Serbia: Yet another brush-up of the legislation on enforcement proceedings

Serbia: Yet another brush-up of the legislation on enforcement proceedings

Author: Filip Susulic, BDK Advokati

The Amendments to the Enforcement Act (“Official Gazette of RS”, No. 54/2019) came into force on 3 August 2019 (“Amendments“) but will, all but one, become applicable only on 1 January 2020. The following are the main novelties:

Dormant enforcement proceedings pending against blocked bank accounts

The only provision that became applicable on 3 August 2019 is Article 166 which stipulates that enforcement proceedings pending solely against funds on bank accounts shall be automatically terminated on 11 August 2019 if the debtor’s accounts had been blocked for more than three years prior to that date, unless the enforcement creditor notifies the court by 11 August 2019 of other assets of the debtor which can be attached in the enforcement proceedings. This is aimed at dispensing with a number of dormant enforcement proceedings. In the future, this will no longer be an issue because the Amendments ensure that if the enforcement creditor has designated in the motion for enforcement a single asset against which its claim should be enforced, and such asset is not capable of yielding the enforcement proceeds, the public bailiff in charge of enforcement will have an obligation to ex officio  redirect  enforcement against other available assets of the debtor, if any.

Electronic public auction for sale of assets

The Amendments introduce electronic public auction (elektronsko javno nadmetanje) as a completely anonymous process for sale of immovable and movable assets in enforcement proceedings. The identity of the bidders will be disclosed only once the public bailiff awards the asset to the winning bidder.

This is supposed to start on 1 March 2020 in parallel with the traditional auction process but from 1 September 2020, the electronic auction will be the only permitted sale process in enforcement proceedings.

Limitations on enforcement of pledges and financial leasing contracts

The Amendments specify that when enforcement proceedings are initiated based on the excerpt from the Pledge Registry, a mortgage agreement or a mortgage statement, or the excerpt from the Financial Leasing Registry as enforcement titles, the creditor may only collect the proceeds from the sale of the pledged or, as the case may be, leased asset, and not from the general assets of the creditor. Creditors should, therefore, carefully plan what other instruments they will ask from the debtor that can ensure access to enforcement proceedings against the debtor’s general assets.

Mandatory negotiations for amicable solution prior to enforcement against governmental entities, local municipalities and state institutions

Before initiating enforcement proceedings against Serbia, Vojvodina, a local municipality, a state institution and any other entity publicly funded through the treasury, the enforcement creditor will be obliged to first sent to the Ministry of Finance a warning letter. This step must be taken at least 30 days prior to the submission of the motion for enforcement and evidence that it has been taken must be attached to the motion for enforcement.

Simplified process of enforcement based on an authentic document

The Amendments now remove the unnecessary three-stage decision making process in the enforcement proceedings initiated on the basis of an authentic document (verodostojna isprava), such as an invoice. Under the current Enforcement Act, an enforcement order rendered based on an authentic document can be opposed by objection, whereas the decision upon the objection can be appealed. In the practice so far, the appellate court acting upon the appeal has in a great majority of cases simply confirmed the lower court’s decision on the appeal. When the Amendments become applicable, appeal against the decision on objection will be no longer allowed.

New owner of mortgaged immovable property can be named enforcement debtor

Under the existing legislation, the enforcement creditor has to designate the person/entity who issued the mortgage statement as enforcement debtor, even when the mortgaged property changed its owner. In practice, this unfortunate solution led to rejection of motions for enforcement in situations where the mortgaged property changed owner and the original mortgagor is dead, or in bankruptcy. The Amendments rectify this anomalous situation by specifying that the current owner of the mortgaged property can be named enforcement debtor in the motion for enforcement.

Faster enforcement proceedings

Once the Amendments become applicable, it will be possible to submit a motion for enforcement electronically. This is supposed to be regulated by a rulebook to be enacted by the Ministry of Justice.

The Amendments also introduce solutions aimed at speeding up the service of process. In case the service of enforcement order is unsuccessful, the court will publish it on its electronic board within three days from the day of the failed service, and such publication will be deemed effective service within eight days.

Finally, the deadline for an objection to enforcement order rendered in summary enforcement proceedings which can be initiated based on commercial invoice; promissory note; unconditional bank guarantee, unconditional letter of credit; certified statement of the debtor authorising the bank to transfer funds from his account to the account of the creditor, is reduced from eight to five days, whereas the deadline for a response to such objection is reduced from five to three days. The deadline for the decision on the objection is eight days from the delivery of the case files.

Voluntary settlement of a monetary claim prior to initiating enforcement proceedings

The process of voluntary settlement of a monetary claim before the initiation of enforcement proceedings is a new, optional, stage in the process. It begins with the submission of a written proposal by the enforcement creditor to the public bailiff. Upon the receipt of the proposal, the public bailiff invites the enforcement debtor to voluntarily settle its monetary debt owed to the creditor based on an enforcement title or authentic document (e.g. an invoice) and instructs him on the advantages of voluntary settlement.

The process of voluntary settlement terminates in one of the following three manners: (i) if the debtor does not pay the debt within 60 days; (ii) if the creditor and the debtor enter into a settlement or, as the case may be; (iii) the creditor voluntarily settles the debt. The initiation of these proceedings suspends the statute of limitations.

Costs of enforcement proceedings

The Amendments specify that the creditor who has initiated multiple enforcement proceedings against the same debtor in a situation where he could have obtained the same result by initiating single enforcement proceedings is, if successful, entitled only to the costs of one enforcement proceeding.

