Insolvency Law at Bosnia and Herzegovina
In Bosnia and Herzegovina (BiH), insolvency law is regulated by a combination of federal laws and laws specific to the entities (the Federation of Bosnia and Herzegovina (FBiH), the Republic of Srpska (RS), and Brčko District). The main framework for insolvency is provided by the Law on Bankruptcy and Law on the Financial Operations of Companies, as well as other relevant legislation.
The insolvency process in Bosnia and Herzegovina is designed to provide a structured way for individuals and companies to deal with their financial distress, allowing for debt restructuring or liquidation, depending on the circumstances. The procedures and rules for insolvency are similar to other countries, involving the appointment of insolvency administrators, restructuring plans, and the liquidation of assets to pay off creditors.
Key Features of Insolvency Law in Bosnia and Herzegovina
1. Insolvency Laws and Framework
The core legal framework for insolvency in Bosnia and Herzegovina is governed by:
The Law on Bankruptcy in the Federation of Bosnia and Herzegovina (FBiH) (Official Gazette No. 49/15).
The Law on Bankruptcy in the Republic of Srpska (RS) (Official Gazette No. 72/16).
The Law on the Financial Operations of Companies in Brčko District.
These laws generally cover bankruptcy procedures, the appointment of administrators, the rights of creditors, and the general rules for corporate and personal insolvency.
2. Types of Insolvency Proceedings
Insolvency proceedings in Bosnia and Herzegovina can be categorized into two main types:
a) Reorganization (Restructuring)
In cases where the debtor is a company or business, reorganization is the preferred solution if the company can be salvaged. The aim of the reorganization process is to allow the company to continue its business operations while restructuring its debts.
Key elements of reorganization in Bosnia and Herzegovina include:
Filing for Reorganization: A debtor or creditors can request reorganization if the debtor faces insolvency. The court will assess the request, and if it is valid, the debtor can propose a restructuring plan.
Restructuring Plan: The debtor submits a plan to restructure debts, which may include deferring payments, reducing the debt, or modifying the terms of the loan agreements. The creditors must approve the plan for it to be implemented.
Administrator: A court-appointed administrator (often an insolvency practitioner) will oversee the restructuring process. This administrator manages the debtor's assets and supervises the implementation of the reorganization plan.
Stay of Creditors: Once reorganization is filed, creditors are typically prohibited from initiating further actions against the debtor during the reorganization process, allowing the debtor time to restructure.
b) Liquidation (Bankruptcy)
When reorganization is not feasible or if the debtor is a corporation that cannot continue operating, the court may initiate liquidation. Liquidation is the process through which the debtor's assets are sold off to pay creditors.
Key features of liquidation:
Initiation of Bankruptcy: If the debtor's financial distress is severe, the bankruptcy process (known as bankruptcy proceedings) can be initiated. This process is focused on winding up the business and distributing the debtor's assets to creditors.
Liquidation of Assets: A court-appointed bankruptcy trustee is responsible for liquidating the debtor’s assets and distributing the proceeds among creditors according to the established legal priority.
Priority of Creditors: In liquidation, creditors are paid in a specific order:
Secured creditors (those with collateral rights) are paid first.
Unsecured creditors (e.g., suppliers, employees) are paid next.
Shareholders or owners typically receive the remaining proceeds after all debts have been paid.
3. The Role of the Court in Insolvency
In Bosnia and Herzegovina, the court plays a crucial role in both the reorganization and liquidation processes:
Court Approval: The court approves the insolvency filing and reorganization plan. It also makes decisions on whether a company should enter liquidation if reorganization is not possible.
Appointment of Administrators: The court appoints an insolvency administrator or trustee to manage the process. The administrator is responsible for overseeing the liquidation or reorganization and ensuring that creditors' rights are respected.
Supervision of the Process: The court supervises the insolvency process to ensure compliance with the law. It reviews the restructuring plans and liquidation distributions, ensuring that the procedure is fair and transparent.
4. Insolvency Administrators
An insolvency administrator is a key figure in both liquidation and reorganization processes. In Bosnia and Herzegovina, insolvency administrators are professionals who are typically appointed by the court. Their responsibilities include:
Managing the debtor’s business or assets.
Facilitating communication between the debtor and creditors.
Ensuring that the terms of a restructuring plan or liquidation are followed.
Selling the debtor's assets in liquidation cases.
Distributing proceeds from asset sales to creditors according to priority.
5. Creditor Rights and Participation
Creditors have significant roles in the insolvency process in Bosnia and Herzegovina:
Creditors’ Meeting: Creditors can attend meetings where they can discuss the debtor’s financial condition and the proposed reorganization plan.
Approval of Restructuring Plans: In reorganization, creditors must approve the debtor’s proposed restructuring plan. This may require a majority vote, and the creditors can negotiate the terms of the debt restructuring.
Right to Object: Creditors have the right to object to the insolvency proceedings and to challenge the proposed reorganization or liquidation.
6. Personal Insolvency
Personal insolvency is less common in Bosnia and Herzegovina than corporate insolvency, but it is possible. The process for personal insolvency is generally aligned with that of corporate insolvency, with an emphasis on debt restructuring or liquidation of personal assets.
Reorganization for Individuals: Like businesses, individuals can file for insolvency if they cannot pay their debts. In personal insolvency, the debtor may be allowed to propose a repayment plan to creditors.
Personal Bankruptcy: If an individual is unable to restructure their debts, they may be declared bankrupt, and their assets may be liquidated to pay creditors.
7. Cross-Border Insolvency
Given Bosnia and Herzegovina’s geographical location in Southeast Europe, cross-border insolvency cases may arise, particularly with companies or individuals involved in international business. While Bosnia and Herzegovina is not a signatory to the UNCITRAL Model Law on Cross-Border Insolvency, it generally cooperates with other countries in cross-border insolvency matters, especially within the Balkan region and the European Union.
This cooperation allows for recognition of foreign insolvency judgments, coordination of liquidations, and other cross-border insolvency processes.
8. Reforms and Modernization
Bosnia and Herzegovina's insolvency laws have been continuously evolving to align with international standards. The Law on Bankruptcy has undergone several amendments, including in 2015 and 2016, to improve the efficiency of insolvency proceedings, ensure more predictable outcomes for creditors, and provide debtors with better chances for restructuring.
Recent reforms focus on:
Improving Efficiency: Streamlining the procedures for filing insolvency and expediting the resolution process.
Encouraging Corporate Restructuring: Making it easier for viable companies to restructure debts rather than be liquidated.
Protecting Creditors: Enhancing the protection of creditors' rights and ensuring a more equitable distribution of assets during liquidation.
Alignment with EU Standards: Bosnia and Herzegovina has been working on aligning its insolvency framework with European Union regulations, especially in anticipation of potential EU integration.
9. Recent Developments and Trends
In recent years, Bosnia and Herzegovina has faced economic challenges that have impacted the number of insolvency cases, particularly among small and medium-sized enterprises (SMEs). However, the country's legal system continues to evolve to support restructuring efforts, and more emphasis is being placed on preventive measures to avoid insolvency.
Conclusion
Insolvency law in Bosnia and Herzegovina is designed to balance the interests of debtors and creditors through structured bankruptcy and reorganization procedures. The law provides for both reorganization (restructuring of debts) and liquidation (sale of assets), with a focus on fairness, creditor protection, and the preservation of viable businesses. The role of the court and insolvency administrators is critical in overseeing the process, ensuring that the procedures are followed and that creditors receive fair treatment. Ongoing reforms and alignment with EU standards are intended to improve the efficiency and transparency of the insolvency system.
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