New Bankruptcy Law in Federation of BiH to be Adopted Sooner to Protect Workers' Rights

BiH, (Patria) – The Federation of BiH has been awaiting the adoption of a new Bankruptcy Law for some time. The current law, adopted in 2003, does not offer sufficient opportunities to stop the further decline of struggling companies and protect workers' rights, although that is its primary role.

On the other hand, the BiH entity of Republika Srpska has been applying a new, modern Bankruptcy Law for over a year, which has yielded initial results in that part of Bosnia and Herzegovina and saved some jobs that were on the verge of closure.

In the first three months of 2017, a total of 457 bankruptcy and liquidation proceedings were initiated in BiH, with 346 in FBiH and 111 in RS. According to data from the company “LRC Inženjering” from Sarajevo, this is 26 fewer bankruptcy and liquidation proceedings initiated compared to the same period last year. 

Bankruptcy is a legally defined procedure carried out against a debtor's assets for the satisfaction of creditors. Furthermore, bankruptcy prevents further poor business operations of an economic entity, stops the creation of new debts, and leaves room for the potential recovery of that economic entity.

The current legal framework in FBiH is such that hundreds of companies have been waiting for years for bankruptcy proceedings to conclude. During this time, debts within companies accumulate, creating new uncertainty.

Preventing Escalation of Problems

Experts from the Federal Ministry of Justice, which is proposing the new Bankruptcy Law in FBiH, explain to the Patria agency that the new federal Bankruptcy Law should introduce concrete innovations that will primarily increase the effectiveness of bankruptcy as a mechanism, ultimately leading to fewer closed companies and fewer lost jobs. 

“In the restructuring process of companies, which the new Bankruptcy Law offers, companies are given the opportunity in the initial phase of financial crisis to reach a settlement through court proceedings and thus avoid bankruptcy, but also to revitalize the company and continue operations. Furthermore, measures for initiating bankruptcy proceedings themselves have been significantly tightened.” 

For economic entities that have been unable to pay their debts for 60 days and whose accounts have been blocked, the new law prescribes an obligation to initiate bankruptcy, which means reducing the scope for accumulating debts towards workers and the state. 

Unfortunately, the interlocutors explain, despite being extremely progressive, the new Bankruptcy Law in FBiH is still awaiting parliamentary procedure.

Workers' Rights First

Under the current Bankruptcy Law in FBiH, workers are entitled to only eight salaries after the potential bankruptcy of the company they worked for, and these are not earned salaries but the lowest calculated salaries in FBiH. 

“In the new law, prioritizing the protection of workers' rights, workers will receive all their claims before any other creditors, along with full contributions on those claims. According to the old law, workers' claims were only addressed after almost all other obligations were settled.”

The new Bankruptcy Law in FBiH also sets a deadline of one year, and two years in complex cases, for the conclusion of bankruptcy proceedings. Under the old law, bankruptcies in some companies could drag on for years. During this time, workers do not realize any rights, and the state also loses out.

In the BiH entity of Republika Srpska, a new, more modern Bankruptcy Law has been in effect since 2016, and the Federation is expecting the same form. It is estimated that at least 600 jobs have been saved from March 2016 to date thanks to the new Bankruptcy Law in RS.

One example where a former state-owned company overcame a crisis, retained jobs, and continued production thanks to a new owner and their capital is the company "Termal" from Lopare. It is the only radiator factory in Bosnia and Herzegovina. The company ceased operations in 2004. Bankruptcy proceedings were initiated at the factory in 2008. The agony of the workers and the local community lasted until April 2017, when Kalesija's “Lafat Komerc” bought the factory and rescued it from bankruptcy. Not only were jobs saved in this company, but a new production line for radiators will start by the end of February, and the plan is to produce pellet boilers, oil and fuel tanks at this factory. All of this means new jobs in this small municipality in northeastern Bosnia.

The mayor of the municipality, Rado Savić, tells the Patria agency that Lopare is perhaps the best example where politics serves the citizens, not divisions. "Termal" is not closed today thanks to the will of the bankruptcy trustee, some facilitations of the new Bankruptcy Law, and the efforts of the local community. On the contrary, Savić says, Termal is preparing to create new jobs.

“We understood the local community as a bridge that needs to connect. And that has proven successful. Companies from the Federation are buying companies in the Republika Srpska, we are creating new jobs, and sending a positive story,” says Savić, adding that for such a thing, will is necessary above all, as well as quality legal regulations that will facilitate rather than complicate legal procedures.