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The Evolution of NPLs in Serbia

The Evolution of NPLs in Serbia

Serbia
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The NPL market in Serbia traditionally knows of only two concerns, embodied in the numbers 48 and 204. Although you would assume that numerology had something to do with this assertion, the backstory is actually a lot more appealing.

The enactment of the latest Law on Enforcement and Security in 2016 brought to life issues regarding how creditors acquiring claims can initiate enforcement or continue ongoing litigation over acquired claims. The main idea for amending an already- fresh law was to make it easier for creditors to collect claims.  

However, something went wrong along the way, and instead of improving the creditors’ position, the amended Article 48 of the Law on Enforcement and Security did quite the opposite. In cases of transfers of claims, the now (in)famous Article 48 required that the new creditor show evidence of the transfer with a certified document, or prove the transfer by a final court/administrative decision.

The courts had conflicting and strange interpretations of this provision, with many recognizing transfers only when they were based on law, but not when based on contract, due to the somewhat ambiguous wording of the law’s text. The Serbian Parliament had previously tried to resolve this issue, but the first interpretation it issued, in late 2016, did not make much of a difference. Naturally, this confusion caused quite a stir, especially on the NPL market. Lawyers and bankers became quite active in trying to find an acceptable solution. After a number of discussions, round tables, and conferences, Serbia’s Parliament finally issued a new interpretation of Article 48 in late 2017 – leaving no doubt that the transfer of claims referred both to transfers based on law and on contract. This was also confirmed by a similar position adopted by the Supreme Court, reasoning that the rationale behind this article was to give broader options to creditors.

This was all good news for the NPL market at the end of last year, with the elimination of procedural hurdles for collecting acquired claims leading to hopes for a more exciting 2018.

However, even though the enforcement issue was resolved, there is still some shady ground in the field of ongoing litigations over transferred claims. The existing solution from the also (in)famous article 204 of the Law on Civil Procedure that requires consent from all parties for new creditors to join a dispute has caused some very unsettling issues in practice. For instance, this solution has on numerous occasions led to situations where a new creditor was not allowed to join a dispute and was also unable to initiate a new one for the transferred claim (e.g., where the other party was in bankruptcy and the deadline to file a claim had expired, or where the dispute had been ongoing for years and the statute of limitation for the new creditor had expired). On top of that, the existing solution states that an ongoing dispute can be finalized between the same (initial) parties. Sometimes, this has also led to a situation where the old creditor no longer had a valid claim (as it had already been transferred), meaning the courts would render judgements rejecting the claim towards the old creditor, making the transferred claim non-existing. 

A step in the right direction was made a few weeks ago, when amendments to article 204 entered the legislative amendment process in the Parliament. The proposed amended text now offers a swift solution to the distresses of the past, by providing a differentiation between acquiring a claim and entering a dispute in place of the claimant and the respondent. If the claim was acquired, the new creditor enters the dispute as claimant only by providing consent from the old claimant (which should resolve the NPL market concerns). If the claim was acquired from a respondent, the new respondent may enter the dispute only with the consent of all parties. 

One can hope that, just like last year with article 48, the proposed amendments to article 204 will finally put an end to the NPL community’s woes of acquiring claims under dispute in Serbia and ensure the further development of this ever-evolving market.   

By Milan Lazic, Senior Partner, and Milica Savic, Senior Associate / independent attorney at law in cooperation with Karanovic & Nikolic 

This Article was originally published in Issue 5.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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