New enforcement regime in Croatia

Lexology, January 30, 2013

Until entering into force of the Enforcement Act in 1996, the system of enforcement in Croatia had been regulated by the Act on Execution Procedure, a law which was inherited in a procedure of succession from former Yugoslavia. Since 1996 the system of enforcement underwent a number of substantial changes which main purpose was to make enforcement procedure more effective and at the same time less cumbersome for debtors. The latest significant change occurred in October 2012 (“Enforcement Act 2012”) when the new Enforcement Act fully set aside the old law and introduced a number of new rules, a great number of which impose additional demands towards creditors.

The new Enforcement Act

The new Enforcement Act which was adopted on the Session of Croatian Sabor in September 2012, entered into force on 15 October 2012, with the exception of certain provisions which shall come into effect upon admittance of Croatia to the EU as a full member.

The Enforcement Act 2012 in many ways follows the structure of the Enforcement Act from 1996 with a number of amendments mainly concerning the enforcement on monetary funds of the debtor. One of the novelties of the law concerns the enforcement on a real estate. Pursuant to the Enforcement Act 2012, a real estate may not be sold at a price which is lower than ½ of its estimated value, whereas according to the Enforcement Act from 1996 the lowest price was set at 1/3 of the real estate’s estimated value. In addition, as opposed to the old Enforcement Act which had provided for two auctions for the sale of movables, the new Enforcement Act 2012 provides for only one auction for the sale of movables whereas the movables may not be sold at a price that is lower than ½ of the estimated value.

Extrajudicial enforcement

In the past the enforcement procedure was enhanced by introducing a legal institute of extrajudicial enforcement, according to which the creditor was able to request from the financial institution (banks) the enforcement on the basis of a final and enforceable decision on enforcement issued by the notary public. From 1 January 2011 on, this system was additionally improved and the Financial Agency (“FINA”) as a state owned legal entity in the field of financial mediation providing financial and administrative services, commenced performing enforcement on all the debtors' bank accounts that were registered in the Unified Register of Accounts. In the past, the issue of length and complexity of the enforcement procedure based on final enforceable decisions rendered by the courts as compared to the simple enforcement procedures instigated before the notary publics on the basis of credible deeds (e.g. invoices, bill of exchange) had been noted. The creditors whose claims were based on the credible deeds were able to start simpler procedure by way of FINA, as opposed to the creditors whose claims were based on the final and enforceable court decision who had no opportunity to request direct enforcement from FINA, but were obligated to demand judicial enforcement by filing a new enforcement proposal to the court in the first step which shall once adopted be delivered to FINA.

Request for direct payment

Now, the Enforcement Act 2012 and the accompanied law, the Act on Execution of Enforcement on Monetary Funds, provide for a direct collection of monetary receivables through FINA on the basis of enforceable court decisions, court settlements and arbitral awards. The most significant novelty is simplicity in performing enforcement being a result of exclusion of the courts from the procedure of determining the enforcement of the final decisions which had been previously adopted by the same court. After entering into force of the Enforcement Act 2012, there is no need for creditors to start new enforcement procedure, but merely to provide FINA with a request for direct payment along with the final verdict.

Such a request shall be filed in a standard form, which is provided for in the By-law on Form and Content of Direct Payment Request. FINA is obliged to deliver request and the enforceable deed to the debtor, who may address the court by filing a request for postponement of enforcement or plead for declaration of enforcement inadmissible. If within next 30 days upon receipt of the request, FINA will not have received different instruction by the court, it shall issue a payment order to the banks ordering money transfer from the seized debtor’s accounts to the designated creditor’s account.

Creditors are vested with criminal and civil liability for truthfulness of the provided information. With the goal to preventing possible manipulations or double payments, a linkage between public notaries, FINA and the Promissory Notes Register shall be established.

Enforcement of claims from employment

The Enforcement Act 2012 provides for the institute of direct enforcement of monetary claims resulting from the employment relation. A creditor who is an employee is authorised to demand direct enforcement on the basis of accounting report of due and outstanding salary which is qualified as an enforceable deed suitable for direct seizure and collection of receivables.

New court system

Traditional court enforcement shall be applied in all cases where simple direct extrajudicial enforcement of monetary claim on bank accounts through FINA is not possible (e.g. in case of enforcement on other enforcement items such as real estates or movables). The new Enforcement Act provides for a new regulation of the judicial jurisdiction, according to which the municipal courts shall be authorized to conduct enforcement in all cases except when deciding on enforcement has been explicitly vested in other courts or other authorities. The jurisdiction of commercial courts has been narrowed and they remain authorised to conduct enforcement on the basis of foreign and domestic arbitral awards. Such reorganisation of enforcement system aims at establishing special enforcement units and special enforcement courts, what is expected to result in unburdening of the courts, simplifying, economising and accelerating the enforcement procedure.

The new enforcement system also aims at maintaining the balance between the creditor’s right to collection of claim and the debtor’s protection of dignity. However it is yet to be seen whether the implementation of the new enforcement system shall reduce illiquidity and result in greater effectiveness of claims collection.

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