Consensual financial restructuring of companies in Serbia

a short presentation of major features of new Law on consensual financial restructuring of companies

The Law on consensual financial restructuring of companies

The new Law on consensual financial restructuring of companies was adopted by the Serbian Parliament on May 25th 2011, and published in the Official Gazette no. 36/2011.

The Law entered into force on June 4th 2011, and its application is due to commence after the expiration of 90 days from entering into force – which will be in the first week of September 2011.

A legal novelty: The new Law on consensual financial restructuring of companies is a significant legalnovelty in the Serbian economic and legal systems. It represents the “middle-of-the-road” between debtsettlements and prepackaged reorganization plans.

An alternative to more radical solutions: The institute of consensual financial restructuring offers analternative exit to debtors heavily hit by the economic crisis, but also to creditors who do not wish to gofor enforced collection but are ready to give the debtor a second chance.

Will it be successful?: It remains to be seen in practice whether the goals of the legislator will beaccomplished in the time to come.

Consensual financial restructuring

Consensual financial restructuring is

based on 2 major agreements: Financial

Restructuring Agreement and Debt

Standstill Agreement

For successful implementation of the

consensual financial restructuring,

mutual trust between debtors and

creditors involved in the process is

absolutely necessary

Financial restructuring can be

implemented if a minimum of two

domestic or foreign banks are involved

in the process as creditors

Financial Restructuring Agreement is

similar to Bankruptcy

Reorganization Plan, with some

major differences

Financial Restructuring Agreement need not

include all creditors of the debtor whose debt is

being restructured

Financial Restructuring Agreement and Debt

Standstill Agreement are binding only for the contracting parties

It is not possible to impose the Financial

Restructuring Agreement and Debt Standstill

Agreement onto creditors who do not want to

participate in the process

Debtor in consensual financial restructuring can be…

… only a Company (as defined by the Companies Act) can be the Debtor in consensual financial restructuring

The following entities can not be debtors: banks, insurance companies, underwriters of securities, private investment funds, fund management companies, broker-dealer companies, companies that provide financial leasing, companies that provide financial services

The rules and principles of consensual financial restructuring

PRINCIPLES OF THE PROCEDURE

Principle of Suitability

Principle of Voluntariness

Principle of “going concern”

for the debtor

Principle of conduct in good

faith

Principle of cooperation and

coordination between creditors

Principle of equality of the

status of creditors and

status proportionate to the amount

of claims

Principle of access to

information and confidentiality

of data

Consensual financial restructuring, as

defined by the Law, is re-arranging of debtor-

creditor relationship between a company in

financial difficulties and its creditors

Financial difficulties, as defined by the Law,

are: inability to pay debts (illiquidity),

threatening inability to pay debts

(threatening illiquidity) and over-

indebtedness

Debt Standstill is a temporary suspension of

the fulfillment of the debtor’s obligations; as

well as prohibition or stay of enforced

collection for creditors who participate in the

financial restructuring

Measures of financial restructuring

Reprogramming of debt

Liquidation of the debtor’s property or

transfer of the property as a way of debt

settlement

Discharge of debtExecution, amendment

or waiver of lien

Providing of additional collateral by the debtor

or third parties, including giving guarantees and

warranties

Debt to equity swapIssuance of Securities

Other measures of importance for the implementation of

financial restructuring

Inter-mediation in negotiations between the debtor and the creditors

Institutional inter-mediation by the Serbian Chamber of Commerce (at the request of the debtor or the creditors)

Contractual inter-mediation by an Expert Consultant (with mandatory participation of the institutional intermediary)

Comparison between consensual financial restructuring and bankruptcy reorganization

Consensual Financial Restructuring Bankruptcy Reorganization

Does not affect the reputation of the debtorBankruptcy proceedings significantly affect the reputation of the

debtor

Voluntary procedure, written consent of every creditor is mandatoryA majority of 50% of creditors in each class is required for the adoption of the Plan, so the Plan can be “crammed down” onto the disagreeing

creditors

Cheaper More expensive

Based on trust and useful for deepening of business relationships and development of better business culture

All the parties are usually hostile to each other because everyone wants to gain more

No interference by the judiciary or the administration Courts and bankruptcy trustees

No advance payments Advance payments

Financial projections are optional Financial projections are mandatory

The Chamber of Commerce and the Expert Consultant are the intermediaries in negotiations between the debtor and the creditors

The debtor usually directly negotiates with the creditors

If the debtor fails to fulfill his obligations under the Financial Restructuring Agreement, he may be liable for damages

If the debtor fails to fulfill his obligations under the Reorganization Plan, he may be liquidated instead of reorganized

Voluntarily Obligingness

Our services and contact details

Drafting of Financial

Restructuring Agreements

Drafting of Debt Standstill

Agreements

Registration of changes with the public registries on behalf of the

Client

Inter-mediation in negotiations

between the debtor and the

creditors

Financial Advisory Company WM Equity Partners Ltd. Belgrade is specialized in providing full spectrum of services in cases of out-of-court (consensual) restructuring and bankruptcy reorganization.

Contact details:

WM Equity Partners d.o.o. BeogradBulevar Mihaila Pupina 10A/II New Belgrade

Vladimir Pavlović, MSc, CFA, CEOTel: +381 11 3343 317Fax: +381 11 3343 987vladimir.pavlovic@wmep.rs

We remain at your disposal for any further questions or information.