## _cr10152 ## Source details **Canonical URL:** [_cr10152](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10152.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10152.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10152.pdf.json) --- ### Overview and macro context - As of June 2009, nonperforming loans (NPLs) in the banking system constituted 16.5 percent of total loans, owing primarily to the corporate sector. - The corporate sector has seen a 75 percent increase in corporate account blockages over the past year. - The banking system is strongly capitalized, but faces severe credit tightening and an account blocking procedure that can rapidly freeze a debtor’s accounts pending repayment, often triggering a race to the bank by other creditors. - In the recessionary environment described, more businesses are likely to encounter financial distress because of a decline in demand, shrinking revenues and untimely payments from their own debtors and customers. ### Credit reporting and portfolio performance - The Credit Bureau, maintained by the Association of Serbian Banks, discloses dramatic increases in corporate and retail defaults over the past year. - Registry accessibility: accessible by permission of the borrower; contains current information on all bank and leasing credits and their payment status for legal entities, entrepreneurs, and individuals. - Aggregate lending and default levels (September 2008 to October 2009): - Overall bank credits: nominal increase of 1 percent. - Total debt in default: increased from 5.4 percent to 11.2 percent. - Retail total debt: increased by .3 percent. - Retail debt in default: increased from 3.9 percent to 6.6 percent. - Retail debt declined for cash and agricultural loans over the same period. ### Collateral, registries, and legal reforms - Recent or amended laws introduced: - Mortgages (2005). - Pledges of Movable Assets (2003, amended in 2005 and 2006). - Financial Leasing (2003, amended 2005). - Enforcement Procedure (2004, undergoing revision). - Corporate Bankruptcy (2004, amendments recently submitted to Parliament). - Land and cadastre notes: - Transfer of land ownership data to the new electronic cadastre is nearly complete. - Cadastre shortcomings: does not record buildings illegally constructed on properties without a permit (to be remedied in the coming 6-12 months); multiplicity of non-integrated registries; restitution challenges; illegal constructions; poorly maintained hand records. - Property valuations were frequently inflated in the high growth pre-crisis years. - Mortgage foreclosure procedures have improved (allowing non-judicial foreclosures), but judicial foreclosures can be delayed by as much as eight months due to difficulties in achieving service of process. - Non-judicial foreclosures are drawn out due to the requirement for multiple auctions at prescribed discounts from appraised values. - Movable assets pledge registry: - New electronic pledge registry on movable assets and rights began operating in August 2005; maintained by the Business Registers Agency; provides first-in-time registration priority. - Pledge law feature: timely registered pledge instruments carry self-executing status enabling pledge holders to proceed directly to execution, by-passing the court. - Execution delays persist due to an insufficient number of enforcement agents and borrower evasion tactics to avoid service. - As of October 20, 2009, the Business Registers Agency reports 52,872 active registered pledges securing claims exceeding EUR 17 billion. - Pledge Registry Statistics, 2007-2009 (as reported) - Total registration applications: 2007 = 14,332; 2008 = 20,651; 2009 (Jan 1-Sept 30) = 21,041. - Total number of registered pledges: 2007 = 11,799; 2008 = 16,972; 2009 (Jan 1-Sept 30) = 17,193. - Assets Covered (percentages): - Vehicles: 2007 = 34.41% ; 2008 = 40.03% ; 2009 = 52.7% - Machinery/equipment: 2007 = 39.32% ; 2008 = 37.88% ; 2009 = 31.8% - Other: 2007 = 26.27% ; 2008 = 22.09% ; 2009 = 15.5% - Pledge Holders (percentages): - Banks: 2007 = 55.31% ; 2008 = 67.49% ; 2009 = 81.81% - Tax Authorities: 2007 = 16.86% ; 2008 = 10.05% ; 2009 = 6.32% - Natural Persons: 2007 = 0.47% ; 2008 = 0.22% ; 2009 = 0.44% - Others: 2007 = 27.36% ; 2008 = 22.24% ; 2009 = 11.43% - Disputes lodged to begin settlement: 2007 = 69; 2008 = 159; 2009 = 199. - Source: Business Registers Agency. ### Enforcement and execution failures - Law on Enforcement Procedure (enacted November 2004) introduced: injunctions, summary execution procedures for commercial matters, clearer rules and time-bound appeal procedures, and procedural enhancements for movable and immovable property claims. - Systemic failures and metrics: - Severe shortage of trained enforcement officers remains the biggest problem. - One donor advisor found that 73 percent of companies surveyed “never or rarely” used the court for enforcement due to system failure. - Recovery rates in commercial court cases were under 5 percent. - The average case for commercial enforcement takes more than 500 days. - The World Bank’s Doing Business 2010 Report found that it takes on average about 635 days to enforce a contract in Serbia, ranking Serbia 23rd out of the 27 countries surveyed in Eastern Europe and Central Asia. - European Court of Human Rights has criticized inefficiencies in Serbia’s judicial enforcement system affecting protection of individual and property rights. - Consequences: - Hinders bank debt recovery and resolution. - Small businesses unable to collect from larger businesses that delay or avoid payment. - Employees unable to collect wage orders from employers. - Discourages foreign investment and raises the overall cost of credit. - Proposed enforcement amendments (submitted October 2008) aim to: - Streamline service of process rules. - Provide a more regulated appeals process. - Provide more flexible minimum sales price rules for public auctions. - Simplify court jurisdictional rules. - Eliminate provisions that led to improper delays and obstacles (e.g., requiring consent of co-owners for asset sales). - Permit simultaneous enforcement methods and give enforcement professionals discretion to change methods without additional court approval. - Recommendation: Adoption of the proposed amendments should be made a priority. ### Bankruptcy and reorganization: performance and reforms - Bankruptcy Law (2004) broadly consistent with international norms (World Bank Principles; UNCITRAL Legislative Guide on Insolvency), but practice is costly, inefficient and unreliable. - Efficiency indicators: - Serbia’s insolvency process is unduly long, yields lower recovery rates, and costs considerably more on average relative to neighboring countries and the OECD. - Average age of all pending bankruptcy cases: approximately 2.7 years. - Cases filed in Belgrade take, on average, 4.3 years. - Regional comparative bankruptcy recovery rates (Time, Recovery rate, Cost): - Serbia: Time = 2.7 years; Recovery rate = 25.4 (% of nominal); Cost = 23 (% of estate). - Bulgaria: Time = 3.3 years; Recovery rate = 32.1; Cost = 9. - Romania: Time = 3.3 years; Recovery rate = 29.5; Cost = 9. - Croatia: Time = 3.1 years; Recovery rate = 30.5; Cost = 15. - OECD: Time = 1.7 years; Recovery rate = 68.6; Cost = 8.4. - Germany: Time = 1.2 years; Recovery rate = 52.2; Cost = 8. - Source: World Bank Doing Business 2008. - Causes of low recovery