Government aims at protecting both creditors and debtors by recent changes to the Enforcement Law

Lexology, September 2, 2014

1. Introduction

The system of claim enforcement in Croatia is primarily regulated by two core laws: (i) Enforcement Act (Official Gazette No. 112/2012 and 25/2013) determining procedure of mandatory enforcement of claims including the procedure of voluntary security of claims; and (ii) the Act on Enforcement of Financial Assets (Official Gazette No. 112/2012) providing legal framework for the enforcement of claims against financial assets.

The last enacted version of the Enforcement Act which entered into force on 15 October 2012 along with the subsequent amendments of 2013 have not solved a number of issues which were believed to ease the procedure of enforcement in favour of creditors at the same time providing sufficient protection to constantly rising number of over indebted persons. That is why at the session that was held on 15 July 2014, the Croatian Parliament adopted changes and amendments to the Enforcement Act (“Amendments”) which in their prevailing content entered into force on 1 September 2014. The main reason for the introduction of the new regulatory framework is a large number of ever- rising over indebted citizens (pursuant to some assessments almost 10% of all opened bank accounts are blocked) and the aim of the Government to protect the fundamental rights of debtors –by providing more transparent regulatory framework for the implementation of enforcement procedures, primarily in the field of enforcement of claims directed to seizure and sale of real estates.

Considering the recent move of the Government, it is needless to say that the package of enforcement laws including their amendments should not be perceived as an instrument which should be used to identify and solve the causes that led to the unfavourable economic situation in which the citizens and entrepreneurs have found themselves in the recent past years. The reasons for the Croatian 11th consecutive quarter of the recession should be primarily sought in failure of economic growth, large unemployment ratio, instability of legal system, primarily in the field of taxations and the negative foreign trade balance. With that in view, the package of enforcement laws and regulations should be conceived in a way as to provide reasonably expected level of security to creditors in favour of collection of their claims at the same time protecting fundamental rights of debtors, that should however not be interpreted in a way as to disable or prevent creditors in realisation of their rights.

Following to the recent changes the purpose of which was redefining and eliminating ineffective legal institutes causing slowing down of the enforcement procedures, in the further text we point out to some of the most distinctive novelties of the last amendments.

2. Delivery

Considering significant controversies of the institute of delivery of the decision on enforcement to the debtors, the Amendments have changed the way of delivery and now provide for more transparent solution. The delivery shall be limited to three attempts. The notary publics as the “first instance officers” authorised to render decision on enforcements shall be connected with the data base of the citizens’ residencies that is kept with the Police Authorities. In the case, the delivery remains unsuccessful it shall be effected via court’s notice board that is accessible via Internet.

3. Costs

The Amendments impose the obligation to creditors when filing enforcement proposals to separately define the actual costs of the enforcement procedure and the foreseeable costs. While there is no instruction in the law given to the notary publics how to treat enforcement proposals that do not provide for the separately defined actual and foreseeable costs, it is likely that if this would be the case, the notary publics shall decline creditor’s request for reimbursement of the costs that have not accrued at the time of filing the enforcement proposal.

4. Statement on assets

Because of the frequent misuses exercised by the debtors, such as providing false statements in respect to the scope and content of the assets belonging to them, the Amendments have abolished the institute of statement on assets (so called “prokazni popis” and “prokazna izjava”) which the debtor was obliged to provide upon creditor’s request, purpose of which was enabling the court and the creditor an insight into the debtor’s estate. Instead, the creditors have been granted the right to already before instigating enforcement procedure request from the competent institutions (such as Tax Authorities, Pension Institute, Depositary Agency, Cadastre Office, Police Authorities, employers, etc.) the data on the debtor’s assets such as the status of the movable and immovable property, employment status, shareholdings and stocks, etc provided: (i) the creditors as the potential claimants have provided the addresses with reliable evidence in favour of existence of their receivables (e.g. court decision, invoice); (ii) the costs connected with the issuance of such certificate have been advanced. This solution already at the first sight raises a number of potential issues: (i) the costs to be advanced should be reasonably defined in order not to prevent or restrict creditors from seeking such data; (ii) no clear rules have been established concerning interpretation of reliable evidence and conditions for its acceptance by the addresses, especially by employers as the state independent organs who could at their discretion easily reject such creditors’ requests; (iii) no specific obligation of the Financial Agency as the state authorised persons to give information on the debtor’s bank accounts has been imposed, which if established would be an effective tool in the hands of the creditors.

