Seperate creditors in bankruptcy proceedings

Bankruptcy is a special non-litigation court procedure aimed, according to Article 2, Paragraph 2 of the Bankruptcy Act, at the total settlement of creditors of the bankrupt debtor by liquidating his assets and distributing the collected funds to the creditors. The Bankruptcy Act distinguishes four types of creditors (separational creditor, seperate creditor, estate creditor, and bankruptcy creditor). In the following text, the concept of the seperate creditor will be elaborated in more detail.

Who is a seperate creditor?

A seperate creditor is a person who holds a lien or a right to settlement over a specific asset or right that is registered in a public registry (e.g., land registry, ship registry, intellectual property registry…). This creditor has the right to separate settlement from that asset or the right to its sale. The seperate right entitles the creditor, in bankruptcy proceedings, to a separate and priority settlement of their claim, which is seperate by that right.

For example, if a seperate creditor holds a lien on a property that is part of the debtor’s bankrupt estate, they can satisfy their claim from the value of that asset separately and independently from the creditors whose claims are unsecured, and generally independently of the progress of the bankruptcy proceedings, regardless of the course of the bankruptcy proceeding.

In accordance with Article 152 of the Bankruptcy Act, the following are also considered seperate creditors:

1. Creditors to whom the debtor has delivered a movable asset or transferred a right as security for their claim,

2. Creditors who have a right of retention over an item because they have contributed something to the benefit of that item, to the extent that their claim on this basis does not exceed the remaining benefit,

3. Creditors who have a right of retention based on the law,

4. The Republic of Croatia, local and regional self-government units, and other public legal entities, if the item for which there is an obligation to pay customs or taxes under the law, serves as security for public dues.

Notice of claim existence

Secured creditors, in accordance with the Bankruptcy Act, are required to notify the competent unit of the Financial Agency of their rights, the legal basis of their secured right, and the portion of the debtor’s assets to which their secured right pertains. They must also provide a statement indicating whether they waive or do not waive the right to separate settlement. Along with the notice, they are required to submit a statement of consent or refusal of consent to the postponement of settlement from the asset to which their secured right applies.

Settlement

The settlement of a secured creditor is carried out by liquidating the asset on which the secured right exists. If the secured right pertains to real estate, the property will be sold according to foreclosure procedure rules, upon the proposal of the bankruptcy administrator or the secured creditor. The court will determine the value of the real estate and the sale will be conducted by the Financial Agency through an electronic public auction.

After the liquidation of the asset or right, the court will use the proceeds from the sale to, in order: cover the costs of liquidation, satisfy the claims of the secured creditors in the order determined by the foreclosure procedure rules, and any remaining amount will be handed over to the bankruptcy administrator for the settlement of the bankruptcy creditors.