you are being redirected to the website of our parent company, Schönherr Rechtsanwälte GmbH

07 November 2017

DIP (supersenior) Financing in Croatian Insolvency

Reasoning behind the changes

In the two years that the "new" bankruptcy regime – the Bankruptcy Act of September 2015 (Stečajni zakon; the "BA") – has been in place, the number of pre-bankruptcy procedures initiated in Croatia has plummeted to only 273, with 58 restructuring plans being accepted. By comparison, under the previous pre-bankruptcy regime from 2012 to 2015, 8,262 pre-bankruptcy procedures were initiated, with 2,224 restructuring plans being reached.

These numbers have convinced the government that the provisions of the new pre-bankruptcy regime lacked sufficient incentives for debtors, and that the procedure was too rigid and difficult to enforce. The proposed amendments should encourage debtors to initiate pre-bankruptcy proceedings and make the procedure more debtor-friendly. The amendments came into force on 2 November 2017.  

Conceptual change of the BA

By far the biggest change of the BA is the introduction of DIP financing during the pre-bankruptcy stage, which so far was not envisaged in Croatian insolvency.

The rules for taking on new monetary debt for temporary financing necessary to continue business activities throughout pre-bankruptcy proceedings (DIP financing) are a novelty in Croatian insolvency, and are as follows:

  • prior approval of creditors representing two-thirds of all recognised claims is required;
  • the court needs to confirm creditors' approval, amounts, terms and conditions and deadlines for payment of claims from the new indebtedness;
  • new debt will have supersenior status in bankruptcy, but not before higher priority creditors' claims (eg employees' claims);
  • DIP financing and security granted for such financing will not be subject to avoidance if bankruptcy proceedings are subsequently opened over a debtor; and
  • in all pending pre-bankruptcy proceedings initiated after 1 September 2015, DIP financing will be possible unless a hearing for voting on restructuring plans was held.

Other not-so-minor changes to the BA

Some of the most relevant changes to pre-bankruptcy are:

  • lowering level of certainty for existence of pre-bankruptcy reason when opening pre-bankruptcy proceedings – previously: the court needed to be convinced of the pre-bankruptcy reason; now: the applicant needs to make a pre-bankruptcy reason probable without an obligation of the court to be convinced in the existence of the pre-bankruptcy reason;
  • changes in definition of pre-bankruptcy reason (imminent threat of insolvency) – previously: imminent threat was considered to exist, inter alia, if the circumstances due to which the debtor would be considered to have become insolvent had not occurred; now: imminent threat is considered to exist if the circumstances due to which the debtor would be considered permanently insolvent have not occurred at the time the proposal to open pre-bankruptcy proceedings was submitted;
  • the pre-bankruptcy proposal can now be withdrawn until the court's decision on opening of the procedure is passed;
  • changes of documentation that need to be enclosed in the proposal to open of pre-bankruptcy proceedings;
  • if the proposal to open pre-bankruptcy proceedings has been submitted but the court found that conditions for opening bankruptcy proceedings were satisfied, the court may no longer continue the bankruptcy proceedings;
  • the deadline for creditors to report claims in pre-bankruptcy proceedings has been prolonged from 15 to 21 days, and the deadline for making objections to claims has been prolonged from 8 to 15 days;
  • the deadline for the debtor or trustee to object to claims has also been prolonged from 8 to 30 days;
  • the possibility for creditors to dispose of their claims after initiating pre-bankruptcy proceedings is now clearly regulated;
  • the possibility of secured creditors to also act as pre-bankruptcy creditors in pre-bankruptcy proceedings has been introduced, and is now regulated in the same way as in bankruptcy proceedings;
  • secured creditors can now change their minds about whether they want to satisfy their claims separately within pre-bankruptcy proceedings;
  • the deadline for submitting a revised restructuring plan has been prolonged from 8 to 21 days;
  • the duration of pre-bankruptcy proceedings has been prolonged from 220 to 360 days in total;
  • the reasons for terminating pre-bankruptcy proceedings have been changed.

The most relevant changes to bankruptcy are:

  • a new bankruptcy reason has been introduced – imminent threat of insolvency (the very same as the pre-bankruptcy reason);
  • a bankruptcy proposal can now be withdrawn until the court's decision on opening the procedure is passed; and
  • joint bankruptcy proceedings against affiliated companies are no longer possible.