Finance Minister Slavko Linic and Justice Minister Orsat Miljenic told reporters the law would deal with the issue of unpaid liabilities worth HRK 43 billion and 72,000 businesses whose accounts are blocked, of which 55,000 for over a year, by introducing pre-bankruptcy settlement as an option to save a debtor from bankruptcy liquidation.

Miljenic said the new law was not aimed at doing the job of the judiciary, but at offering the option of settling before possible bankruptcy that would enable a debtor to become liquid and solvent again. This settlement would become binding if upheld by a court.

After a settlement is reached, the business would be saved and resume operating or file for bankruptcy but without the possibility of restructuring, Miljenic said.

Linic said the new law would change the company restructuring model because the current model had been very inefficient. At present, as many as 89 bankruptcy proceedings have lasted more than 10 years, less than one-third of the claims are collected, and a World Bank study ranks Croatia 94th according to the speed and ease of bankruptcy proceedings, he added.

Under the new law, a business owner who cannot pay his creditors within 60 days must try to settle with them within another 60 days and if he fails, this is followed by the pre-bankruptcy settlement procedure.

The procedure will be conducted by the Financial Agency and may last 120 days. Once it is launched, creditors will no longer have the right to block the debtor's account. The settlement will succeed if it is agreed to by the debtor and the creditors who have more than 50 per cent of the claims, and it has to be upheld by a commercial court.

If the settlement fails, liquidation bankruptcy is launched.

The law envisages sanctions against members of management or supervisory boards who failed to launch a settlement procedure or acted against the law. They will amount to twice the amount of their annual salaries, no less than HRK 1 million for big enterprises, HRK 500,000 for medium and HRK 100,000 for small enterprises.

Linic said the new law was aimed at enabling a debtor to restore cash flow and solvency through restructuring and thus save jobs, adding that the bulk of the burden would be borne by the creditors.

Since HRK 43 billion is a huge amount, we expect the banks, as the biggest creditors, to participate in dealing with this issue, he said, adding that the government was not considering further burdening the banks.