March 03, 2025
Bankruptcy is a special non-contentious court proceeding that is conducted for the purpose of collective settlement of creditors of the bankruptcy debtor. Creditors are persons who have a claim against the bankruptcy debtor, and can be natural persons, legal persons, public law bodies, etc. Its main function is to monetize the debtor’s assets and distribute the collected funds to creditors. The procedure serves as a mechanism to solve the financial problems of a debtor who is unable to meet his obligations.
Types of bankruptcy
There are two basic types :
- Bankruptcy of a legal entity (company): It is carried out against the assets of a legal person that is unable to pay.
- Consumer (natural person) bankruptcy: It was introduced in 2016 in Croatia and allows natural persons to get rid of remaining debts after liquidation of assets.
In this text, we will only deal with the bankruptcy of a legal entity (company).
Reasons for filing
Bankruptcy proceedings may be opened if the court finds that there is a valid reason. The main reasons for initiating the proceedings against a legal entity are:
- Insolvency: if the Financial Agency has one or more unexecuted payment bases recorded in the Order of Payment Basis Register maintained by the Financial Agency for a period of more than 60 days, which should have been collected from any of the debtor’s accounts without further consent on the basis of valid payment bases,
- Over-indebtedness: The assets of the bankrupt debtor are less than their liabilities.
Initiation of proceedings
Bankruptcy proceedings may be initiated by:
- the debtor himself by the person responsible for representation
- creditor
- Financial Agency
A financial agency is obliged to file a proposal for the opening of proceedings if a legal entity has unexecuted payment bases recorded in the Register of the Order of Payment Bases for an uninterrupted period of 120 days, within eight days of the expiry of that period.
A proposal for the opening of the proceedings must be submitted without delay, and no later than 21 days from the date of occurrence of the legal reason, by persons authorized to represent the debtor, or by a member of the supervisory board if there are no persons authorized to represent the debtor by law, or by a member of a limited liability company if the debtor does not have a supervisory board.
The procedure is initiated by submitting a proposal to the competent commercial court. The court then examines the existence of grounds for opening the process.
Costs
The applicant is obliged to pay an advance payment of EUR 660.00 for the costs of the pre-bankruptcy procedure. In the event that more than one proposal is submitted, each applicant must make an advance payment of the same amount.
If the advance payment is not paid, the court will reject the proposal to open pre-bankruptcy proceedings as inadmissible.
Filing a claim and participation of creditors
Creditors report their claims to the trustee within the prescribed time limit. They participate in the proceedings through the creditors’ meeting and the creditors’ committee (if established). Creditors have the right to information and can influence decisions in the proceedings.
Bankruptcy Trustee
The trustee is a key person in the implementation of the proceedings. He or she is appointed by the court by random selection from a list of insolvency administrators. Its main tasks are:
- Management and Liquidation of the Assets
- Examination of reported claims
- Preparation of financial statements
- Creditor Settlement
The work of thetrustee is supervised by the court, the creditors’ meeting and the creditors’ committee.
Objective of the proceedings
The main objective of the proceedings is the collective and equal settlement of the creditors of the debtor. This is done by cashing in the debtor’s assets and distributing the funds raised.
Completion of bankruptcy proceedings
Bankruptcy proceedings shall end:
- Liquidation of the debtor’s assets and satisfaction of creditors
- By accepting the bankruptcy plan and reorganizing the debtor
- Suspension of proceedings due to lack of bankruptcy estate
After the end of the procedure, the legal entity ceases to exist.
Conclusion
Bankruptcy is an important legal institute for settling the financial obligations of the bankruptcy debtor before its cessation of existence. It allows creditors to be satisfied and can give debtors a fresh start by concluding a bankruptcy plan. An effective insolvency procedure is essential for the healthy functioning of a market economy.
If you need legal assistance or a lawyer to initiate bankruptcy proceedings, file a creditor’s claim or represent your interests in bankruptcy proceedings, please contact us at:
