JUDICIARY: Commercial Court Judge Questions Constitutionality of Pre-Bankruptcy Settlement Act

On 22 July, Zagreb Commercial Court judge Mislav Kolakusic suspended the pre-bankruptcy settlement proceedings for Dalekovod, a Croatian provider of services in power system, road, railway, and telecommunications infrastructure. The judge decided to ask the Croatian Constitutional Court to assess the constitutionality of aspects of the Financial Operations and Pre-Bankruptcy Settlement Act.  As a result, the hearing in the proceedings for Dalekovod scheduled for Tuesday, 23 July, was cancelled, prolonging the company’s restructuring program and placing in question the state’s plans to rejuvenate up to thousands of struggling Croatian companies, such as Metronet, Varteks, Nexe, Industrogradnja, Dioki, etc..

Dalekovod is one of the first large companies that initiated pre-bankruptcy proceedings under the abovementioned legislation, passed in 2012 and amended in June this year. The first hearing in the case of Dalekovod, which has around 900 creditors, was held on 5 February.

The judge Kolakusic explained his decision by stating that some provisions of the legislation were in violation with the Croatian Constitution, to the detriment of creditors, the state budget and citizens. He sees the application of this law as the abuse of power, because some creditors were offered more favourable conditions for the payment of their claims.

Finance Minister Slavko Linic (SDP) was appalled by Kolakusic’s decision because, according to him, it caused legal uncertainty (since many judges had already accepted settlements in other cases when applying the same legislation), and publicly stated that Kolakusic was accusing the government and Sabor of criminal activities. Linic added that in pre-bankruptcy settlements the state has collected €116 million or about 10% of its claims as of 2001, while last year only 2% of the claims have been collected. .

The Croatian Employers’ Association (HUP) stated that the decision causes legal uncertainty and could have negative consequences for hundreds of firms that are currently involved in pre-bankruptcy settlements. HUP appeals to the government to find a suitable alternative model to the disputed legislation, and include all relevant actors in the subsequent law-making process, in order to diminish the possibility of judicial review in the future.

The Federation of Independent Trade Unions of Croatia (SSSH) stated that the legislation was a chance for the recovery of companies whose accounts were blocked and where workers had not received their wages in months. Any termination or blockade of the pre-bankruptcy settlement system would make the recovery process impossible and would lead to companies’ liquidation…

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