Vol 2 (2005) - Issue 1

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From Sea to Shining Sea: How Serbia and South-Eastern Europe Have Taken the Lead on Insolvency Law

Since its founding in 1991, the principal goal of the European Bank for Reconstruction and Development (EBRD) has been to promote the transition of its countries of operations to market economies. A significant portion of this objective is fulfilled by the EBRD’s Legal Transition Programme (LTP), established in 1998.
One of the key insolvency assessments of the LTP is the insolvency sector assessment (‘ISA’). This involves the construction of 97 fields of inquiry, created using the most widely accepted international standards adopted by the World Bank and the United Nations Commission on International Trade and Law (‘UNCITRAL’), among others. Experts in the field of insolvency, retained by the EBRD, compile legislation from all EBRD countries of operations and analyse these laws with regard to the 97 fields of inquiry. In almost every case, local practitioners in each country then verify these analyses.
The 97 fields of inquiry are grouped into five core areas:

- Commencement of Proceedings;
- Treatment of Estate Assets;
- Treatment of Creditors;
- Reorganisation Processes; and
- Terminal/Liquidation Processes.

The fields of enquiry chosen and scores assigned reflect the view that an insolvency legal regime should, among other things:

- Allow for relatively easy and predictable access to insolvency proceedings by both debtors and creditors;

- Provide alternative remedies (i.e. liquidation and rehabilitation) for the financial problems of an insolvent debtor;

- Permit the efficient, proper and timely administration of an insolvency case; and

- On balance, treat the interests of creditors as paramount.

The 2003-04 ISA assigned scores to each country in each of the five core areas listed above and then, based on these scores, awarded a cumulative, overall score to each country. The countries were then grouped, according to this cumulative score, into one of the following categories: ‘Very Low, Low, Medium, High, and Very High’ (referring to their level of compliance with generally accepted international standards and best practices in insolvency law).
Although the latest iteration of the ISA was designed to be current to all laws in force as at 31 January 2004, the EBRD could not ignore the most significant legislative development in insolvency to occur in its countries of operations in 2004: the long-awaited passage of the new Serbian Bankruptcy Law.

Background to the new Serbian Bankruptcy Law

The reformist government which replaced the Milosevic government in late 2000 inherited an economy which had suffered under sanctions for years, war damage from the Kosovo conflict in 1999 and the loss of substantial domestic markets as a result of the breakup of the former Yugoslavia in the early 1990s. The court system was widely believed to have been packed with Milosevic supporters, and the process of changing to a market-oriented system had not taken hold. A type of privatization had been attempted as early as 1989, which was followed by a second programme in 1997; both these programmes were based on giving the workers in their employer enterprises up to 60% of the capital of those enterprises at no cost.