Legal Reform in Croatia

Since the commencement of the EU accession process, Croatia has made significant improvements in numerous areas of commercial legislation. Although Croatia’s legislative framework is greatly compliant with the EU standards, some key challenges still remain.

Access to Finance

Applicable legislation on the topic includes Law on Ownership and Other Real Rights, the Land Registry Law, the Enforcement Law, the Law on the Registry of Court and Notary Public created Security, and the Leasing Law.
Improving access to finance, especially for SMEs, is an important part of the EBRD’s mission. The Ministry of Finance is currently working on introducing a factoring law and the EBRD is providing them with technical assistance.
 
In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Croatia.
 
 
 

Capital Markets

In Croatia, the basic legislation on the securities market is comprised of the Capital Market Act enacted in 2008, the Investment Funds Act and the Law on Croatian Financial Services Supervisory Agency both enacted in 2005. In terms of the legal framework of capital markets it is recommended to further harmonize the Croatian legal framework with the EU framework and clarify provisions relating to netting and close-out netting. Moreover, the draft Securitization Law shall be made available for public consultation before its adoption.
 
 

Contract Enforcement and Judicial Capacity

Croatia’s judiciary comprises courts of general jurisdiction dealing with civil and criminal matters, as well as specialised commercial and administrative courts. The State Judicial Council is responsible for making recommendations to Parliament concerning judicial appointments and discipline. It is composed of eleven members, a majority of whom are judges. The Judicial Academy is responsible for professional development and qualification of judges, and offers a range of subjects as part of its initial and continuous training programme. Previously there was no formal requirement for a candidate judge to undertake specialised training; however, from January 1, 2013, completion of a two-year education program at the Academy has become a prerequisite for appointment to judicial office.
As in other pre-EU accession countries, the harmonisation process has served as a catalyst for the upgrading and modernising of the country’s legislation. However, it also generated a degree of legal instability as new laws were introduced to reflect the acquis, which in turn affected the predictability and quality of judgments. Nevertheless, the EBRD Judicial Decisions Assessment found court judgments in commercial law matters in Croatia to be generally predictable and of reasonably good quality.
 
 
 

Corporate Governance

The primary source of corporate governance legislation in Croatia is the Company Act, which entered into force in 1995 and has been extensively amended since then, especially for the purpose of harmonising national legislation with the Acquis Communautaire. Corporate governance is also regulated by the Capital Market Act, issued in 2008, as amended; the Credit Institutions Act, enacted in September 2008, as amended; and the Takeover Act, which entered into force in 2007 (with the exception of some provisions to become effective after Croatia’s accession to the EU).
The results of EBRD’s most recent assessment of the corporate governance framework in Croatia demonstrates that speed of disclosure and redress being the weakest aspects of how this framework works in practice. Numerous improvements in Croatian corporate governance have taken place mainly as a result of compliance with the Acquis Communautaire of the EU. The level of corporate governance culture is currently improving as a result of the above, but some key challenges still remain.
 
 
 

Debt restructuring and bankruptcy

The sector is governed by the Bankruptcy Act of 1996 (as last amended in 2012) (the“Bankruptcy Act”). The Bankruptcy Act applies to legal entities and to individual debtors who are sole proprietors or tradesmen, subject to certain exclusions or qualifications for state or state-related entities.
The EBRD Insolvency Sector Assessment completed in late 2009 concluded that the Croatian insolvency law provisions were of a very high quality in all aspects, other than reorganisation, which is only permitted following the commencement of bankruptcy proceedings.
 
 
 

Electronic Communications

The main legislation governing the electronic communications sector in Croatia includes the Croatian Electronic Communications Act (2008, amended in 2011) plus the Laws on General Administrative Procedure, Consumer Protection, Misdemeanours and related legislation. The Croatian telecommunications sector legislation is now aligned with the EU regulatory framework, including the European Union (EU) 2009 package. Croatia implemented full formal liberalisation of
electronic communications in 2003, with a general authorisation procedure for all electronic communications networks and services implemented in 2008. Croatia was the first (in 2011), and remains the only country in the southeast European region, to bring its regulatory framework fully into line with the EU 2009 framework. The country acceded to the EU in 2013. The EBRD’s most recent assessment has found the Croatian framework largely in line with international practice.
 
 
 

Energy and resource efficiency

Croatia has been undertaking considerable efforts to create a sound policy and regulatory framework for promoting energy efficiency (“EE”) across various sectors of the economy. However, the existing framework requires further efforts, in particular as it concerns adoption of sector-specific EE law and relevant implementing regulations. With updated energy policy and legislation and supporting institutions, Croatia has set the grounds for sustainable development of its energy sector. Nonetheless, the country still lacks a sectors specific energy efficiency framework compliant with the EU acquis. In particular, implementing regulations have to be adopted regarding (i) EE requirements for various stages of exploitation of energy facilities, (ii) improving energy performance of buildings, and (iii) labelling.
 
 

Energy legal and regulatory reform

An Energy Community Treaty (EcT) signatory, Croatia applied for membership in the European Union (EU) in 2003, Accordingly, Croatia has accepted an obligation to harmonise its legislation, including its energy legislation, with the EU legal framework. The recent EBRD energy law reform dimensions assessment project has shown that regulatory independence and tariff structure are the key strengths of the country’s electricity framework, while public service obligations and market framework are its key weaknesses.
 
 
 

PPP/Concessions

A set of modern legislation was introduced in the past few years, first in 2008 and then reworked further recently, consisting of the 2008 Concessions Act as amended as of 12 December 2012 (the “Concessions Act”), Public Private Partnerships Act enacted in 2008 and largely reworked in its new edition of 10 July 2012 (the” PPP Act”), a number of Government endorsed documents including notably the Strategic Framework for the Development of Public-Private Partnerships in the Republic of Croatia and a Framework Programme for the construction, reconstruction and Modernisation of Public Building using a contractual PPP Model.
During the 2012 EBRD Assessment of the PPP/Concessions Laws throughout its countries of operations (undertaken before the new laws were enacted) the Croatian laws were viewed in high compliance with the best international standards.
 
 
 

Public Procurement

 
The public procurement sector in Croatia is regulated by the Public Procurement Act (Official Gazette 90/2011 ) and Act on the State Commission for Supervision over Public Procurement Procedures, Official Gazette 21/2010 (PPL) and several secondary regulations. The law has been adopted within the EU accession process and is harmonised with the 2004 EU Public Procurement Directives.
In the 2010 EBRD assessment report for Croatia severe implementation problems
were highlighted and these are expected to still be an issue. Since 2010 the laws were changed again and institutional capacities may not be up to the challenges related to implementing new legislation in practice. In the 2012 survey Croatia’s procurement framework scored good compliance with international best practice, with basic standards and safeguards in place, but in principle it could be better. There is a lot of room for improvement in terms of economy and efficiency of the public procurements as well as introducing eProcurement processes and tools.