5. Enforcement of foreign judicial and administrative decisions

As a consequence of the Croatian accession to the EU, the Amendments provide specific provision in favour of immediate enforcement of foreign judicial and administrative decisions (with the exception of the arbitral rewards that are regulated in special laws and international agreements) in the case that such a decision meet the criteria for the recognition or if such a possibility is provided for in the law, international agreement or the legal act of the EU directly applying in Croatia.

6. Special provision if the invoice is issued to a natural person (consumer)

In the case that the enforcement is directed against natural person on the basis of the credible deed (such as invoice) the invoice shall contain special warning to the customer that in the case of failure to settle the invoice, the creditor may instigate direct enforcement on the basis of the invoice. Even though the Government explains the purpose of this novelty by the need of reduction of the costs attached to the warning procedure usually conducted by attorneys prior to commencement of enforcement, the Amendments in no way abolish the Croatian Bar Tariff in a part relating to attorneys’ fees applying to representation of the clients in the pre-court procedures, which makes this institute of the limited scope. Secondly, it is to mention that this article in certain way modifies the VAT Act providing for the mandatory elements of the invoice leading to additional legal certainty. Thirdly, the Amendments do not specify what would be the consequence in the case that the invoice does not include such a wording.

7. Obtaining of PINs

Creditors are not anymore required to provide the notary publics/courts with personal identification numbers which are besides the name and surname the unavoidable element of the deed on enforcement and without which the enforcement would remain impossible. In the case the enforcement proposal does not contain information on the PIN of the debtor, the notary public shall require this information from the competent Tax Authorities with the exception of foreign persons in which case the enforcement may be determined without prior obtaining of PIN.

8. Additional obligations imposed to debtors

In order to reduce a number of ungrounded objections filed against the decision on enforcements, the Amendments impose additional obligations to the debtors and third parties claiming to have certain rights on the objects subject to enforcement, to sufficiently explain the objection by stating concrete facts in favour of their arguments and if applicable provide appropriate evidences.

9. Enforcement of the real estate

The Amendments introduce a number of novelties concerning enforcement procedure on the real estate which in the prevailing part apply after 1 January 2015, such as: (i) fixed terms for deciding enforcements; (ii) introduction of the Financial Agency as the active participant in the enforcement procedure; (iii) electronic public auction; (iv) right of the owner of the real estate that is subject to enforcement procedure to ask for the postponement of enforcement for the maximum one year provided he/she lives in respective real property and provides sufficient evidences in favour of existence of some other right that is suitable for the settlement of the entire creditor’s claim; (v) minimum thresholds of the first (4/5 of the assessed value) and the second public auction (3/5 of the assessed value) below which the real estate cannot be sold; (vi) right of the debtor to continue living in the seized real estate as the tenant under certain conditions within next 1 year as of the sale of the real estate.

10. Enforcement of the assets on the bank accounts

With the purpose to ease the position of debtors, the enforcement of the assets on the debtors’ bank accounts has been extended to 60 instead of 30 days as it was before, starting from the day of receipt of the decision on enforcement by the Financial Agency.

11. Final remarks

It is unquestionable that the Amendments aim at conciliating the protection of debtors’ dignity and efficiency of the enforcement to the benefit of the creditors. To which extent the legislator has met the acceptable balance between these two opposing interests, remains to be seen over time.

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