Grounds for initiating a bankruptcy proceeding in Croatia

Bankruptcy proceedings are conducted for the collective settlement of a debtor’s creditors, through the liquidation of the debtor’s assets and distribution to creditors. The main purpose of bankruptcy proceedings is therefore to ensure the settlement of creditors’ claims, after which the debtor – a legal entity – ceases to exist.

Bankruptcy proceedings may be initiated if the court establishes that there are grounds for bankruptcy. The statutory grounds for bankruptcy are insolvency and ver-indebtedness.

Insolvency

A debtor is deemed insolvent if they are unable to continuously meet their due monetary obligations. The fact that the debtor has satisfied, or may be able to satisfy, some creditors’ claims in whole or in part does not mean that the debtor is solvent.

The Bankruptcy Act prescribes specific conditions under which a debtor is considered insolvent:

-if the debtor has one or more registered outstanding payment obligations listed in the Payment order register maintained by the Financial Agency, remaining unpaid for more than 60 days, and such obligations should have been collected from any of the debtor’s accounts without further consent from the debtor. This is proved by a certificate issued by the Financial Agency.

-if the debtor has failed to pay three consecutive salaries owed to employees under the employment contract, work regulations, collective agreement, special regulation, or another act governing the employer’s obligations. This is evidenced by a payroll calculation prepared in accordance with applicable regulations, accompanied by a certificate from the Ministry of Finance – Tax Administration confirming that the calculation i sin compliance with regulation.

Over-indebtedness

Over-indebtedness occurs if the debtor’s assets are insufficient to cover its existing debts. This is evidenced by submitting a list of the debtor’s assets and debts, which is a mandatory document that needs to be filed to the court when requesting the initiation of bankruptcy proceedings.

Examination of the Debtor’s financial position

If grounds for bankruptcy exist, once the proceedings are initiated, the court will appoint one or more experts who, together with the bankruptcy administrator (if appointed), will examine whether the debtor is insolvent or is over-indebted. Exceptionally, such an examination will not be conducted if it can be established beyond doubt that the grounds for bankruptcy exist.