New Law on Financial Operations from January 1: All Payments to be Made within 30 Days

The Law on Financial Operations, adopted by the FBiH Parliament in July, will come into effect on January 1, 2017. The FBiH Government believes that the application of this law should reduce the illiquidity of companies in FBiH and introduce order in the settlement of monetary obligations, writes Patria.

The Law on Financial Operations applies to all legal entities engaged in profit-making activities, in accordance with regulations on business companies, as well as natural persons who independently conduct business activities.

Namely, the new Law stipulates that the management of each company must take certain actions within a precisely defined period in case of capital inadequacy. Capital inadequacy occurs in a business company if, on the date of preparation of financial statements, the current year's loss, together with carried-forward losses, reaches half of the company's share capital.

Simply put, for a business company with a share capital of KM 2,000, any loss exceeding KM 1,000 will lead to capital inadequacy. The fine if management fails to implement the prescribed measures when capital becomes inadequate ranges from KM 1,500 to KM 3,000. The goal of these provisions is to prevent the covering up and accumulation of losses from year to year.

In the event that the company's capital becomes inadequate, management is obliged within eight days to analyze the causes of capital inadequacy and propose measures necessary to achieve capital adequacy, and submit them to the supervisory board, which is obliged to provide an opinion within eight days of receipt.

Furthermore, management is obliged to commence the implementation of measures within its jurisdiction (finding adequate sources of financing) and for which it has received the consent of the supervisory board. The supervisory board shall immediately convene a general meeting of the company and propose the implementation of measures necessary to achieve capital adequacy (e.g., reduction of the company's share capital to cover uncovered losses). Specific changes relate to payment deadlines and the introduction of penalties for their violation.

Thus, it is stipulated that the payment deadline is 30 days if not specifically agreed upon between the two parties. The payment deadline can be agreed upon by the two parties for up to 60 days, and if they agree on a longer payment period, which cannot exceed 360 days under any circumstances, the debtor is obliged to issue an irrevocable bank guarantee to the creditor, payable on demand without objection, or an avalized bill of exchange.

A special novelty of the Law on Financial Operations is the introduction of penalties for those who violate payment deadlines. Until now, if your client or customer refused to pay for a service or goods, you could initiate civil proceedings before the competent court. The new law stipulates that inspectors of the Tax Administration can fine debtors who violate payment deadlines. A fine is foreseen for a legal entity in case of late payments between KM 5,000 and KM 15,000, and the responsible person in the legal entity will be fined between KM 1,500 and KM 3,000. Fines are also prescribed if a legal entity and its responsible person refuse to participate in the supervision procedure.

The third area regulated by the Law is illiquidity, i.e., the determination of illiquidity and actions in conditions of illiquidity. Illiquidity is the state of inability to meet due obligations. Within the meaning of this Law, a Company is illiquid: If it is more than 30 days late in paying salaries and related state obligations (taxes and contributions), and if it is more than 60 days late in settling short-term obligations whose amount exceeds 20 percent of the amount of its short-term obligations disclosed in the financial report for the previous year.

In a state of illiquidity, no payments may be made except for those defined as necessary by Article 18 of the Law. Making payments other than those that are necessary in a state of illiquidity is punishable by a fine of KM 5,000 to KM 15,000.

Financial restructuring measures to re-establish liquidity must be taken no later than 60 days from the occurrence of illiquidity. Failure to adopt restructuring measures is punishable by a fine of KM 5,000 to KM 15,000.

Offsetting payment methods: assignment, assumption of debt, etc., after the law comes into force, must be recorded through regular accounts. Failure to comply with this provision of the law is punishable by a fine of KM 5,000 to KM 15,000. – the method by which this will be done will be known after the tax administration arranges the technical part for these monitoring activities.

Companies are obliged to have concluded business cooperation agreements with all customers/suppliers, as well as defined payment deadlines and security measures for non-payment, referring to the Law on Financial Operations, writes Patria.