rates and delays: - Late opening of cases due to disincentives for petitioning creditors (initial court fees and underwriting administrative costs until case is self-sustaining). - Secured creditors’ rights often disregarded in practice (e.g., administrators selling collateral without required secured creditor approval; inadequate protection while collateral is in administrator’s possession). - Direct influences: unclear legal remedies, creditor passivity, inefficient enforcement and court rulings, proceedings kept open pending litigation or reorganization realizations. - Indirect influences: breach of deadlines by courts and parties, inconsistent law application, unclear asset rights, lack of proper supervision for bankruptcy administrators. - Proposed bankruptcy amendments: - Intended to refine and clarify process to promote greater efficiency and reduce costs without altering the Law’s fundamental concept. - Will introduce detailed provisions to support accelerated reorganizations using prepackaged plans (pre-negotiated plans to expedite reorganization, typically used for financially restructuring operationally sound enterprises). - Prepackaged plans aim to minimize time in proceeding and reduce business disruption. - Concerns with proposed prepackaged provisions: - Amendments impose creditor impairment criteria requiring the debtor to pay unaffected creditors “in cash” upon closing to avoid including them in the process, even where contract terms specify otherwise. - This requirement could result in de facto inclusion of all creditors in every pre-packaged plan case, potentially rendering the process impractical. - Potential consequences: complicate the procedure, drive up costs through complete claims submission and full creditor vote solicitation, and undermine workout agreements where pre-packaged plans are used to bind minority creditors and obtain court approval of dispositions, exchanges, or transactions. ### Corporate misconduct and voluntary dissolution abuses - Reported patterns of corporate misconduct to circumvent creditor enforcement rights: - Creation of alter ego or shell companies to continue business operations while leaving prior legal entities with outstanding obligations. - Funds routed through new legal entities free of debt; ongoing business conducted under disguised lease or contractual use obligations. - Practices analogous to fraud or fraudulent transfers in most modern economies; may include voluntary dissolution where owners or friendly receivers continue operating in an “apparent” wind-down while ignoring creditor claims. - Implication: Such abuses complicate debt resolution, reduce recoveries, and necessitate stronger enforcement and insolvency process safeguards. ### Abuse of voluntary dissolution procedures (section 16) - Voluntary dissolution provisions intended for "solvent" companies capable of paying creditors in full are being abused to avoid payment of creditor claims. - Companies filing for voluntary dissolution have been allowed to continue operating without having their accounts blocked or claims enforced. - The voluntary dissolution process requires creditors to submit claims to a receiver for verification and allowance; routinely the receiver is the owner or a friendly insider acting on behalf of the owner. - Bank creditors report legitimate claims have been ignored, delayed, or contested by receivers, forcing creditors to pursue court enforcement remedies and resulting in further collection delays. - Creditors can petition for an involuntary bankruptcy to replace an informal receiver with a formal administrator, but the costs and delays of formal insolvency make this solution undesirable. - Recommendation: Corporate abuses designed to avoid creditor obligations should be subjected to stiff penalties and liability. ### Corporate account blockages: mechanism, effects, and statistics - Mechanism and priority structure: - The blocked account mechanism (Law on Payment Transactions) is administered by the Collection Enforcement Agency of the NBS and gives priority to first-in-time movers. - Under the Payment Law there are three classes of priorities for account blockages: tax claims; court decisions; and bills of exchange (BEs). - BEs (promissory notes) are routinely used by banks who request signed blank BEs to be completed with amounts and dates prior to submission to the NBS upon default. - The priority structure can undermine registered pledge priorities in cash collateral, producing a rush to block by creditors and contributing to company failure. - Proposal (high-level): introduce control over a managed account that gives assurance to the company for cash needs while holding the borrower accountable. - Key statistics on blocked accounts (as reported): - The number and amounts of corporate account blockages increased by 75 percent over the past year. - As of end September 2009, the NBS Enforcement Department registered blocked accounts for 63,453 entities on nominal claims exceeding RSD 286 billion (USD 4.7 billion) with additional interest of RSD 344 billion (USD 5.6 billion). - Of the total nominal amount, debt is divided among priority classes as follows: 1st) tax authorities–25 percent; 2nd) judgment creditors–15 percent; and 3rd) bills of exchange–60 percent. - BE debts composition: 75 percent by banks and 25 percent by other creditors. - Banks constitute 45 percent (RSD 129 billion/USD 2.1 billion) of the total nominal debt subject to blockage. - Large enterprises: 122 blocked accounts representing approximately RSD 45 billion (USD 740 million) of debt due under BEs. - Medium enterprises: 533 blocked accounts representing RSD 50 billion (USD 820 million) under BEs. - The BE category balance: approximately 63,650 small enterprises, entrepreneurs, not-for-profits and other small or individual entities representing about RSD 90 billion (USD 1.475 billion). - Small and medium-sized enterprises and entrepreneurs are most likely to walk away or create alternate companies to continue operations, producing a growing backlog of blocked accounts on defunct businesses. - Table 3 summary (Blocked Accounts as of September 30, 2009) — reported figures: - TOTAL accounts blocked: 64,292 - TOTAL blocked amount (nominal): 286,398,989,266 - TOTAL interest: 343,862,584,539 - Priority 1 (tax authorities): 71,409,176,431 - Priority 2 (court decisions): 42,716,044,168 - Priority 3 (Bills of Exchange): 172,248,530,314 - Breakdown by legal entity type (selected rows): - Large (122 accts): Blocked amount 52,602,913,560; Interest 6,173,806,388; Priority 1 4,295,792,667; Priority 2 2,766,955,807; Priority 3 45,540,165,085 - Medium (533 accts): Blocked amount 68,236,681,340; Interest 273,764,949,998; Priority 1 10,567,123,486; Priority 2 7,388,618,258; Priority 3 50,280,943,841 - Small (15,088 accts): Blocked amount 96,891,086,661; Interest 35,912,359,641; Priority 1 26,201,935,847; Priority 2 20,016,655,245; Priority 3 50,647,094,151 - not-for-profit (8,825 accts): Blocked amount 49,668,764,403; Interest 21,171,174,007; Priority 1 22,418,929,901; Priority 2 9,556,400,032; Priority 3 17,693,434,469 - Entrepreneurs (25,136 accts): Blocked amount 11,832,374,008; Interest 1,993,063,398; Priority 1 4,154,933,640; Priority 2 1,380,903,927; Priority 3 6,296,224,434 - Legal form unknown (14,588 accts): Blocked amount 7,167,169,292; Interest 4,847,231,105; Priority 1 3,770,460,888; Priority 2 1,606,510,896; Priority 3 1,790,668,331 - Source (as reported in table): NBS Collection Enforcement Department. ### Bank practices, fraud patterns, and proposed BE registry/pro rata - Bank behavior and fraud: - Banks vary in use of the blocked account process: some praise its efficiency; others take a more deliberate approach considering client relationships and prospects for resolution. - Some banks exploit the process to improve weak collateral positions; adverse material change clauses and cross-default provisions enable banks to accelerate debt and submit their own blocking requests. - The blocked account process contributes to corporate fraud: businesses form new alter-ego companies to continue operations and avoid blockage; legal ambiguities and court inefficiencies make it difficult to prevent this. - Some banks reportedly negotiate and carry on business with new entities, reinforcing fraudulent practices. - Recommendation: impose stiff penalties and sanctions on business owners who engage in creating alter-ego companies, while offering solutions to address blocked account problems. - NBS proposal elements regarding BEs: - Establish a registry for BEs and authorizations (collectively, BEs). - Create a Claim Enforcement Agency. - Provide for a pro rata distribution to registered note holders. - Impose a moratorium for a period of 15–30 days to encourage restructuring. - Banking community views: support for a registry; reservations about the pro rata mechanism. - Mission recommendations: - Support registration of BEs to promote greater transparency in the use of B/Es. - Discourage registration of BEs in the collateral registry (to avoid signaling that B/Es constitute a pledge). - Consider expanding the current credit registry maintained by the Association of Serbian Banks to encompass registered BEs as a solution that avoids collateral characterization while promoting transparency. ### Assessment of pro rata mechanism and moratorium - Risks and limitations of pro rata: - Difficult to implement in practice and does not fully address blocked account problems. - If all claims in the registry are deemed payable proportionally, it could lead to a wider default and lingering blocked account situation. - Reallocation of funds will not generate greater revenue flow or distributions from the overall system; some creditors will be better off and others worse off on a given day. - Pro rata allocation may not discourage first-mover impulses if distributions are pro rated based on blocking requests submitted on a given date. - Could erode lending practices by overriding strict financial covenants and default provisions if not carefully designed. - Pro rating among BEs would not alter the priorities: tax authorities and judgment creditors would still prime BE holders. - Assessment of proposed 15–30 day standstill/moratorium: - Too short to reach agreement among numerous creditors. - Creates wider implications for expected enforcement procedures. - Would not deter companies from engaging in fraudulent conduct to avoid obligations; may merely delay the inevitable. - Recommendation: supplement pro rata/standstill with robust corporate workout guidelines to better promote restructuring. ### Corporate debt resolution — shortcomings, incentives, and proposed reforms - Current weaknesses: - Corporate debt restructuring mechanisms insufficient for increasing corporate distress and NPLs. - Corporate insolvency mechanisms impose high costs on petitioning creditors, discourage access, and fail to adequately protect creditor collateral rights. - Court procedures subject to lengthy delays; courts may be unable to cope with rapid increase in distressed enterprises. - Positive step: NBS decision relaxing provisioning rules to encourage debt rescheduling: - Banks can reschedule a borrower’s debt and reclassify it as performing after 6 months, provided it is a first-time rescheduling and the debtor is not delinquent more than 30 days within the 6-month period. - Suggested incentives to encourage restructuring: - Favorable tax treatment for debt forgiveness. - Debt-equity swaps. - Access to priority financing. - Accelerated approval. - Proposed amendments to bankruptcy law: - Correct some problems and include new provisions to accelerate approval of corporate reorganizations using the prepackaged plan approach. - Caveat: legal changes alone will not automatically improve court handling and administration; require improvements in court practices, capacity building, training, and time. - Prepackaged plans: - New amendments elaborate procedural rules for prepackaged plans, potentially improving efficiency if embraced in practice. - Current draft amendments may require broader creditor participation, increasing time and uncertainty, and may create a disincentive to out-of-court settlements requiring court approval. - Recommendation: implementing regulation should narrow participation of genuinely "unaffected" creditors to make accelerated restructuring quicker, less complicated, and less costly. ### Key features of a workout scheme in Serbia (section 30) - Core features: - Brief extendable standstill or moratorium period: "30-60 days" to allow negotiation of a restructuring. - Process for inter-bank coordination and access to a facilitator, as needed. - Timely access to relevant information on debtor’s business, assets, and liabilities. - Protection of a collection account, permission for interim use of cash/cash collateral, and access to priority financing. - Majority approval requirements and rules binding minority creditors. - Incentives for participants, such as relaxed classification/provisioning rules and favorable tax treatment for restructured debt (e.g., debt forgiveness, debt equity swaps, and for transferred assets). - Institutional embedding: - Guidelines or a decision by the national bank. - An inter-creditor agreement among banks. - Possible legislation or legislative amendments. - Specific laws indicated for amendment or clarification: - Payment Law (regarding blocked accounts). - Corporate insolvency law (on pre-packaged plans). - Laws governing provisioning, tax treatment on restructured debt, the pledge law (to clarify cash collateral protections), and corporate law (to introduce stronger sanctions for fraudulent transfers and director/officer liability for engaging in fraudulent corporate conduct). ### Household debt resolution and mortgage environment - Mortgage market maturity and practices: - Home loans and mortgages introduced in the past "5-6 years". - Loan to value ratios range from "65 percent to 90 percent". - Qualifications subject to restrictions on an individual’s total indebtedness and home loan obligations as a percent of monthly income. - Cadastre and registration: - New cadastre system and mortgage law provide an efficient means for registering security. - Transition to the cadastre has not been fully completed, which should happen "by next year". - Buildings constructed on properties without a permit are considered illegal and cannot be registered. - Efforts underway to force registry and compliance of illegal properties "within the next 6-12 months", noting this deadline is the third such deadline. - National Mortgage Insurance Corporation (NMIC) protections: - NMIC has insured approximately "45,500 loans" representing "80-90 percent" of the total home loan market. - In event of payment default: - Termination can occur after approximately "60-90 days", at which point NMIC will reimburse the bank for arrearages and assume monthly payments. - Upon sale of the property, NMIC is first repaid for amounts paid to the lender, and any loss is split "75/25" between the NMIC and lender. - To date, only two properties are said to have gone to sale, in which the banks were fully repaid. - Coverage varies; some banks report inability to sell properties in markets with highly inflated property values. - Other retail loans (small businesses, entrepreneurs, farmers, consumer, autos, credit cards) are less well protected than mortgage loans. ### Recommendations — Immediate and short-term priorities - Immediate priorities: - Adopt an NBS regulation establishing corporate restructuring framework, specifying guidelines on inter-creditor debt arrangement, blocked accounts treatment, and appropriate incentives, such favorable tax treatment for debt forgiveness, debt equity swaps, access to priority financing, and accelerated approval. - Adopt proposed Bankruptcy Law amendments to improve efficiency of liquidation and reorganization provisions, with refinements to the proposed prepackaged plan provisions to restrict use to affected creditors (pending consideration at this time); and corresponding regulations supporting prepackaged restructurings that also complement and provide an incentive for accelerated processing of out-of-court agreements. - Amend the pledge law to clarify a creditor’s priority in cash collateral and cash collateral accounts. - Amend the Law on Payment Transactions with respect to blocked account provisions to incorporate changes to accommodate a corporate workout framework, use of cash collateral and cash management accounts, and interim pro rata distribution and standstill treatment. - Short-term priorities: - Create a mechanism for registering BEs, either in the existing credit bureau maintained by the Association of Serbian Banks or in the NBS blocked account database. - Strengthen enforcement mechanisms by adopting the proposed amendments to the Law on Enforcement Procedure, supported by the establishment of a regulated profession of enforcement officers. - Amend corporate law to: - (a) strengthen actions for corporate fraud; - (b) provide for avoidance and recovery of fraudulent transfers; - (c) introduce director/officer accountability and liability provisions; - (d) preclude abuse of corporate dissolution mechanisms to avoid creditor payments, by requirement mandatory receivers to manage dissolution, and/or introducing other creditor protections. ### Out-of-court workout frameworks and international experience - London Approach features referenced: - Informal standstill. - Independent review of company viability and financing needs. - Facilitator/mediator role (Bank of England where invited). - Asian country experiences (Indonesia, Malaysia, South Korea, Thailand) and Turkey common features: - Standstill/moratorium, viability review, facilitator/mediator, rules supporting majority approval, binding minority creditors, incentives for restructuring/refinancing. - Many schemes were mandatory/formalized and sometimes supervised by a bank regulatory authority rather than courts. - Box 1 (Turkey — Istanbul Approach) highlights: - Banking Law 4743 introduced a quasi-formal workout (June 2002); Law 5092 amended Execution and Bankruptcy Act with a "Restructuring Corporations and Cooperatives via Reconciliation" process (February 2004). - Framework agreement by 34 financial institutions; separate creditors committee led by a lead bank or by creditors holding 75 percent of claims. - Committee has 90 days (extensions up to 90 days) to reach agreement; standstill during negotiation. - Approval thresholds and arbitration: - If approving creditors hold less than 55 percent of total debt, case is dropped. - If creditors holding between 55–75 percent approve, plan goes to arbitration committee (Turkish Bankers Association Board) for review. - If creditors holding more than 75 percent approve, plan proceeds to final agreement/documentation. - By end-2003: about 34 agreements signed involving $5.4 billion; 20 approved affecting $4.56 billion in debt. ### Proposed corporate debt restructuring scheme (mission view) - Rationale: A workout scheme would encourage restructuring, promote functional and transparent lending relationships, and foster a more rapid corporate-sector recovery. - Current shortcomings to address: - Restrictions on debt rescheduling that preclude viable restructuring options. - Delays in conventional enforcement. - Unreliable and untimely court-supervised collective procedures. - Absence of rules providing sufficient time for restructuring, transparent business review, access to new financing, and binding minority creditors. - Role of a workout framework: - Provide conditions for swift resolution. - Serve as an essential pre-condition for pro rata relief to creditors seeking to block accounts (address first-mover advantage). - Mitigate problematic corporate behavior designed to bypass account blockages and evade creditor obligations. *Source: _cr10152 - Box 1. Turkey’s Workout Procedure—The Istanbul Approach; sections 16 and 30 (excerpt).* ### Box 1. Turkey’s Workout Procedure—The Istanbul Approach ..............................................14 ### Box 1. Turkey’s Workout Procedure—The Istanbul Approach ### Overview and macro context - As of June 2009, nonperforming loans (NPLs) in the banking system constituted 16.5 percent of total loans, owing primarily to the corporate sector. - The corporate sector has seen a 75 percent increase in corporate account blockages over the past year. - The banking system is strongly capitalized, but faces severe credit tightening and an account blocking procedure that can rapidly freeze a debtor’s accounts pending repayment, often triggering a race to the bank by other creditors. - In the recessionary environment described, more businesses are likely to encounter financial distress because of a decline in demand, shrinking revenues and untimely payments from their own debtors and customers. ### Credit reporting and portfolio performance - The Credit Bureau, maintained by the Association of Serbian Banks, discloses dramatic increases in corporate and retail defaults over the past year. - Registry accessibility: accessible by permission of the borrower; contains current information on all bank and leasing credits and their payment status for legal entities, entrepreneurs, and individuals. - Aggregate lending and default levels (September 2008 to October 2009): - Overall bank credits: nominal increase of 1 percent. - Total debt in default: increased from 5.4 percent to 11.2 percent. - Retail total debt: increased by .3 percent. - Retail debt in default: increased from 3.9 percent to 6.6 percent. - Retail debt declined for cash and agricultural loans over the same period. ### Collateral, registries, and legal reforms - Recent or amended laws introduced: - Mortgages (2005). - Pledges of Movable Assets (2003, amended in 2005 and 2006). - Financial Leasing (2003, amended 2005). - Enforcement Procedure (2004, undergoing revision). - Corporate Bankruptcy (2004, amendments recently submitted to Parliament). - Land and cadastre: - Transfer of land ownership data to the new electronic cadastre is nearly complete. - Cadastre shortcomings: does not record buildings illegally constructed on properties without a permit (to be remedied in the coming 6-12 months); multiplicity of non-integrated registries; restitution challenges; illegal constructions; poorly maintained hand records. - Property valuations were frequently inflated in the high growth pre-crisis years. - Mortgage foreclosure procedures have improved (allowing non-judicial foreclosures), but judicial foreclosures can be delayed by as much as eight months due to difficulties in achieving service of process. - Non-judicial foreclosures are drawn out due to the requirement for multiple auctions at prescribed discounts from appraised values. - Movable assets pledge registry: - New electronic pledge registry on movable assets and rights began operating in August 2005; maintained by the Business Registers Agency; provides first-in-time registration priority. - Pledge law feature: timely registered pledge instruments carry self-executing status enabling pledge holders to proceed directly to execution, by-passing the court. - Execution delays persist due to an insufficient number of enforcement agents and borrower evasion tactics to avoid service. - As of October 20, 2009, the Business Registers Agency reports 52,872 active registered pledges securing claims exceeding EUR 17 billion. - Pledge Registry Statistics, 2007-2009 (as reported) - Total registration applications: 2007 = 14,332; 2008 = 20,651; 2009 (Jan 1-Sept 30) = 21,041. - Total number of registered pledges: 2007 = 11,799; 2008 = 16,972; 2009 (Jan 1-Sept 30) = 17,193. - Assets Covered (percentages): - Vehicles: 2007 = 34.41% ; 2008 = 40.03% ; 2009 = 52.7% - Machinery/equipment: 2007 = 39.32% ; 2008 = 37.88% ; 2009 = 31.8% - Other: 2007 = 26.27% ; 2008 = 22.09% ; 2009 = 15.5% - Pledge Holders (percentages): - Banks: 2007 = 55.31% ; 2008 = 67.49% ; 2009 = 81.81% - Tax Authorities: 2007 = 16.86% ; 2008 = 10.05% ; 2009 = 6.32% - Natural Persons: 2007 = 0.47% ; 2008 = 0.22% ; 2009 = 0.44% - Others: 2007 = 27.36% ; 2008 = 22.24% ; 2009 = 11.43% - Disputes lodged to begin settlement: 2007 = 69; 2008 = 159; 2009 = 199. - Source: Business Registers Agency. ### Enforcement and execution failures - Law on Enforcement Procedure (enacted November 2004) introduced: injunctions, summary execution procedures for commercial matters, clearer rules and time-bound appeal procedures, and procedural enhancements for movable and immovable property claims. - Systemic failures and metrics: - Severe shortage of trained enforcement officers remains the biggest problem. - One donor advisor found that 73 percent of companies surveyed “never or rarely” used the court for enforcement due to system failure. - Recovery rates in commercial court cases were under 5 percent. - The average case for commercial enforcement takes more than 500 days. - The World Bank’s Doing Business 2010 Report found that it takes on average about 635 days to enforce a contract in Serbia, ranking Serbia 23rd out of the 27 countries surveyed in Eastern Europe and Central Asia. - European Court of Human Rights has criticized inefficiencies in Serbia’s judicial enforcement system affecting protection of individual and property rights. - Consequences: - Hinders bank debt recovery and resolution. - Small businesses unable to collect from larger businesses that delay or avoid payment. - Employees unable to collect wage orders from employers. - Discourages foreign investment and raises the overall cost of credit. - Proposed enforcement amendments (submitted October 2008) aim to: - Streamline service of process rules. - Provide a more regulated appeals process. - Provide more flexible minimum sales price rules for public auctions. - Simplify court jurisdictional rules. - Eliminate provisions that led to improper delays and obstacles (e.g., requiring consent of co-owners for asset sales). - Permit simultaneous enforcement methods and give enforcement professionals discretion to change methods without additional court approval. - Recommendation: Adoption of the proposed amendments should be made a priority. ### Bankruptcy and reorganization: performance and reforms - Bankruptcy Law (2004) broadly consistent with international norms (World Bank Principles; UNCITRAL Legislative Guide on Insolvency), but practice is costly, inefficient and unreliable. - Efficiency indicators: - Serbia’s insolvency process is unduly long, yields lower recovery rates, and costs considerably more on average relative to neighboring countries and the OECD. - Average age of all pending bankruptcy cases: approximately 2.7 years. - Cases filed in Belgrade take, on average, 4.3 years. - Regional comparative bankruptcy recovery rates (Time, Recovery rate, Cost): - Serbia: Time = 2.7 years; Recovery rate = 25.4 (% of nominal); Cost = 23 (% of estate). - Bulgaria: Time = 3.3 years; Recovery rate = 32.1; Cost = 9. - Romania: Time = 3.3 years; Recovery rate = 29.5; Cost = 9. - Croatia: Time = 3.1 years; Recovery rate = 30.5; Cost = 15. - OECD: Time = 1.7 years; Recovery rate = 68.6; Cost = 8.4. - Germany: Time = 1.2 years; Recovery rate = 52.2; Cost = 8. - Source: World Bank Doing Business 2008. - Causes of low recovery rates and delays: - Late opening of cases due to disincentives for petitioning creditors (initial court fees and underwriting administrative costs until case is self-sustaining). - Secured creditors’ rights often disregarded in practice (e.g., administrators selling collateral without required secured creditor approval; inadequate protection while collateral is in administrator’s possession). - Direct influences: unclear legal remedies, creditor passivity, inefficient enforcement and court rulings, proceedings kept open pending litigation or reorganization realizations. - Indirect influences: breach of deadlines by courts and parties, inconsistent law application, unclear asset rights, lack of proper supervision for bankruptcy administrators. - Proposed bankruptcy amendments: - Intended to refine and clarify process to promote greater efficiency and reduce costs without altering the Law’s fundamental concept. - Will introduce detailed provisions to support accelerated reorganizations using prepackaged plans (pre-negotiated plans to expedite reorganization, typically used for financially restructuring operationally sound enterprises). - Prepackaged plans aim to minimize time in proceeding and reduce business disruption. - Concerns with proposed prepackaged provisions: - Amendments impose creditor impairment criteria requiring the debtor to pay unaffected creditors “in cash” upon closing to avoid including them in the process, even where contract terms specify otherwise. - This requirement could result in de facto inclusion of all creditors in every pre-packaged plan case, potentially rendering the process impractical. - Potential consequences: complicate the procedure, drive up costs through complete claims submission and full creditor vote solicitation, and undermine workout agreements where pre-packaged plans are used to bind minority creditors and obtain court approval of dispositions, exchanges, or transactions. ### Corporate misconduct and voluntary dissolution abuses - Reported patterns of corporate misconduct to circumvent creditor enforcement rights: - Creation of alter ego or shell companies to continue business operations while leaving prior legal entities with outstanding obligations. - Funds routed through new legal entities free of debt; ongoing business conducted under disguised lease or contractual use obligations. - Practices analogous to fraud or fraudulent transfers in most modern economies; may include voluntary dissolution where owners or friendly receivers continue operating in an “apparent” wind-down while ignoring creditor claims. - Implication: Such abuses complicate debt resolution, reduce recoveries, and necessitate stronger enforcement and insolvency process safeguards. *Source: _cr10152 - Box 1. Turkey’s Workout Procedure—The Istanbul Approach (excerpt).