The main goal of the insolvency proceedings is primarily to settle the creditor’s claims, and further on to ensure normal operating conditions for the debtors. Initiation of insolvency proceedings should be useful for debtor’s creditors as well as for the debtor himself; however, in a large number of cases this proceeding is initiated too late, at the time when the debtor has almost no assets left. There are many companies over which an insolvency proceeding should have been initiated long time ago, but spite that, they are still on the market, doing business.

Insolvency proceedings can be carried out over legal persons, sole traders and craftsmen. These proceedings are initiated on the request of an authorized person, i.e. the creditor and/or debtor (although they are not the only persons authorized to initiate it).

It is therefore in the best interest of every creditor to submit to the competent Commercial Court, as soon as possible, a request to open an insolvency proceeding over the debtor, if he/she suspects that because of insolvency or any other reason, the debtor will not be able to settle the creditor’s claim. The creditor is then obligated to make plausible the existence of his/her claim and the existence of at least one of the insolvency grounds.

An authentic document (e.g. creditor’s invoice) is enough for a creditor to make the existence of his/her claim plausible, since the court is not required to determine, beyond any doubt, the existence of this claim.

The creditor is obligated to make plausible the existence of at least one of the insolvency grounds. Here, however, the court must determine, beyond any doubt, the existence of one of them. The grounds for insolvency proceedings are illiquidity, insolvency and over-indebtness. When determining existence of these reasons, the Court generally applies the statutory presumptions of illiquidity, insolvency and over-indebtness.

According to the provisions of the Insolvency Act the debtor is considered to be:

Illiquid if he/she is more than 60 days late in meeting one or more of his/her financial obligations which amount exceeds 20% of the amount of his/her liabilities from Annual Financial Report published for the past year, or if he/she is more than 30 days late with the payment of salaries and related taxes and contributions.

Insolvent if he/she has unexecuted orders of payment in the Register of the orders of payment at Financial Agency (FINA) for a period longer than 60 days

Over-indebted if his/her assets do not cover his/her existing commitments.

When submitting a request to open an insolvency proceeding, the creditor is obligated to pay an additional fee in the amount of 10.000,00 Kn for advance payment of funds needed to conduct the insolvency proceeding. Workers and former workers of the debtor, who are as creditors initiating an insolvency procedure, do not pay the additional fee. The creditor must also pay in advance the costs of the preliminary procedure, unless the creditor is a worker.

Most creditors, however, do not have any interest to initiate the insolvency proceedings because the initiation doesn’t place this creditor in any sort of privileged position compared to other creditors. The creditor who initiated this proceeding must pay in advance the additional fee and the costs of preliminary proceeding, and has no privileges therefore. The only exceptions are the secured creditors.