The unfortunate developments revolving around COVID-19 affected the economic position of both debtors and creditors which is reflected through the proposed amendments of the Enforcement Act, envisaged to strengthen debtors' protection.
Countries across the world engaged in various activities aimed at addressing the economic effects of the pandemic. Croatia, for instance, decided to alter its legislation on claims collection, with some related developments occurring in the background.
INSTEAD OF A NEW ENFORCEMENT ACT, URGENT AMENDMENTS TO THE EXISTING LEGISLATION
For a great deal of time, enforcement of claims against debtors was a hot topic, filling the newspaper and political columns and lurking in the minds of the general public. Long have there been talks about fresh concepts for the Croatian enforcement of claims procedure. Yet, after many years, some solutions have been introduced that are anything but effective, as the proposal of the revised Act hits the Parliament's podium.
As the COVID-19 related six-month moratorium on the collection of claims had recently expired, the legislator rushed with bringing the revised Enforcement Act to the spotlight. The main intention behind this pressing legislative procedure is to ease the position of debtors in the overwhelming hardship caused by COVID-19. For the time being, the Ministry has postponed the creation of the new Enforcement Act, deciding instead to amend the existing legislation.
To underline the Ministry's seriousness in this project, the bill of amendments to the legislation was rushed to the Parliament in an urgent procedure, usually reserved for matters of only the highest importance. Here, the importance was communicated through the State Secretary's plea for urgency, under the reasoning that as some forms of income will now be exempt from enforcement – such as Christmas bonuses – it is important to pass the amendments before the December holiday season. Again, while this course of action may certainly be justified by the difficult economic position of the general public, creditors will certainly not be fond of such a hasty approach, especially after a lengthy six-month enforcement moratorium enacted in 2020.
DIGITALISATION OF ENFORCEMENT PROCEEDINGS AND THE NEW ROLE OF PUBLIC NOTARIES
The recent changes include the introduction of e-communication to enforcement procedures, under the overall digital transformation agenda of the Croatian judiciary. If nothing else, the unfortunate developments pertaining to the outbreak of the coronavirus have at least assisted in digitalising the Croatian legal system, with even the oral hearings starting to be held online.
Enforcement procedures, instituted on the basis of invoices or business records of the creditor, should be initiated by electronically filing forms to the notaries public, acting in the capacity of court trustees. Public notaries would, prior to rendering the enforcement order, formally invite the debtor to pay the due claim. Only if the debtor does not settle the claim within the deadline shall the notary public issue the enforcement decision.
While the legislator certainly had proper intentions, granting such a bonus time may in fact prove to be harmful to the interests of the creditors, as hostile debtors may use this timespan to hinder the creditors' collection efforts.
On a more general note, proposed amendments envisage limited notarial expenses, decreased to a fixed fee and improvements in the service of process – primarily through e-delivery means which is being introduced as well. Furthermore, to shield the debtors from losing the roof over their heads, foreclosure over real estate properties will be possible only for claims exceeding HRK 40,000 (approx. EUR 5,300), while evictions may not be undertaken between 1 November to 1 April each year.
However, there are warnings from experts that the announced amendments of cheaper enforcements may urge creditors to initiate enforcement earlier and more often. In contrast, as the cost of the procedures could be significantly lower, the debtors themselves may be incited not to meet their obligations, as the they would not face substantial downturn for such a behaviour. In either case, an increase in the number of debtors and of the total indebtedness are expected, raising the workload of already overloaded courts.
In addition to altering the enforcement system, some related developments have occurred as well.
CROATIA DECIDED TO COMBAT DEBT COLLECTION COMPANIES
Debt collection companies in Croatia are, already for a number of years now, subject to continuous attacks by the general public and certain media outlets, under the reasoning that their unscrupulous operations endanger consumers' rights.
Now, alongside the envisaged changes to the enforcement regime, the Croatian state is considering introducing new tax benefits for banks, in order to stimulate the banks to write-off debts of the consumers, rather than selling debt portfolios to debt collection companies.
While consumers are applauding the State's movement against debt collectors, this initiative did not go through without some criticism, either. The final result is yet to be seen in practice, especially in relation to the effects it will have on enforcement proceedings.