This document discusses several topics related to insolvency proceedings and management liability in Serbia: 1. Creditors and bankruptcy administrators can contest certain legal actions taken by debtors, such as transactions that obstruct equal settlement or favor specific creditors. 2. Criminal liability may exist for actions that cause bankruptcy through irrational spending or concealing assets, or cause a "false" bankruptcy. However, criminal sanctions are rarely realized in practice. 3. Other sanctions for managers include prohibitions on performing duties or managerial positions related to the mishandled assets. 4. The government plans to establish a register of disqualified directors.

1. ManagementMistakes and Liability in Serbian Insolvency Proceedings Branko Radulovic Law School, University of Belgrade & Office for Regulatory Reform and Impact Assessments

2. CONTESTING DEBTOR’S LEGAL ACTIONS CRIMINAL LIABILITY OTHER SANCTIONS “AUTOMATIC” BANKRUPTCY PREPACKS AND OUT-OF-COURT SETTLEMENT DISQUALIFIED DIRECTORS REGISTER

3. CONTESTING DEBTOR’S LEGAL ACTIONS When? Obstructing equal settlement and favoring specific creditors Deadlines Contesting may be performed from the day of opening of the bankruptcy proceedings until the day when the hearing on the main distribution of the bankruptcy estate is held. Who? Plaintiff - creditor or bankruptcy administrator The bankruptcy administrator is obliged to contest legal actions

4. CONTESTING DEBTOR’S LEGAL ACTIONS Types Regular Settlement– 6 months if the bankruptcy debtor was insolvent at the time of the transaction, and the creditor knew or ought to have known of its insolvency. Irregular Settlement – 12 months providing security or settlement for one creditor which he was not entitled to request, or was entitled to request but not in the manner and at the time when it was provided

5. CONTESTING DEBTOR’S LEGAL ACTIONS Direct damage to creditors within 6 months before filing for bankruptcy if the bankruptcy debtor was insolvent at the time and the counterpart knew of its insolvency; or the debtor’s action or failure to act would result in the inability of creditor to exercise his rights transaction was concluded after the filing of the petition the counterpart knew of its insolvency Intentionally damaging creditorsand transactions and actions without or at a negligible compensation within five years before thefiling of the petition

6. CRIMINAL LIABILITY Causing bankruptcy irrational spending or disposal of funds, excessive borrowing and taking disproportionate obligations, irresponsible contracting, failure to timely exercise claims, destroying or concealing property or other actions that are inconsistent with the conscientious business bankruptcy and thereby cause other damage negligence Causing “false” bankruptcy apparent or actual impairment of companies assets However, there is no criminal liability for failing to timely file for bankruptcy

7. OTHER SANCTIONS Prohibition to perform the duty performed at the time of the offense or managerial positions or all duties related to the disposition, use, management or handling of the trustedproperty

8. Problems In practice, criminal sanctions and civil liability is hardly ever realized Subjective problems - passive public prosecutors Objective problems - lack of quantitative standards and difficulties regarding evidence Petitions were filed too late Debtors - no need to protect from enforcement (weak enforcement system) Creditors -not willing to finance the proceedings

9. Introduction of Special procedure in case of continuing insolvency Blocked accounts – Serbian specificity due to widespread use of bills of exchange/ promissory notes

10. Bankruptcy tsunami

11. First wave results

12. Prepacks Dozen successful cases since the new law is in force decision to initiate preliminary Proceeding (t=3) reorganization plan is not adopted at the hearing Earliest after 30 days Preliminary proceedings minimum 30 days Pre-packaged plan submitted simultaneously with the petition for bankruptcy (t=0) Judge opens bankruptcy, confirms the adoption of the proposed prepackaged reorganization plan, and suspends bankruptcy simultaneously the prohibition of enforcement against the secured and unsecured assets of the bankruptcy debtor(t=5) Prolonging up to 15 days due to complexities of the case Preliminary proceedings maximum 45 days Expected duration around50 days Maximum duration 3+45+15=63 days Debtor to remove deficiencies within 8 days

14. The government has announced the establishment of the Disqualified Directors Register