The new Act on Execution of Enforcement over Monetary Assets

Lexology, November 12, 2018

1. Introduction

The new Act on Execution of Enforcement over Monetary Assets, Official Gazette No. 68/18, (“the Act“) entered into force on 6th August 2018. The Act prescribes conducting of the execution of enforcement over monetary assets by the Financial Agency (“FINA”). For the first time FINA was vested with the authority to implement procedure of collection of monetary receivables in 2011. Since then, FINA’s scope of authorities in this regard has significantly expanded.

The Act was adopted with an intention of solving problems of those citizens (natural persons) whose bank accounts have been blocked for a longer period of time which makes possibility of collection of receivables highly susceptible. The Government claims the social component to have had a decisive role when deciding on introduction of the new Act; based on the Government’s arguments one may conclude the main purpose of adoption of the new Act to be suspension of enforcement titles that have remained uncollected for a longer period of time and removal of legal uncertainty caused by unacceptably long period of pending enforcement procedures over the debtors’ monetary assets.

2. Suspension

The most significant novelty introduced by the Act is the provision of Article 12, the purpose of which is to limit long-term blockades of the citizens’ bank accounts, where the execution on monetary assets remained unsuccessful.

Under Article 12 of the Act if the claim against the debtor (natural person) is not settled within three years starting with the date of receipt of the payment title by FINA and in respect of which no payments for the last six months have been effected, FINA shall cease with the implementation of further enforcement. Having in mind that FINA is not obliged to inform creditors about the suspended titles it may only be assumed that a large number of enforcement titles has already been suspended.

In order to check the status of their claims (e.g. whether particular title of enforcement is still registered in the FINA’s registry of unpaid payment titles) creditors may file individual inquiries against payment of administrative fee. It comes without saying that such legislative solution definitely does not ease the position of creditors who will be faced with unacceptable legal uncertainty with regards to possibilities of realising their claims and exposed to further expenditures making profitability of collection of their claims questionable.

By imposing such unfavourable rules as it may be seen from the creditors’ perspective, the legislator's intention may be perceived as a such as to discourage creditors who have in the legislator’s view no reasonable interest in persisting on enforcement over monetary assets where the claim is not settled within three years and is therefore presumed to be uncollectable.

But is it only a concern for its citizens that has motivated the Government to pass such a controversial law, or is there another reason? The number of Croatian citizens and legal persons whose bank accounts have been blocked by the Financial Agency has grown over the years. By the end of June 2018, the figures reached 324,000 citizens and 23,000 entrepreneurs.

Since Croatia has a population of around 4 million, the number of blocked persons accounts for 8.2 percent of the country’s population. When we consider that an average Croatian family has around three members, around 25 percent of Croatian citizens are either directly or indirectly affected by the Financial Agency’s enforcement procedures and blocked bank accounts. Not only does this demonstrate the poor state of the country’s economic standards, it also represents a huge opportunity at the next parliamentary election for opposition parties to gain large numbers of disgruntled voters.

The Act to certain extent alleviates the position of creditors by introducing possibility of checking with FINA against consideration the status of the debtors’ bank accounts including such information that would indicate the time of the bank account’s blockade already at the time before submitting the enforcement title what can ease the creditors’ decision whether to proceed with enforcement against the debtor’s monetary assets.

3. Different means or different objects of enforcement

With respect to suspended payment titles, creditors are left two options. The first option is proposing new means or an object of enforcement. Pursuant to Article 5 (3) of the Enforcement Act, Official Gazette No. 112/12, 25/13, 93/14, 55/16 and 73/17, if a final decision on enforcement cannot be enforced, a creditor may, for the purpose of settling the same claim, propose a new means or a new object of execution. Yet, it shall be taken into consideration that pursuant to the Article 50 (5) of the Enforcement Act, a debtor is entitled to appeal the new decision on enforcement, inter alia, where the conditions for a statute of limitations are met. Having said that, it should be pointed out to the risk of submitting new enforcement proposals on the basis of the “older” enforceable titles where such proposals may be successfully challenged by the debtors due to the statute of limitations.

Because the Act on Execution of Enforcement does not specifically exclude handing over to FINA of such payment titles that have already been suspended, the second option would be submitting to the FINA the same payment title. In order to do that in the first step a creditor will have to require from the FINA a return of the suspended payment title and be obliged to settle the FINA's fee for the execution of enforcement prior to submitting the new application on enforcement. Viewed from the cost-benefit perspective, a creditors’ decision on whether to proceed with submitting the payment title to the FINA for the second time should be based on the foresight whether further collection may be expected to be successful.

4. Fees

The FINA’s role in the enforcement procedure over monetary assets has been strengthened over years which is apparent from the new provisions of the Ordinance on the Manner and Procedure for the Execution over Monetary Assets, Official Gazette 71/18, the Ordinance on the Types and the Amount of Remuneration for Performing the Tasks Prescribed by the Law on Execution of the Enforcement over Monetary Assets, Official Gazette 68/18 and the FINA’s Price list, whose main goal is protecting the FINA’s financial autonomy and stability by assuring the collection of the FINA’s costs and fees in relation to the execution of the enforcement.

This has been achieved by introducing creditors' obligation to pay in advance the fees for the execution of enforcement based on requests for direct payment as well as all other FINA’s fees. Pursuant to Article 22 of the Act, creditor is obliged to settle in advance the fee for an execution to be determined proportionately to the amount of the principal debt as determined in the payment title.

The creditor is obliged to submit a proof of payment of the fee for execution of enforcement, along with the handing over the payment title for execution to FINA, otherwise the payment title will not be entered into FINA’s Registry of unpaid titles.

5. Conclusion

The new Act on Execution of Enforcement over Monetary Assets was welcomed as a long anticipated solution for those citizens who have long-term uncollectible enforcement titles even though, we believe its effects are only short-term. Regardless whether the enforcement title has been suspended or not, the debt still remains and the creditor may pursue it. Was the implementation of this new Act that happened back in August an expression of a political decision aiming at winning new voters or a indeed a genuine will to help the citizens to maintain economic and social wellbeing, it is yet to be seen within the upcoming times.

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