Debt Collection in Croatia

In Croatia, there is no minimum amount required to start a debt enforcement procedure.

The creditor, when submitting an application to initiate enforcement procedures, has to make an advance payment. The amount of the advance depends on the amount due, but in any case, it cannot exceed EUR 700.

The costs of the overall debt collection procedure, however, differ depending on whether a judicial or extrajudicial enforcement procedure document was submitted to the Financial Agency (FINA).

The amount due does not condition the type of procedure. However, the Croatian Enforcement Act provides for two different types of procedures (i) extrajudicial and (ii) judicial enforcement procedures.

No matter the type of procedure, FINA, as a state-owned legal entity operating in the field of financial services, conducts the enforcement procedure over the debtor’s bank accounts.

Extrajudicial enforcement procedures

Extrajudicial enforcement procedures can be divided into two types based on the so-called authentic document that was used to initiate the extrajudicial enforcement procedure. An authentic document is eligible for the initiation of an enforcement procedure if it indicates (i) the creditor and the debtor, and (ii) the subject, type, scope, and time of fulfillment of the monetary obligation.

The first group of document types consists of debt securities such as Promissory Notes certified before Notary Public and Bills of Exchange certified before Public Notary.

In cases where the creditor has such debt securities documents, they must attach it to the application submitted to FINA and specify the amount due. FINA, on the same day, or at the latest, the next day, will automatically withhold the amount due from the debtor’s bank account. After the expiration of a 60 day period, FINA will then transfer the money to the creditor.

The second group of document types consists of invoices and excerpts from the creditor’s business books stating the amount due.

In this case, the creditor has to file a motion for enforcement with the Public Notary (with its seat in the same place as the debtor), and they will need to attach an invoice as well as a signed excerpt from their business books. If the formal presumptions are met, the Public Notary renders an Enforcement Order.

Such Enforcement Order Public Notary is obliged to deliver to the debtor. The debtor then has an 8 day period to challenge the Enforcement Order by filing an appeal to the Public Notary.

If a debtor does not challenge the Enforcement Order within 8 days, after the expiration of the term, the Public Notary shall issue a Finality and Enforcement clause on the Enforcement Order. In that case, the creditor has to attach the Enforcement Order to the application submitted to FINA.

If the Public Notary receives the debtor’s appeal within the said term, it will refer the case to the competent Court, and the litigation shall start.

Judicial enforcement procedure

A Judicial Enforcement Procedure starts with the debtor’s appeal on the Public Notary’s Enforcement Order. The Litigation Act applies to such litigations. The creditor has to prove the amount and basis of its claim, which is proven with usual types of evidence (contracts, correspondences, witness statements, expert opinions, etc.).

In addition, if the creditor does not have a valid invoice, they can prove their claim in ordinary litigation on the merits.

If the creditor prevails in litigating their case, on Final Judgement first instance Court shall issue a Finality and Enforcement clause. In that case, the creditor must attach the Final Judgement to the application submitted to FINA.

The time required to receive a Final Judgement differs from case to case but usually takes around 4 to 5 years.

In general, sending warning letters is not a bad idea. It is not mandatory, and an enforcement procedure can be initiated without it. However, this does not apply to some legal relationships that do not stipulate the time of fulfillment of the debtor’s monetary obligation (e.g., loan agreement). The Civil Obligation Act, in such cases, provides that the creditor has to notify the debtor and declare the debt due, but the debtor must be given a reasonable deadline for fulfillment of the monetary obligation (usually a few months).

In practice, is quite common to send a warning letter. They are usually sent by registered mail to the debtor’s registered seat. They contain information with respect to (i) the amount due together with interest, (ii) payment instructions, and (iii) the amount of time the creditor is willing to wait for payment. Warning letters often end with a notice that the creditor will initiate legal measures in order to collect the debt owed.

Please note that sending a warning letter does not retain the right of priority, so the creditor can lose their priority right if they wait for the debtor’s fulfillment and then consequently initiates an enforcement procedure after the other creditor. Thus, warning letters should be sent as soon as possible after the payment due date has expired.

A best practice for creditors to increase the possibility of recovering the debt is to hold a debt security, as previously mentioned in paragraph 2. In that case, if the debtor does not fulfill their obligation, the creditor can initiate an extrajudicial enforcement procedure.

If the creditor does not have a debt security, they can suggest to the debtor a settlement of a due obligation. It is quite common for the creditor and debtor to agree on monthly installments, in which case the creditor waives part of the interest and agrees that they will not initiate the enforcement procedure so long as the debtor fulfills their obligations.

