A reputable international business journal once described Croatia as an “economic and political basket-case.” Nowadays, it is becoming increasingly difficult not to agree with this impression. Open any newsfeed or any business journal, or Google top stories related to Croatia, and chances are you’ll stumble across at least one article about Agrokor. The headlines are something along the lines of “To house 15,000 creditors for the largest creditor’s meeting ever, Agrokor considers renting a stadium in Zagreb.“
If this strikes you as odd, you were probably lucky enough to have spent the better part of 2017 in an underground facility with no wi-fi. To clarify, Agrokor, which is Croatia’s largest company, experienced a near-death experience in April of this year and almost went bankrupt. Saved from certain demise by the Croatian Government, Agrokor is – much to the dismay of its foreign creditors – currently undergoing a tailor-made procedure similar to bankruptcy, which should allow it to emerge as a going concern mid-next year. Whether this emergence will actually happen is highly debatable, as the extraordinary management currently in control of Agrokor is the first ever in Croatia.
Why not let the company go bankrupt? Well, when confronted with the possibility of our largest company going bust (and dragging the entire economy with it), the Croatian Government was not content to simply use its existing (albeit, perhaps, faulty) insolvency laws. Bankruptcy and pre-bankruptcy were quickly cast aside as possibilities and – voilà – an entirely new law, appropriately dubbed “Lex Agrokor,” was created. Developed in a haste, this specific piece of legislation introduced a number of new concepts never before seen or executed in local laws.
To say that the situation put local lawyers in a bit of a fix would be a massive understatement. Lex Agrokor deviates from bankruptcy significantly, but also turns to it in certain aspects. Are previous local practices of any real use here? What should we say to clients whose rights need urgent and vigorous defending? For a while there, no one seemed sure. Seven months down the road, things are a bit clearer, but there isn’t a Croatian lawyer who hasn’t worked up a sweat trying to protect his or her clients in this ordeal. If one thing is certain, it is that Agrokor will continue to take up a lot of our attention in the months to come.
However, this does not mean that Croatian lawyers haven’t been keeping themselves busy on other fronts at the same time. An interesting trend among local companies is the development of various corporate governance best practices. Management boards are becoming more concerned with what their duties and responsibilities are, and they are keen to develop and maintain internal procedures as and prepare models for as many scenarios as possible. Local market players consult more, and more effectively, with their lawyers and compliance officers.
In addition, data protection has been and continues to be a huge deal, as companies are just beginning to grasp how challenging it will be to adapt to the new system introduced by the General Data Protection Regulation. There isn’t an association, let alone an operating company, which doesn’t collect personal data, at least in some form, and the May 2018 implementation deadline for the GDPR is looking awfully close. Both management and operational levels of companies need to be well acquainted with the new regulation and what it brings to the field – particularly in light of the large fines for companies with global presence, which go up to 4% of annual group worldwide turnover. Consequently, many companies with a local presence have already begun their preparations and welcomed any and all legal assistance they could get.
This shows that Croatia is not to be written off just yet. It is true that Agrokor has caused anxiety in the local economy, and we’ve had a front row seat to a years’ worth of good deals and opportunities making their way down the drain. But, even if some may have hit the brakes in 2017, the majority of operating companies in “Basket-Case Land” have continued business as usual. Realizing there is little or nothing to add to the Agrokor tale while it is being unfolded, they have invested time and money into that which they can affect: strengthening their inner corporate structures. And this is precisely what they should be doing, to keep moving forward.
By Sasa Divjak, Senior Partner, and Ema Skugor, Senior Associate, Divjak, Topic, Bahtijarevic Law Firm
This Article was originally published in Issue 4.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
