Stabilisation and restructuring law in Croatia

In Croatia, short-term compensation schemes for the business sector have been introduced in two waves. The first wave (beginning of April 2020) included a moratorium and an enforcement standstill (explained in the section below) on a voluntary basis, while the second wave (beginning of May 2020) involved legislative intervention – implementation of a mandatory standstill on all enforcement and bankruptcy proceedings during the period of so-called special circumstances (“Special Circumstances”) caused by the COVID-19 outbreak (also explained in more detail in the section below). 

As a result of the first wave measures, local commercial banks implemented the loan rescheduling (moratorium) and the enforcement standstill on a voluntary basis. The moratorium lasts for at least 3 months and, subject to any additional requirements of the respective local bank, is applicable to borrowers whose good standing has been seriously endangered by the COVID-19 outbreak. Starting from April 2020, local commercial banks have voluntarily started to apply an enforcement standstill for all debtors unable to repay three instalments.

The second wave brought changes in enforcement and bankruptcy proceedings on a mandatory basis for all market players. The Act on Intervention Measures in Enforcement and Insolvency Proceedings for Duration of Special Circumstances prescribes the suspension of enforcement and bankruptcy proceedings during the period of Special Circumstances. These Special Circumstances are defined as events which could not have been foreseen and affected, and which endanger lives and assets of larger value, significantly undermine the environment or economic activity, or cause significant economic damage. The duration of Special Circumstances is initially envisaged to last for 3 months starting from the date on which the act entered into force (i.e. 1 May 2020). The Croatian Government can prolong the period for another 3 months.

The suspension of enforcement proceedings applies to all enforcement proceedings (except enforcement of claims related to workers’ wages, support allowance and for criminal proceedings-related monetary claims). Although enforcement proceedings are temporarily suspended during the period of Special Circumstances, it is nonetheless possible to carry out an enforcement proceeding if a judge, in the light of circumstances of an individual case, finds it necessary urgently to carry out such proceedings regardless of the existence of the Special Circumstances.

During the period of Special Circumstances, should any of the reasons for bankruptcy defined by the Croatian Bankruptcy Act occur, this will not represent a condition for the opening of bankruptcy proceedings. Debtors preserve the right to file for bankruptcy proceedings themselves. Also, in certain exceptional cases, creditors and/or the Croatian Financial Agency can request the initiation of bankruptcy proceedings during the period of Special Circumstances

On a regulatory level and for the purposes of enabling the implementation of the first wave measures, the Croatian National Bank has adjusted the capital requirements and regulatory oversight standard applicable for banks. Banks are now allowed to restructure and refinance the loans of clients whose businesses have been (or will be) damaged by the COVID-19 outbreak and who were classified as A clients on 31 December 2019, without the obligation to increase bank reserves. The Croatian National Bank also allowed commercial banks to temporarily use an adjusted liquidity buffer until 30 June 2021. As an additional measure, also for liquidity purposes, the Croatian National Bank has announced imposing an obligatory retention of profit for 2019 on all commercial banks in Croatia. 

Specific loan arrangements are provided by the Croatian Bank for Reconstruction and Development (Hrvatska Banka za Obnovu I Razvitak or HBOR) – either directly or in cooperation with local commercial banks – to ensure the liquidity of the business sector damaged by the COVID-19 outbreak. Loans are approved at a favourable interest rate with the purpose of financing basic operating expenses (the so-called ‘idle mode’). As an additional benefit, loans can be granted with less collateral requirements, or replaced by insurance policies issued by HBOR for and on behalf of the Republic of Croatia or by guarantees backed by the Croatian Agency for Small Business, Innovation and Investment (HAMAG-BICRO).

According to information published by the Croatian Government, all measures have been coordinated and communicated with the competent EU authorities. In addition, the Croatian National Bank states it has adjusted its approach to the supervision of credit institutions in accordance with the positions of the European Banking Authority and the European Central Bank. 

As a general requirement, a payment rescheduling (moratorium) is applicable for borrowers whose good standing is seriously endangered by the COVID-19 outbreak and whose income is significantly lower in comparison with the previous period. (Please note that additional requirements set by the respective bank may also apply.) In relation to loan arrangements provided (and/or supported) by HBOR, eligibility criteria vary depending on the type of loan programme and the borrower’s category (e.g. SME, individual entrepreneur, large company).

Considering measures introduced by the Croatian National Bank are outlining the regulatory framework applicable for banks providing a moratorium to clients who have been (or will be) damaged by the COVID-19 outbreak and who were classified as A clients on 31 December 2019, there is a high probability that companies in crisis before 31 December 2019 will not qualify as eligible for a moratorium. However, it should be noted that this alleviation scheme is offered on a voluntary basis, allowing banks to decide and set their own specific rules for the moratorium.

Eligibility for credit moratorium measures is not limited only to Croatian companies. Please note that eligibility criteria for the moratorium are not prescribed by law, so there is a possibility that each bank may include specific requirements when implementing these measures at an individual level. Eligibility criteria for loan arrangements provided (or supported) by HBOR vary depending on the specific loan programme and should be assessed individually depending on the loan programme in question.

Not at the moment.

As stated above, during the period of Special Circumstances, any bankruptcy event will not (save for exceptional cases) constitute a reason for filing for bankruptcy proceedings. For additional information please refer to the section above.

Reasons for insolvency occurring during the period of Special Circumstances will not (save for exceptional cases) constitute a reason for filing for bankruptcy proceedings. For additional information please refer to the section above.

There are no specific Corona-related rules on cross-border insolvencies and restructurings at this moment.

Instead of a wind down, restructuring measures in Croatia would include pre-bankruptcy proceedings or, in some cases, bankruptcy proceedings ending with a bankruptcy plan. Please note that the restructuring rules have not been amended due to the COVID-19 outbreak.