* ### 16. Voluntary company dissolution procedures are frequently abused to delay creditor ### _cr10152 - 16. Voluntary company dissolution procedures are frequently abused to delay creditor ### Abuse of voluntary dissolution procedures - Voluntary dissolution provisions intended for "solvent" companies capable of paying creditors in full are being abused to avoid payment of creditor claims. - Companies filing for voluntary dissolution have been allowed to continue operating without having their accounts blocked or claims enforced. - The voluntary dissolution process requires creditors to submit claims to a receiver for verification and allowance; routinely the receiver is the owner or a friendly insider acting on behalf of the owner. - Bank creditors report legitimate claims have been ignored, delayed, or contested by receivers, forcing creditors to pursue court enforcement remedies and resulting in further collection delays. - Creditors can petition for an involuntary bankruptcy to replace an informal receiver with a formal administrator, but the costs and delays of formal insolvency make this solution undesirable. - Recommendation: Corporate abuses designed to avoid creditor obligations should be subjected to stiff penalties and liability. ### Corporate account blockages: mechanism and effects - The blocked account mechanism (Law on Payment Transactions) is an entrenched tool for debt collection administered by the Collection Enforcement Agency of the NBS and gives priority to first-in-time movers. - Under the Payment Law there are three classes of priorities for account blockages: tax claims; court decisions; and bills of exchange (BEs). - BEs (promissory notes) are routinely used by banks who request signed blank BEs to be completed with amounts and dates prior to submission to the NBS upon default. - The priority structure can undermine registered pledge priorities in cash collateral (designated cash accounts or proceeds deposited into an account), producing a rush to block by creditors and contributing to company failure. - Proposal (high-level): introduce control over a managed account that gives assurance to the company for cash needs while holding the borrower accountable. ### Key statistics on blocked accounts (as reported) - The number and amounts of corporate account blockages increased by 75 percent over the past year. - As of end September 2009, the NBS Enforcement Department registered blocked accounts for 63,453 entities on nominal claims exceeding RSD 286 billion (USD 4.7 billion) with additional interest of RSD 344 billion (USD 5.6 billion). - Of the total nominal amount, debt is divided among priority classes as follows: 1st) tax authorities–25 percent; 2nd) judgment creditors–15 percent; and 3rd) bills of exchange–60 percent. - BE debts composition: 75 percent by banks and 25 percent by other creditors. - Banks constitute 45 percent (RSD 129 billion/USD 2.1 billion) of the total nominal debt subject to blockage. - Large enterprises: 122 blocked accounts representing approximately RSD 45 billion (USD 740 million) of debt due under BEs. - Medium enterprises: 533 blocked accounts representing RSD 50 billion (USD 820 million) under BEs. - The BE category balance: approximately 63,650 small enterprises, entrepreneurs, not-for-profits and other small or individual entities representing about RSD 90 billion (USD 1.475 billion). - Small and medium-sized enterprises and entrepreneurs are most likely to walk away or create alternate companies to continue operations, producing a growing backlog of blocked accounts on defunct businesses. ### Table 3 summary (Blocked Accounts as of September 30, 2009) — reported figures - TOTAL accounts blocked: 64,292 - TOTAL blocked amount (nominal): 286,398,989,266 - TOTAL interest: 343,862,584,539 - Priority 1 (tax authorities): 71,409,176,431 - Priority 2 (court decisions): 42,716,044,168 - Priority 3 (Bills of Exchange): 172,248,530,314 - Breakdown by legal entity type (selected rows from the table): - Large (122 accts): Blocked amount 52,602,913,560; Interest 6,173,806,388; Priority 1 4,295,792,667; Priority 2 2,766,955,807; Priority 3 45,540,165,085 - Medium (533 accts): Blocked amount 68,236,681,340; Interest 273,764,949,998; Priority 1 10,567,123,486; Priority 2 7,388,618,258; Priority 3 50,280,943,841 - Small (15,088 accts): Blocked amount 96,891,086,661; Interest 35,912,359,641; Priority 1 26,201,935,847; Priority 2 20,016,655,245; Priority 3 50,647,094,151 - not-for-profit (8,825 accts): Blocked amount 49,668,764,403; Interest 21,171,174,007; Priority 1 22,418,929,901; Priority 2 9,556,400,032; Priority 3 17,693,434,469 - Entrepreneurs (25,136 accts): Blocked amount 11,832,374,008; Interest 1,993,063,398; Priority 1 4,154,933,640; Priority 2 1,380,903,927; Priority 3 6,296,224,434 - Legal form unknown (14,588 accts): Blocked amount 7,167,169,292; Interest 4,847,231,105; Priority 1 3,770,460,888; Priority 2 1,606,510,896; Priority 3 1,790,668,331 - Source (as reported in table): NBS Collection Enforcement Department. ### Bank practices and fraud patterns - Banks vary in use of the blocked account process: some praise its efficiency; others take a more deliberate approach considering client relationships and prospects for resolution. - Some banks exploit the process to improve weak collateral positions; adverse material change clauses and cross-default provisions enable banks to accelerate debt and submit their own blocking requests. - The blocked account process contributes to corporate fraud: businesses form new alter-ego companies to continue operations and avoid blockage; legal ambiguities and court inefficiencies make it difficult to prevent this. - Some banks reportedly negotiate and carry on business with new entities, reinforcing fraudulent practices. - Recommendation: impose stiff penalties and sanctions on business owners who engage in creating alter-ego companies, while offering solutions to address blocked account problems. ### Proposed legal and institutional changes regarding BEs and pro rata - NBS proposal elements: - Establish a registry for BEs and authorizations (collectively, BEs). - Create a Claim Enforcement Agency. - Provide for a pro rata distribution to registered note holders. - Impose a moratorium for a period of 15–30 days to encourage restructuring. - Banking community views: support for a registry; reservations about the pro rata mechanism. - Mission recommendations: - Support registration of BEs to promote greater transparency in the use of B/Es. - Discourage registration of BEs in the collateral registry (to avoid signaling that B/Es constitute a pledge). - Consider expanding the current credit registry maintained by the Association of Serbian Banks to encompass registered BEs as a solution that avoids collateral characterization while promoting transparency. ### Assessment of