Web Bankruptcy Project

cren broj_14_Page_1.jpgMr. Mario Vukelic is a judge of the High Commercial Court of the Republic of Croatia. After earning diplomas in law and economics in Zagreb, his entire work experience of 25 years has been realized in commercial courts. He is a member of the Working Group for Negotiations on Accession of the Republic of Croatia to EU - Chapter Judiciary and Fundamental Rights.

He is a representative of the Republic of Croatia in the European Commission for the Efficiency of Justice - CEPEJ and a member of the International Insolvency Institute - a non-profit international organization of leading bankruptcy experts from over forty countries. He lectured at many conferences, symposia, seminars and presentations and published many expert articles.

At the High Commercial Court of the Republic of Croatia, along with his position of a judge, he is also the Head of IT Department. Together with the web page, he also designed the judicial practice search system at the High Commercial Court. He is the author and editor of the web page on bankruptcy. He is also involved in the Integrated Case Management System (ICMS) Project implemented by the Ministry of Justice and participates in several World Bank projects.

Please introduce for us your project of designing, establishing and launching the bankruptcy web page (www.sudacka-mreza.hr/stecaj or www.vtsrh.hr)

The reasons for launching this web page are entirely practical. The idea was to post all public notices on bankruptcies in one place, enable their public search free of charge, publish as much information on the sale of assets, and allow a potential buyer to verify them.

Public notices concerning the sale of assets in bankruptcy procedures have mostly been published in daily newspapers. Such sales information shared the same destiny as any daily newspaper - they lasted one day and rarely reached a larger number of potential buyers. Thus, I tried to resolve this problem via the internet and this specialized web page presented itself as the logical solution.

Sales notices, although important, are only one of many properties of this web page. The bankruptcy web page also contains general information on commercial court procedure and bankruptcy; all texts of the Bankruptcy Act and other related laws as well as a number of expert articles in the field of bankruptcy. My fellow judges and professors were ready to collaborate and released their articles to us free of charge. With this, the web page also obtained expert and scientific references.
We are planning to expand this cooperation internationally through collaborating with experts from the International Insolvency Institute, World Bank and other relevant institutions. Parts of the web page are currently being translated into English, and I'm hoping for the translation of the new Bankruptcy Act in the near future.

The harmonization of the domestic Bankruptcy Act with international standards and the efficiency of its enforcement are a prerequisite for increasing foreign investments, joining EU and it contributes to the credit rating of the country. In the open market conditions, increase of the number of international bankruptcies is an unavoidable fact.

The web page also contains a complete systemized review of the judicial practice of the High Commercial Court relating to bankruptcy procedures from 1994 until today. The publication of judicial practice on the internet essentially represents the information on how certain legal issues have been resolved in other cases and it is one of the cornerstones of legal security.

In regard of the citizens, this is a practical concretization of the proclaimed principles of transparency and efficiency of judicial processes and access to justice. In regard of the profession; judges, lawyers and jurists in general, the information on recent judicial practice represents a basic presumption for its standardization.

The idea on creating this web page originated in 2000. What affected the prolonged time period from concept to implementation phase and the launch of the web page?

Although I've received immediate support for web bankruptcy from many colleagues, due to technical and financial issues the realization of my project followed only last year. The web page was realized with the support of the Ministry of Justice of the Republic of Croatia and with the help of international donations raised by the non-governmental association Judge's Web which provided complete technical and IT support for the web page.

For this web page and other IT projects at the High Commercial Court of the Republic of Croatia, along with a part of my working hours, I've spent months of my free time. Apart from praises, there were also some questions why as a judge I should be in IT at all. But in the design of software intended for courts, the key role, along with IT experts, must belong to judges themselves for a very obvious reason: because they have the best knowledge of the courts' problems. This is emphasized because of the already ongoing implementation of the Integrated
Case Management System (ICMS) Project which is one of the key projects in judicial reform as a whole and which will soon bring significant changes to the functioning of entire judiciary.

Describe for us the procedure of selling the assets of companies in bankruptcy.

The Bankruptcy Act prescribes in detail the procedure of selling the assets in bankruptcy proceedings. The decision on the realization of the debtor's assets is in principle made by the creditors in the report hearing. The creditors' assembly is authorized to determine the method of realizing the debtor's assets and the bankruptcy trustee is obliged to follow this decision.

Many objections, sometimes justified, have been made concerning the procedure of selling the bankruptcy estate. Thereat the pattern is almost typical: for the seller, the realized purchase price is too low, and for the buyer the paid price is too high. Most often, somewhere in between there are unsatisfied creditors who generally expect a higher percentage on satisfying their claims and therefore doubt the regularity of the sales procedure.

The evaluation of the property value as well as the frequently significant difference between the estimated value and the price realized by its sale is often a point of dispute between creditors and the debtor headed by the bankruptcy trustee.

Unfortunately, the realized selling price is oftentimes significantly lower than the estimated value. Regardless of all the value evaluation methods (accounting, financial, mathematic, dynamic), estimates of court experts or trustees, it may be said that essentially the market value of any property is the price which was realized by selling that property on the market. It may be higher, which is rare, or lower (which is unfortunately more common) than the estimated value.

