Law on Financial Collateral and changes to the Law on Bankruptcy

UniCredit Bank Serbia JSC
The Law on Financial Collateral and changes to the Law on Bankruptcy have been adopted and published and will become effective as of 1 January 2019.
Fri, 15/06/2018

On 8 June 2018, the Serbian Parliament adopted the Law on Financial Collateral and certain amendments and supplements to the Bankruptcy Law, which were subsequently published in the Official Gazette of Republic of Serbia, no. 44/2018 on 8 June 2018. Specific amendments to the Bankruptcy Law are as follows:

  • Starting of bankruptcy procedure over any of the parties, doesn’t affect exercise and fulfilment of rights and obligations of parties from Financial Collateral Agreement and creditor may collect by execution of financial collateral, in accordance with Financial Collateral Law, excluding application of Bankruptcy Law. Same applies to netting;
  • Creditors in possession of pledge on the basis of Financial Collateral Agreement, or any other collateral provided by the agreement, are not going to be considered as bankruptcy creditors of any kind, in the sense of Bankruptcy Law, except for unsecured part of its claim and such creditors may collect from financial collateral after start of bankruptcy procedure with only obligation to inform competent court within 8 days from the day of collection. Penalties are envisaged for legal entities not informing competent court of collection within given term, as well as for responsible private persons within legal entity;
  • Rules on executing concluded agreements and claiming rights which bankruptcy liquidator may request in the name of bankrupt debtor, does not apply on Financial Collateral Agreements which stipulate existence of bankruptcy reasons, rendering of request for/or opening of bankruptcy procedure as event of default;
  • A legal action or contract that constitutes usual, or even unusual settlement of creditors, or by which other creditors are directly damaged, cannot be annulled, if the action is taken on the basis of agreement subject to a financial obligation the execution of which is provided by a Financial Collateral Agreement, as well as on the basis of another financial agreement in connection with the settlement of claims by netting;
  • Urgent measures that can be implemented by competent bankruptcy authorities before opening of bankruptcy, with aim of preservation of property of bankrupt debtor in cases stipulated by Bankruptcy Law (such as ban on payments from bankrupt debtor’s bank accounts or ban on any disposal of its property), may not apply on accounts or property that is encumbered by Financial Collateral Agreement.

The Law on Financial Collateral, along with the Law on amendments and supplements to the Bankruptcy Law for the first time in Serbian legal system introduces legal assumptions established for an efficient netting of mutual claims and obligations of the parties based on qualified financial arrangements, such as financial derivatives and other anonymous but standardized framework OTC arrangements.             

The new provisions will enter into force on 16 June 2018 and become effective as of 1 January 2019.

Impact on investors: The aim of Law on Financial Collateral and changes to the Law on Bankruptcy is to provide a modern, efficient and harmonized normative framework for the fulfillment of the obligations of qualified participants in the financial market, thus contributing to the preservation and strengthening of the stability of the financial system.