pro rata mechanism and moratorium - Risks and limitations of pro rata: - Difficult to implement in practice and does not fully address blocked account problems. - If all claims in the registry are deemed payable proportionally, it could lead to a wider default and lingering blocked account situation. - Reallocation of funds will not generate greater revenue flow or distributions from the overall system; some creditors will be better off and others worse off on a given day. - Pro rata allocation may not discourage first-mover impulses if distributions are pro rated based on blocking requests submitted on a given date. - Could erode lending practices by overriding strict financial covenants and default provisions if not carefully designed. - Pro rating among BEs would not alter the priorities: tax authorities and judgment creditors would still prime BE holders. - Assessment of proposed 15–30 day standstill/moratorium: - Too short to reach agreement among numerous creditors. - Creates wider implications for expected enforcement procedures. - Would not deter companies from engaging in fraudulent conduct to avoid obligations; may merely delay the inevitable. - Recommendation: supplement pro rata/standstill with robust corporate workout guidelines to better promote restructuring. ### Corporate debt resolution — current shortcomings and reforms - Current weaknesses: - Corporate debt restructuring mechanisms insufficient for increasing corporate distress and NPLs. - Corporate insolvency mechanisms impose high costs on petitioning creditors, discourage access, and fail to adequately protect creditor collateral rights. - Court procedures subject to lengthy delays; courts may be unable to cope with rapid increase in distressed enterprises. - Positive step: NBS decision relaxing provisioning rules to encourage debt rescheduling: - Banks can reschedule a borrower’s debt and reclassify it as performing after 6 months, provided it is a first-time rescheduling and the debtor is not delinquent more than 30 days within the 6-month period. - Suggested incentives to encourage restructuring: - Favorable tax treatment for debt forgiveness. - Debt-equity swaps. - Access to priority financing. - Accelerated approval. - Proposed amendments to bankruptcy law: - Correct some problems and include new provisions to accelerate approval of corporate reorganizations using the prepackaged plan approach. - Caveat: legal changes alone will not automatically improve court handling and administration; require improvements in court practices, capacity building, training, and time. - Prepackaged plans: - New amendments elaborate procedural rules for prepackaged plans, potentially improving efficiency if embraced in practice. - Current draft amendments may require broader creditor participation, increasing time and uncertainty, and may create a disincentive to out-of-court settlements requiring court approval. - Recommendation: implementing regulation should narrow participation of genuinely "unaffected" creditors to make accelerated restructuring quicker, less complicated, and less costly. ### Out-of-court workout frameworks and international experience - London Approach features referenced: - Informal standstill. - Independent review of company viability and financing needs. - Facilitator/mediator role (Bank of England where invited). - Asian country experiences (Indonesia, Malaysia, South Korea, Thailand) and Turkey: - Common features: standstill/moratorium, viability review, facilitator/mediator, rules supporting majority approval, binding minority creditors, incentives for restructuring/refinancing. - Many schemes were mandatory/formalized and sometimes supervised by a bank regulatory authority rather than courts. - Box 1 (Turkey — Istanbul Approach) summary highlights: - Banking Law 4743 introduced a quasi-formal workout (June 2002); Law 5092 amended Execution and Bankruptcy Act with a "Restructuring Corporations and Cooperatives via Reconciliation" process (February 2004). - Framework agreement by 34 financial institutions; separate creditors committee led by a lead bank or by creditors holding 75 percent of claims. - Committee has 90 days (extensions up to 90 days) to reach agreement; standstill during negotiation. - Approval thresholds and arbitration: - If approving creditors hold less than 55 percent of total debt, case is dropped. - If creditors holding between 55–75 percent approve, plan goes to arbitration committee (Turkish Bankers Association Board) for review. - If creditors holding more than 75 percent approve, plan proceeds to final agreement/documentation. - By end-2003: about 34 agreements signed involving $5.4 billion; 20 approved affecting $4.56 billion in debt. ### Proposed corporate debt restructuring scheme (mission view) - Rationale: A workout scheme would encourage restructuring, promote functional and transparent lending relationships, and foster a more rapid corporate-sector recovery. - Current shortcomings to address: - Restrictions on debt rescheduling that preclude viable restructuring options. - Delays in conventional enforcement. - Unreliable and untimely court-supervised collective procedures. - Absence of rules providing sufficient time for restructuring, transparent business review, access to new financing, and binding minority creditors. - Role of a workout framework: - Provide conditions for swift resolution. - Serve as an essential pre-condition for pro rata relief to creditors seeking to block accounts (address first-mover advantage). - Mitigate problematic corporate behavior designed to bypass account blockages and evade creditor obligations. *Source: _cr10152 - 16. Voluntary company dissolution procedures are frequently abused to delay creditor (PDF chapter/section).* ### 30. Key features of a workout scheme in Serbia should include (a) a brief extendable ### Key features of a workout scheme in Serbia ### Core features of a corporate workout scheme - Brief extendable standstill or moratorium period: "30-60 days" to allow negotiation of a restructuring. - Process for inter-bank coordination and access to a facilitator, as needed. - Timely access to relevant information on debtor’s business, assets, and liabilities. - Protection of a collection account, permission for interim use of cash/cash collateral, and access to priority financing. - Majority approval requirements and rules binding minority creditors. - Incentives for participants, such as relaxed classification/provisioning rules and favorable tax treatment for restructured debt (e.g., debt forgiveness, debt equity swaps, and for transferred assets). - Typical institutional embedding: - Guidelines or a decision by the national bank. - An inter-creditor agreement among banks. - Possible legislation or legislative amendments. - Specific laws indicated for amendment or clarification to complement the workout framework: - Payment Law (regarding blocked accounts). - Corporate insolvency law (on pre-packaged plans). - Laws governing provisioning, tax treatment on restructured debt, the pledge law (to clarify cash collateral protections), and corporate law (to introduce stronger sanctions for fraudulent transfers and director/officer liability for engaging in fraudulent corporate conduct). ### Household debt resolution and mortgage environment - Mortgage market maturity and practices: - Home loans and mortgages introduced in the past "5-6 years". - Loan