In that case, the creditor may demand that debtor issues and hands over the debt security. Also, the creditor may insist that such a settlement shall be concluded before the Court. In either situation, the creditor would gain a better position, since they hold a document under which they can initiate extrajudicial enforcement.

If the debtor is not willing to agree to such a settlement, nor to hand over the debt security, the creditor should initiate an enforcement procedure before a Public Notary. Even if the debtor appeals the Enforcement Order and litigation starts, the creditor can seek an interim measure. The Litigation Act provides that (i) if litigation is held before the Commercial Court, (ii) the litigation was started by the debtor’s appeal on the Enforcement Order, and (iii) the parties are companies, a creditor may seek, and the Commercial Court shall grant, an interim measure regardless of the prerequisites for determining the interim measure.

In addition to the above mentioned, the existence of tangible evidence (such as written agreements, correspondences, orders, and dispatch notes) can help to support a creditor’s claim.

The creditor first needs to obtain a P.I.N. (Personal Identification Number) for every dealing in Croatia.

The creditor can individually initiate an extrajudicial enforcement procedure, without representation of a lawyer, however, it is advisable to engage a lawyer at that stage of the enforcement procedure.

In judicial enforcement procedures (litigation), a creditor can be represented only by a lawyer. General power of attorney is sufficient. For creditors coming from E.U. countries, Regulation (E.C.) No 805/2004 of the European Parliament and of the Council of 21 April 2004 creating a European Enforcement Order for uncontested claims shall apply.

Croatian law, in general, does not provide for a specific document that is necessary for the debt collection procedure.

As mentioned before, in paragraph 2 hereof, an extrajudicial enforcement procedure can be initiated by filing a motion together with an invoice and signed excerpt from the creditor’s accounting log. If formal prerequisites are not met, the Public Notary shall not render an Enforcement Order.

In that case, the debtor can initiate litigation on the merits. In such litigation, in order to prevail on the merits, they must prove the amount and validity of their claim. If the creditor does not have sufficient evidence to support their claim (e.g., there is no written agreement or correspondence, no witness statement), the debtor shall prevail on the merits.

During the first instance proceedings (main hearing), the creditor may present new facts and propose new evidence only if it could not present them during the preliminary proceeding without its fault.

After the creditor obtains a valid document under which the enforcement procedure can be initiated, they must file an application with FINA with that document attached. Automatically, on the same date, or at the latest, the next day, FINA will withhold the amount due from the debtor’s bank account.

If the debtor does not have sufficient funds in its bank account(s) to settle the creditor’s claim, FINA shall freeze all of the debtor’s bank accounts, until there are enough funds to fully settle the creditor’s claim.

After the expiration of a 60-day period, FINA will transfer the money to the creditor. During the 60-day period, the debtor may initiate court proceedings stating that the document which is being used as the base for enforcement has certain shortcomings, as provided by the Enforcement Act, and seek postponement of the enforcement procedure (e.g., the document is not valid, the document is not final and enforceable, the document is abolished, annulled or modified, claim ceased to exist after the date of the document but prior to the enforcement application, the document is a consequence of a criminal offense, etc.).

Even if the Court finds grounds for postponement of the enforcement procedure, it shall refer the debtor to initiate litigation on the merits of its claims and shall render a decision stating the duration of the enforcement postponement. Such a decision shall extend the 60-day period; however, FINA shall not refund the withheld amount to the debtor.

As mentioned before, in paragraph 4 hereof, interim measures can be taken. The Litigation Act provides for four requirements to be fulfilled in order for the Commercial Court to render an interim measure regardless of the general prerequisites for determining the interim measure.

1. The litigation is held before the Commercial Court.
2. The parties are companies.
3. The litigation started as the debtor’s challenge of the Enforcement Order by the Public Notary.
4. The creditor seeks interim measures.

The Commercial Court can grant such interim measures no later than the conclusion of the main hearing. In some cases, the Commercial Court grants interim measures as soon as preliminary proceeding ends, and in others, when it closes the main hearing.

The Commercial Court will not grant interim measures only if the allegations in the debtor’s challenge and the Court’s litigation file indicate that the debtor is more likely to succeed in the dispute.

In case of litigation on the merits, the general rules for interim measures apply, so the creditor must prove (i) a good, arguable case on the merits, (ii) irreparable harm, and (iii) proper timing of its application for interim measures.

Croatian law is not familiar with specific documents allowing a creditor to write off a claim in the business books.

If recovery was not possible due to the fact that the debtor did not have sufficient funds in their bank account(s), the creditor could initiate bankruptcy proceedings. The creditor shall register their claim in a bankruptcy proceeding, and, if it is terminated due to a lack of assets, the creditor can write off the claim.