New legislation on restructuring in Bosnia and Herzegovina: A step forward?

The legislative competence concerning insolvency in Bosnia and Herzegovina (‘BH’) lies with two entities – the Federation of BH and the Republic of Srpska – and the autonomous Brčko District. The reform of insolvency laws started 20 years ago and was influenced by new insolvency legislation in neighbouring countries. In recent years, BH insolvency laws have undergone major changes promoted by the World Bank and inspired by the European Union's activity on introducing measures aiming to prevent insolvency – Commission Recommendation 2014/135 on a new approach to a business failure and insolvency and Directive (EU) 2019/1023 on preventive restructuring and insolvency. The two BH entities and the Brčko District adopted new insolvency laws laying down the court's restructuring procedure. Besides, the Republic of Srpska enacted a special law on out-of-court financial restructuring. A debtor or a creditor can initiate restructuring in court in case of a debtor's imminent inability to pay debts. The restructuring procedure resembles the insolvency process, with the court managing the process within a strict timeline. The opening of the procedure activates the automatic stay of enforcement actions against the debtor. The court appoints a trustee among qualified insolvency administrators to list the debtor's property items and creditors' claims and control the debtor's operations by the end of the process. The role of creditors is minimised. They notify claims to the court and vote on a restructuring plan proposed by a debtor. BH laws fail to outline the scope of restructuring measures; they merely distinguish financial and operational restructuring. BH laws do not classify creditors according to the commonality of interests principle and consequently do not allow cram-down across classes. Measures concerning early warning of creditors on the debtor's imminent inability to pay debts are missing in the laws. Provisions for special treatment of new financing are also lacking. Out-of-court restructuring is possible in BH within the framework of general contract law. Besides, the Republic of Srpska legislator made negotiations on voluntary out-of-court restructuring possible with the assistance of the Chamber of Commerce RS.