There are specific foreign exchange (FX) restrictions set out in Serbian legislation. The FX rules envisage mandatory requirements with respect to cross-border loans, guarantees, assignment and set-off of cross-border claims and debt, the opening of bank accounts abroad, etc. As FX restrictions affect various aspects of transactions between Serbian residents and foreign parties, they are frequently a tumbling stone in cross-border transactions.
In a nutshell, Serbian residents are rather restricted in lending to foreign residents and providing guarantees for transactions between non-residents unless the foreign borrower is majority-owned by the Serbian guarantor, with the exception of transactions between non-residents incorporated in the EU member states in which case this requirement is removed. However, lending and guaranteeing by residents to non-residents under credit transactions are still subject to other requirements and limitations such as that the Serbian guarantor has to secure its recourse receivables through adequate collateral from abroad, with the main idea to limit any funds outflow from Serbia. As there are no guidelines under the FX rules on what should be regarded as adequate collateral here, this needs to be evaluated by the National Bank of Serbia as a regulator on a case-by-case basis within the mandatory reporting procedure (uncertain in its outcome due to lack of firm standards).
With respect to the reporting procedure, Serbian residents are required to deliver various documents to the regulator, among which are the originals of relevant finance documents and their certified Serbian translations. The regulator may request to be provided with supplement documents at its own discretion within the course of the procedure. When it comes to the cross-border facility agreements, the regulator may request that certain provisions of the facility are explicitly excluded from application toward Serbian residents or that are further amended to ensure compliance with the FX rules.
The major points which the regulator usually finds problematic in facilities with non-residents are clauses on joint and several guarantees, cross-default, set-off, and assignment. As the potential issues may not be fully predicted in advance, this list should not be regarded as exclusive.
The specific position of the regulator is that the cross-border guarantees may not be joint and several (i.e. they may be activated only if the original borrower is not capable to make the payment itself) and have to be explicit that the Serbian residents will have no payment obligations on behalf of any obligor other than pursuant to the security provided.
Cross-defaults are generally not permitted, banning the default of a Serbian borrower under a cross-border loan to be triggered based on a cross-default.
Cross-border set-off of claims is also subject to certain restrictions under the FX rules, whereby set-off is possible only for transactions explicitly prescribed by the law and following the prescribed procedure. All other types of set-off are deemed to be unpermitted under the FX rules.
Cross-border assignment and transfer of claims and debt are explicitly allowed under the FX rules only if related to the realized foreign trade of goods and services or cross-border loans and subject to certain formal requirements depending on the underlying transaction.
The policy of the regulator in this area is gradually being loosened up. In terms of legal changes, only the restriction of majority ownership for EU member states has been removed, but, through practical cases, the regulator kept adjusting its positions towards a more flexible approach. As a consequence, requirements relating to cross-border defaults and joint and several guarantees appear to have been liberalized in transactions where the resident cross-guarantees only for its direct or indirect shareholder. Undoubtedly, we will be seeing more liberalization driven by the practical situations as we witness an increase in cross-border financing and refinancing transactions.
By Milica Popovic, Partner, and Ksenija Boreta, Senior Attorney, Petrikic & Partneri in cooperation with CMS Reich-Rohrwig Hainz