Vol 14 (2017) - Issue 3

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Serbia: Proposal to Improve Position of Secured Creditors in Insolvency Proceedings

Introduction
Relatively weak position of secured creditors under Serbian insolvency law has been partly blamed for the perpetuation of a high ratio of NPLs on the books of Serbian banks. In its 2015 Strategy for Resolution of Non-Performing Loans, ('Strategy') the Government of Serbia pledged to propose amendments to the Insolvency Act to improve the landscape for enforcement of secured creditors’ claims.
Against this background, the Ministry of Finance circulated in October 2016 a proposal for the amendments to the Insolvency Act.
The proposed amendments to the Insolvency Act aim at improving the position of secured creditors through the reduction of time-to-money period, increase of options for the secured creditor to acquire the collateral in exchange for the debt, and grant of priority to DIP (debtor-in-possession) financing in the event of subsequent collapse of the debtor.
The article outlines the position of secured creditors in an insolvency situation under Serbian law, and then discusses the proposed amendments to the Insolvency Act.


Position of secured creditors in insolvency situation under Serbian law
In an insolvency situation, secured creditor is not in the driving seat when it comes to enforcement of its collateral. Automatic stay on enforcement of claims applies not only to ordinary creditors but also to secured ones. As a result, the timing, manner and administration of the sale of collateral, as well as the distribution of the proceeds, are in the hands of the insolvency administrator. Upon the motion of secured creditor, the court may lift the stay only if the secured creditor proves that the insolvency administrator has failed to adequately protect the collateral and no other measure to safeguard the value of collateral is available. Stay can also be lifted if the creditor proves that its claim is less than the value of the collateral while the collateral is not of essence to potential reorganisation of the debtor. In either case, even if the secured creditor proves his case, the court may, at its discretion, dismiss the request and confirm the stay. In practice, moratorium on enforcement of secured claims is rarely lifted.