Author: Filip Susulic, BDK Advokati

The Amendments to the Enforcement Act (“Official Gazette of RS”, No. 54/2019) came into force on 3 August 2019 (“Amendments“) but will, all but one, become applicable only on 1 January 2020. The following are the main novelties:

Dormant enforcement proceedings pending against blocked bank accounts

The only provision that became applicable on 3 August 2019 is Article 166 which stipulates that enforcement proceedings pending solely against funds on bank accounts shall be automatically terminated on 11 August 2019 if the debtor’s accounts had been blocked for more than three years prior to that date, unless the enforcement creditor notifies the court by 11 August 2019 of other assets of the debtor which can be attached in the enforcement proceedings. This is aimed at dispensing with a number of dormant enforcement proceedings. In the future, this will no longer be an issue because the Amendments ensure that if the enforcement creditor has designated in the motion for enforcement a single asset against which its claim should be enforced, and such asset is not capable of yielding the enforcement proceeds, the public bailiff in charge of enforcement will have an obligation to ex officio  redirect  enforcement against other available assets of the debtor, if any.

Electronic public auction for sale of assets

The Amendments introduce electronic public auction (elektronsko javno nadmetanje) as a completely anonymous process for sale of immovable and movable assets in enforcement proceedings. The identity of the bidders will be disclosed only once the public bailiff awards the asset to the winning bidder.

This is supposed to start on 1 March 2020 in parallel with the traditional auction process but from 1 September 2020, the electronic auction will be the only permitted sale process in enforcement proceedings.

Limitations on enforcement of pledges and financial leasing contracts

The Amendments specify that when enforcement proceedings are initiated based on the excerpt from the Pledge Registry, a mortgage agreement or a mortgage statement, or the excerpt from the Financial Leasing Registry as enforcement titles, the creditor may only collect the proceeds from the sale of the pledged or, as the case may be, leased asset, and not from the general assets of the creditor. Creditors should, therefore, carefully plan what other instruments they will ask from the debtor that can ensure access to enforcement proceedings against the debtor’s general assets.

Mandatory negotiations for amicable solution prior to enforcement against governmental entities, local municipalities and state institutions

Before initiating enforcement proceedings against Serbia, Vojvodina, a local municipality, a state institution and any other entity publicly funded through the treasury, the enforcement creditor will be obliged to first sent to the Ministry of Finance a warning letter. This step must be taken at least 30 days prior to the submission of the motion for enforcement and evidence that it has been taken must be attached to the motion for enforcement.

Simplified process of enforcement based on an authentic document

The Amendments now remove the unnecessary three-stage decision making process in the enforcement proceedings initiated on the basis of an authentic document (verodostojna isprava), such as an invoice. Under the current Enforcement Act, an enforcement order rendered based on an authentic document can be opposed by objection, whereas the decision upon the objection can be appealed. In the practice so far, the appellate court acting upon the appeal has in a great majority of cases simply confirmed the lower court’s decision on the appeal. When the Amendments become applicable, appeal against the decision on objection will be no longer allowed.

New owner of mortgaged immovable property can be named enforcement debtor

Under the existing legislation, the enforcement creditor has to designate the person/entity who issued the mortgage statement as enforcement debtor, even when the mortgaged property changed its owner. In practice, this unfortunate solution led to rejection of motions for enforcement in situations where the mortgaged property changed owner and the original mortgagor is dead, or in bankruptcy. The Amendments rectify this anomalous situation by specifying that the current owner of the mortgaged property can be named enforcement debtor in the motion for enforcement.

Faster enforcement proceedings

Once the Amendments become applicable, it will be possible to submit a motion for enforcement electronically. This is supposed to be regulated by a rulebook to be enacted by the Ministry of Justice.

The Amendments also introduce solutions aimed at speeding up the service of process. In case the service of enforcement order is unsuccessful, the court will publish it on its electronic board within three days from the day of the failed service, and such publication will be deemed effective service within eight days.

Finally, the deadline for an objection to enforcement order rendered in summary enforcement proceedings which can be initiated based on commercial invoice; promissory note; unconditional bank guarantee, unconditional letter of credit; certified statement of the debtor authorising the bank to transfer funds from his account to the account of the creditor, is reduced from eight to five days, whereas the deadline for a response to such objection is reduced from five to three days. The deadline for the decision on the objection is eight days from the delivery of the case files.

Voluntary settlement of a monetary claim prior to initiating enforcement proceedings

The process of voluntary settlement of a monetary claim before the initiation of enforcement proceedings is a new, optional, stage in the process. It begins with the submission of a written proposal by the enforcement creditor to the public bailiff. Upon the receipt of the proposal, the public bailiff invites the enforcement debtor to voluntarily settle its monetary debt owed to the creditor based on an enforcement title or authentic document (e.g. an invoice) and instructs him on the advantages of voluntary settlement.

The process of voluntary settlement terminates in one of the following three manners: (i) if the debtor does not pay the debt within 60 days; (ii) if the creditor and the debtor enter into a settlement or, as the case may be; (iii) the creditor voluntarily settles the debt. The initiation of these proceedings suspends the statute of limitations.

Costs of enforcement proceedings

The Amendments specify that the creditor who has initiated multiple enforcement proceedings against the same debtor in a situation where he could have obtained the same result by initiating single enforcement proceedings is, if successful, entitled only to the costs of one enforcement proceeding.