company will go into reorganization or liquidation is made by the creditors during the bankruptcy proceedings. These are the creditors who applied when we make a decision to open the procedure and publish it in the official newspaper and invite all creditors to report their claims, if they have any,” he specifies.

According to the procedure, then all those creditors who applied, attend the hearing and make a decision about it – will the company go into liquidation, or into reorganization?

If the creditors are in favor of the reorganization and suggest the bankruptcy administrator to make a reorganization plan, then he is obliged to make that plan within one month, which will be adopted or not, depending on the attitude of the creditors.

In the event that the founders make a decision to terminate, only companies that have no debts, i.e. those that have settled all obligations, are subject to liquidation.

In this context, Zajmović states that the adoption of a new law on the liquidation procedure, which is “stuck” in the parliamentary procedure, would make it much easier for judges to carry out the procedure in those procedures.

“Unfortunately, the Law on Liquidation Procedure of the FBiH, which is in force and has 17 articles, does not prescribe a procedure/procedure on how to carry out the liquidation”, reminds the president of the Commercial Department of the OSS, judge Hakija Zajmović in an interview for Fena.