The Constitutional Court of FBiH has found that the current
order of settlement of workers' claims in bankruptcy
proceedings is unconstitutional.
With Judgment U-27/15, the Court declared articles 33 and 40 of
the Law on Bankruptcy Proceedings (FBiH Official Gazette, nos.
29/03, 32/04 and 42/06) unconstitutional, which considerably
affected the order of settlement of creditors in bankruptcy
Previously, although workers' claims generally belonged to
the category of higher payment priority within bankruptcy
proceedings, they were settled only after claims incurred during
the period of interim administration (which could not have been
settled by the interim trustee or the bankruptcy administrator). In
each case, the costs of the bankruptcy proceedings and debts of the
bankruptcy estate were paid out of the bankruptcy estate before the
higher payment priority claims were settled (including claims
incurred during the period of interim administration).
Even within the higher payment priority category, the full
settlement of workers' claims was limited in two ways:
by capping the amount of the wages to the minimum wage,
calculated in line with the General Collective Agreement for FBiH
for each month, including contributions; and
by a time limit, i.e. the right to receive wages only for the last
eight months before the opening of bankruptcy proceedings.
However, on 20 January 2017, when the judgment of the Court was
published in the Official Gazette of FBiH, the settlement order and
the priority changed significantly, as the Court found that it is
unconstitutional to settle workers' claims only after the costs
of the bankruptcy proceedings, the debts of the bankruptcy estate
and the debts of interim administration are settled. Further, it
decided that setting a wage cap and a time limit is also
unconstitutional. Therefore, the provisions governing the
settlement of the costs of the bankruptcy proceedings, debts of the
bankruptcy estate and the higher payment priority category have
been declared unconstitutional in their entirety.
The provisions in question may not be applied after 20 January
2017 - which raises the important question: how will the settlement
order be set up now, as unconstitutional provisions have no legal
The Court has not issued an interim measure (which could have
been valid for a period not exceeding six months after the judgment
is published) and that would have served to bridge the gap until
proper steps are taken by the Parliament of FBiH. As the Parliament
will in any case vote soon on the draft of a new law on bankruptcy,
it is expected that it will provide for a different settlement
order than the order found unconstitutional.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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