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Part II: Implementation Of The Restructuring Directive – Insolvency/Bankruptcy

Croatia: paving the way for restructuring

The Directive (EU) 2019/1023 on Restructuring and Insolvency
(the Directive) has finally been transposed into
Croatian legislation. Implementation has been carried out through
extensive amendments to the Insolvency Act (the
IA) and partial amendments to the Consumer
Insolvency Act (the CIA). Both are in force as of
31 March 2022.

The amendments revolve around fine tuning the restructuring
process that was already set out by the IA through the
pre-insolvency proceedings while also harmonising it with the


The primary aim of the amendments relating to the restructuring
regime is to harmonise the IA with the acquis
and to follow the general trend of departure
from formal insolvency proceedings by opening a window into private
regulation. At the same, the amendments are intended to ensure
effective, simple and flexible management of the procedure, with
precisely defined deadlines and clear consequences of procedural

What to expect in practice?

The nature of the provisions that were introduced suggest that
the biggest benefit will be reaped by companies which are well
organised, financially stable and have a good business perspective,
albeit their progress and development are hurdled by a negative
balance sheet.

Focal points – first outline

When can a restructuring process be

The process can be initiated when there are certain indicators
that the debtor will not be able to timely fulfil its outstanding
obligations and is under the threat of becoming insolvent. The
initiative lies exclusively with the debtor, on whom also rests the
burden of proof evidencing the likelihood of insolvency. In case
that the debtor is over-indebted or insolvent in the sense of
insolvency law, insolvency proceedings should be initiated.

When insolvency or liquidation proceedings are already under
way, the restructuring procedure cannot be initiated. Restructuring
is not permissible, among other reasons, if two years have not
elapsed from the fulfilment of obligations arising from a previous
restructuring plan.

Certain debtors (such as government-financed funds,
municipalities, financial/credit institutions or natural persons
who are not entrepreneurs) are excluded from the restructuring
regime set out by the IA.

A novelty introduced by the amendments is that the restructuring
process may be carried out against a debtor who has been convicted
of a criminal offense of breach of trust in business operations,
fraud in business operations, causing bankruptcy, favouring
creditors or breach of the obligation to keep trade and business
books under the Croatian Criminal Code only if the debtor in
question took appropriate measures to address the problems that led
to that conviction and informed its creditors of the undertaken
measures and their results during restructuring negotiations and
provided them with detailed information on the measures taken and
their results in the application for initiation of restructuring

Which documents are required?

An application for initiation of proceedings is to be submitted
to the competent commercial court. The application must be
accompanied by annual financial statements (not older than three
months), a statement on the number of employees (as at the last day
of the month that precedes the day of the application) and a
proposal for a restructuring plan (if drafted).

In case a restructuring plan has not been submitted with the
application, the debtor must submit the plan no later than
twenty-one days after the day on which the decision on acknowledged
and disputed creditors’ claims has become final and

Additional documentation that may prove useful for restructuring
negotiations or which may aid the approval of the restructuring
plan is most welcome.

What is a restructuring plan?

The restructuring plan is the foundation for the restructuring
process. It provides the basis and outlines the financial and
operational measures that will be undertaken, among other actions,
for the purpose of the debtor’s recovery. Of course, this is
all with the consent of the deciding creditors and with the
approval of the court.

The amendments to the IA introduced an exhaustive list of
mandatory contents that must be included in the restructuring plan,
with the aim to speed up the process by precisely covering all
relevant aspects of restructuring. However, such an exhaustive list
of mandatory contents may prove to be an obstacle to restructuring
when it comes to smaller companies and entrepreneurships.

How is the restructuring plan voted on?

Voting on the proposed restructuring plan takes place at the
voting hearing that is to be held within 30 days after the decision
on acknowledged and disputed claims becomes final and binding.
Creditors vote in writing by filling in a prescribed voting form
that is to be delivered to the court before the voting hearing
commences. If creditors do not deliver the form timely or the
voting form is unclear, they will be presumed to have voted for the
approval of the restructuring plan.

Creditors are divided into voting classes depending on the
nature of their claims. Each formed class votes separately and it
is presumed that the restructuring plan is accepted if, in each
class, a majority of creditors voted in favor of the plan and the
sum of claims of the creditors who voted for the plan exceeds twice
the sum of claims of creditors who voted against the plan.

If such majority is not accomplished in a specific class, it is
possible for a majority of creditors to override dissenting
creditors (‘cross-class cram-down‘). In that case,
the restructuring plan will be presumed as accepted, but this is
possible only with the debtor’s consent or upon his proposal.
Also, the following conditions must be fulfilled: (i) the creditors
of the dissenting class are not put in a worse position as a result
of the restructuring plan than they would have been if the
restructuring plan had not existed, (ii) the creditors of the
dissenting class participate appropriately in the economic benefits
to be accorded to the participants under the restructuring plan,
and (iii) a majority of classes have accepted the restructuring
plan by the required majority, provided that at least one of the
classes that has accepted the plan must not be a group of
shareholders or a class of creditors with lower payment claims
within the meaning of the IA.

What effects does the restructuring plan

After the restructuring plan is accepted by the creditors and
approved by the court, the now approved restructuring plan has
legal effect towards all its participants. The claim of a creditor
who has not filed his claim in the restructuring proceedings,
although duly notified of its opening, may be settled only in the
manner, within the time limits and under the conditions provided
for in the restructuring plan for the claims of the appropriate
class of creditors to which he would have been placed.

A debtor whose obligations have been written off on the basis of
an approved restructuring plan shall be obliged to keep the
resulting profit until the expiry of the deadline for fulfilling
all obligations arising from the restructuring plan.

At the same time, a creditor who, in accordance with an approved
restructuring plan, writes off a claim against the debtor, the
amount of the written-off claim shall be determined as a
tax-deductible expense.

Are (interim) financing arrangements

Yes, to an extent. New financing and interim financing are
generally protected. This protection is twofold. In case of
subsequent liquidation proceedings: (i) the creditors who provided
new financing or interim financing in the restructuring procedure
will have a privileged payment priority rank, and (ii) their claims
are generally undisputable.

Is there a simplified restructuring

The IA does not envisage a simplified restructuring

Restructuring frameworks undergoing change – WT

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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