to value ratios range from "65 percent to 90 percent". - Qualifications subject to restrictions on an individual’s total indebtedness and home loan obligations as a percent of monthly income. - Cadastre and registration: - New cadastre system and mortgage law provide an efficient means for registering security. - Transition to the cadastre has not been fully completed, which should happen "by next year". - Buildings constructed on properties without a permit are considered illegal and cannot be registered. - Efforts underway to force registry and compliance of illegal properties "within the next 6-12 months", noting this deadline is the third such deadline. - National Mortgage Insurance Corporation (NMIC) protections: - NMIC has insured approximately "45,500 loans" representing "80-90 percent" of the total home loan market. - In event of payment default: - Termination can occur after approximately "60-90 days", at which point NMIC will reimburse the bank for arrearages and assume monthly payments. - Upon sale of the property, NMIC is first repaid for amounts paid to the lender, and any loss is split "75/25" between the NMIC and lender. - To date, only two properties are said to have gone to sale, in which the banks were fully repaid. - Coverage varies; some banks report inability to sell properties in markets with highly inflated property values. - Other retail loans (small businesses, entrepreneurs, farmers, consumer, autos, credit cards) are less well protected than mortgage loans. ### Recommendations — Immediate priorities - Adopt an NBS regulation establishing corporate restructuring framework, specifying guidelines on inter-creditor debt arrangement, blocked accounts treatment, and appropriate incentives, such favorable tax treatment for debt forgiveness, debt equity swaps, access to priority financing, and accelerated approval. - Adopt proposed Bankruptcy Law amendments to improve efficiency of liquidation and reorganization provisions, with refinements to the proposed prepackaged plan provisions to restrict use to affected creditors (pending consideration at this time); and corresponding regulations supporting prepackaged restructurings that also complement and provide an incentive for accelerated processing of out-of-court agreements. - Amend the pledge law to clarify a creditor’s priority in cash collateral and cash collateral accounts. - Amend the Law on Payment Transactions with respect to blocked account provisions to incorporate changes to accommodate a corporate workout framework, use of cash collateral and cash management accounts, and interim pro rata distribution and standstill treatment. ### Recommendations — Short-term priorities - Create a mechanism for registering BEs, either in the existing credit bureau maintained by the Association of Serbian Banks or in the NBS blocked account database. - Strengthen enforcement mechanisms by adopting the proposed amendments to the Law on Enforcement Procedure, supported by the establishment of a regulated profession of enforcement officers. - Amend corporate law to: - (a) strengthen actions for corporate fraud; - (b) provide for avoidance and recovery of fraudulent transfers; - (c) introduce director/officer accountability and liability provisions; - (d) preclude abuse of corporate dissolution mechanisms to avoid creditor payments, by requirement mandatory receivers to manage dissolution, and/or introducing other creditor protections. ### Annex — Comparative workout models adopted in Asia (high-level points) - Indonesia (Jakarta Initiative Task Force, JITF): - Basic approach: Forum selected with time-bound mediation. - Default for failure to reach agreement: JITF may refer an uncooperative debtor to government for possible bankruptcy petition. - Resolution of inter-creditor disputes: No special procedures. - Role of central bank: None. - Support from legal system: None. - Republic of Korea: - Basic approach: Framework for debtor-creditor negotiations and resolution of inter-creditor differences. - Default: Receivership or liquidation. - Resolution of inter-creditor disputes: After three failures to obtain 75% creditor support, plan goes to seven-person Coordination Committee for arbitration. - Role of central bank: None. But strong support from Financial Supervisory Committee Secretariat support. - Support from legal system: Credible threat of receivership or liquidation. - Malaysia: - Basic approach: Forum for negotiation. - Default: Foreclosure, liquidation, or referral to Danaharta Asset Management Company with super-administrative powers. - Resolution of inter-creditor disputes: Coordination Committee for arbitration / Persuasion by central bank. - Role of central bank: Secretariat support. - Support from legal system: Credible threat of foreclosure or liquidation encourages good faith by debtors. - Thailand: - Basic approach: Forum for facilitation; superseded by contractual approach, that is, "Debtor-Creditor Agreements". - Default: Less than 50% support for proposed workout, Debtor-Creditor Agreements oblige creditors to petition court for collection of debts. - Resolution of inter-creditor disputes: Mediation, per inter-creditor agreement, if only 50–75% approval; but any bank with large exposure (for example, a foreign bank) could opt out. - Role of central bank: Not mandated, but central bank can use influence. - Support from legal system: "75% creditor threshold both for workouts and court-supervised reorganizations; cram down by court possible." ### Annex — Common components of a functional workout environment - Enabling Framework: legal framework to allow debt-equity swaps, forgiveness of bank debt, taking of collateral, authorizing priority financing for new money, and favorable offsetting tax treatment for debt forgiveness and debt-equity swaps. - Neutral forum: a forum (potentially mediation-oriented) where debtor and creditors explore and negotiate an arrangement. - Participants: involvement of all key constituencies, generally the lenders group and other key creditors critical to resolution. - Coordination: appointment of a lead creditor who reports to a representative committee. - Stabilization: use of a “standstill” agreement for a short negotiation period; distinction between contractual standstill and statutory moratorium in bankruptcy. - Liquidity and Access to New Money: need for liquidity; contractual super-priority via an inter-creditor agreement when formal law does not provide super-priority for new funding. - Information: access to reliable and accurate information on the business, trading position, and general financial statements. - Negotiation, Agreement, and Voting: - Approval thresholds may vary: "75-90 percent" for restructuring, "75 percent" for moratoriums, "66 percent" for capital expenditures, credit draws, and asset sales, and "100 percent" for new money. - Recommendation that majority thresholds be fair and potentially as low as a simple majority to encourage rehabilitation. - Legally Binding: final restructuring agreement should be legally binding on a dissenting minority if they are party to an inter-creditor agreement; consideration of formal binding approval mechanisms such as use of pre-packaged plan provisions in the insolvency law. *Source: _cr10152 - 30. Key features of a workout scheme in Serbia should include (a) a brief extendable* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10152.pdf_