Misuses in pre bankruptcy settlement

A year and half ago The Law of financial operations and pre bankruptcy settlement (hereinafter ZFPPN) was introduced as an instrument of reducing insolvency. The first reason listed for introducing ZFPPN is the fact that the technique of conducting bankruptcy has not made significant progress. As a rule, the subjects were going into bankruptcy procedure without the restructuring plan, while, for bringing a restructuring plan and starting with debt payoffs usually several years have to pass. In addition, in most cases, after applying the bankruptcy law the legal subject no longer exists. Instead of that, ZFPPN allows the pre bankruptcy restructuring process and resume of business operations. Another one of the stated goals is to force creditors for making, within a reasonable time, key decisions about the fate of the debtor. The main objectives are: to facilitate financial restructuring in order to restore solvency, to increase level of management responsibility of the company to creditors, to increase the value of the debtor's assets, to ensure appropriate balance between the sale of assets in satisfaction of creditors, to restructure and reduce debtors share of loans, to converse claims into an equity interest and to preserve jobs. There are some irregularities that made this Law become a salvation rather than a threat for many bad debtors: by entering in process of the pre bankruptcy settlement without intention for concluding a settlement and to continuing with business operations; by manipulation claims between related companies; by denying claims without explanation; artificially creating the conditions for a pre bankruptcy settlement as a result of a significant debt write off. Due to numerous misuses the Law was adapted several times, but still has its weaknesses. The aim of this paper is to point out these problems and to try to propose effective measures for their removal.