The new legislation on liquidation proceedings in Republika Srpska (Zakon o likvidacionom postupku “Official Gazette of Republika Srpska”, no. 82/19) (“New LPA“) comes into force on 12 October 2019. It introduces new, simplified, form of voluntary liquidation of companies and other business entities, and detailed rules on liquidation of assets and claims settlement in ordinary liquidation proceedings.
Simplified liquidation proceedings
The New LPA introduces simplified voluntary liquidation. The proceedings are initiated by a company’s shareholder or director, based on a resolution to wind up the company enacted by the company’s corporate body authorized for such decision in the company’s memorandum of association, articles of association, or a special law. In addition to such resolution, the application for simplified voluntary liquidation must be accompanied, inter alia, with various documentation confirming that the entity under liquidation has settled its liabilities, and with a list of assets with a proposal for their distribution.
The court renders a resolution on simultaneous opening and closure of the liquidation proceedings (similarly to the situation when the company proposes its own insolvency along with a pre-packed reorganization plan). There is no liquidation administrator or court hearings.
The court’s resolution on simplified voluntary liquidation remains on the court’s notice board and the official web page of the Intermediary Agency for IT and Financial Services of Republika Srpska for a period of 30 days. The operational part of the resolution is also published in the Official Gazette of Republika Srpska. The resolution is delivered to the entity being liquidated, to the stock exchange (if the company is listed), as well as to persons having legal interest (it remains unclear who these persons are apart from the creditors). The latter are entitled to appeal the resolution within 30 days following receipt.
If a creditor appeals the court resolution approving simplified liquidation, the company may settle the creditor’s claim specified in the appeal within 15 days following the receipt of the appeal, otherwise the court will terminate the proceedings for simplified liquidation and order the company to pay an advance of the costs of continuing the proceedings as ordinary liquidation. If the company settles the appellant’s claim, the court will reject the appeal.
Once the appeal is rejected or the deadline for the appeal expires with no appeal being filed, the court resolution on simplified liquidation becomes final and binding, which is the basis for the court to delete the company from the Registry of Business Entities. The shareholders of the liquidated company remain registered in the Registry of Companies as persons with unlimited joint and several liability for the company’s obligations for a period of three years following the company’s deletion.
Improvements in ordinary liquidation proceedings
The New LPA incorporates the rules on the liquidation of corporate assets and settlement of creditors of a company undergoing ordinary liquidation proceedings.
Sale of assets is done when the company does not have sufficient cash to settle all of its creditors. Sale of unencumbered immovable assets is to be carried out through a public auction or in direct negotiations. Encumbered immovables are sold in public auction according to the rules governing enforcement proceedings, while sale in direct negotiation is possible only with the secured creditor’s consent. Secured creditor can obtain the immovable asset in satisfaction of the debt only if the public auction was unsuccessful and provided this does not conflict with the rights of other creditors (a conflict would exist e.g. when it is estimated that the immovable can be sold for a price higher than the secured creditor’s claim).
The same procedure applies to sale of movable assets except that the secured creditor has more influence on the method of sale and the liquidator may even authorize the secured creditor to sell. The secured creditor in possession of the encumbered movable would also be entitled to sell the asset.