In regard of realizing the debtor's assets, regardless of the complete legal system and the Bankruptcy Act, the deciding factor is the law of supply and demand. However, it can be influenced neither by the legislator, nor by the bankruptcy trustee or the bankruptcy judge.

Of course, this is all said presuming that the sales procedure was implemented in accordance with the professional rules and the care of good manager while applying all legal provisions relating to the sale of bankruptcy assets.

May there be a comparison between bankruptcies and crisis management?

Crisis management is definitely an important element of any bankruptcy procedure. It is often forgotten that the bankruptcy procedure is implemented for the purpose of satisfying the debtor's creditors by realizing its assets and their distribution among the creditors.

It was laid down by the legislator already in Article 2 of the Bankruptcy Act. So, this is, after all, a regulation. As derogation from this rule, in particular situations during the bankruptcy proceedings a reorganization plan may be implemented for the purpose of preserving the debtor's activities. Often, under the slogan of care for workers, there is talk about programmed bankruptcies, which is legally and economically completely ungrounded. Reorganization which will save the debtor and its work positions is promised in advance. And the court and trustee are there only to implement it. As though this could not have been done in regular business activities, like it was necessary to wait for the bankruptcy and like this it is not a matter to be decided by the creditors.

As a rule, large companies went bankrupt after a long agony of insolvency (frequently with their account being blocked for more than a year), property burdened by banks' mortgages, with out-of-date equipment, lost market and without the leading experts who already left the company. It is forgotten that a debtor is directly damaging its creditors, among which its workers, with its insolvency and failure to meet its obligations. One of the goals of any bankruptcy procedure is to timely remove such debtors from legal and economic transactions.

Creditors avoid the opportunity to instigate the bankruptcy proceedings for their debtors. I don't know of any case where Article 626, paragraph 2 of the Companies Act was applied, which prescribes the obligation and criminal liability of a management member who does not submit a proposal for the opening of the bankruptcy proceedings in the case of occurrence of reasons for bankruptcy. Additionally, Article 39 of the Bankruptcy Act also prescribes personal liability for the damages incurred by creditors by omission of a company's management duty to submit a proposal for bankruptcy not later than twenty one days from the day when the incapability for payment has occurred.

How are bankruptcy trustees appointed under the new Bankruptcy Act?

The trustee for a particular bankruptcy procedure is appointed by a decision of the bankruptcy judge. A natural person with a university professional qualification, who passed the expert exam for bankruptcy trustees and who is on the list of bankruptcy trustees issued by the Minister of Justice may be appointed as a trustee. A lawyer may also be appointed as a trustee under the same conditions.

Upon appointment, it is required to take into account whether the trustee has the necessary expertise and business experience to manage that particular bankruptcy procedure.
However, the creditors' assembly, instead of the trustee appointed by the bankruptcy judge, may select another trustee who does not have to be on the list of bankruptcy trustees.

What will be the results of the web page operation? Are there any plans to upgrade the contents?

This web page allows a complete review of the assets being sold in all bankruptcy proceedings in Croatia in one place; therefore it publishes the complete offer. Sales information may be searched according to the type and value of property, seller, geographical area where the object of sale is located as well as information relating to the proceeding court. The texts of the published notices contain the time, place, method of sales and payment. The result should be improved sales, and consequently improved satisfaction of creditors. This is also a kind of bankruptcy "one-stop web shop". For the first time, a buyer can check any relevant data from the sales notice in one place, in real time and from reliable sources because any notice on the web page is linked to the land registry, cadastre, court registry of companies as well as the own database of bankruptcy trustees and the proceeding court. This means that you can check the property and possession information, information about owners i.e. the legal entity in bankruptcy and information about the seller represented by the bankruptcy trustee. With this, we have functionally connected and integrated segments of the Croatian e-Judiciary on one screen: land registry, cadastre, court registry of companies, and added the databases on bankruptcy trustees and courts.

Together with the public notices, we wish to publish a number of additional documents related to the object of sale such as: excerpts from land registry and cadastre, technical drawings, photographs, evaluation of assets, court expert reports, etc. I would like to stress that the publication of notices and additional documents is entirely free of charge, so the publishing of a notice is not an expense of the bankruptcy procedure, but it increases the possibility of the creditor's debt collection.

The maintenance and development as well as the realization of the second phase of this web page require an appropriate share of working time which I do not currently possess. It is also planned to publish all public announcements intended for the participants in bankruptcy proceedings. For instance, these are information on the opening and closing of bankruptcy proceedings, invitations to creditors for court hearings, etc. A special position is held by the "on line auction" which would allow bidding and sale of property via the internet under the complete control of the court as well as the availability and transparency of the auction.
In brief, with this web page we are trying to contribute to the quality of judiciary and the practical realization of the proclaimed principles of public access, transparency and efficiency of judicial processes.

Cren, no. 14, April 2007.
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