Enforcement after the moratorium expires

INTRODUCTION

In March 2020, the Government of the Republic of Croatia reacted to the circumstances caused by the COVID-19 pandemic. Special circumstances were declared, many measures adopted, the most important one for the citizens was the implementation of a moratorium on enforcement for a total of 244,865 debtors who are natural persons. As the Government of the Republic of Croatia did not extend the deadline for the adopted measures and the duration of special circumstances after 18 October 2020, from 19 October 2020 the Financial Agency (FINA) continued to enforce the claims for which it temporarily suspended its actions and legal default interest on these claims continued to accrue.

ACT ON AMENDMENTS TO THE ACT ON THE IMPLEMENTATION OF ENFORCEMENT ON FINANCIAL ASSETS

On 18 April 2020 the Act on Amendments to the Act on the Implementation of Enforcement on Financial Assets (Official Gazette No. 47/2020, hereinafter: Act on Intervention Measures) entered into force, on the basis of which FINA suspended the implementation of enforcement on funds in relation to natural persons. Article 24a was added which defines the resulting special circumstances as an event or certain situation that could not be foreseen and which could not be affected, which endangers the life and health of citizens, property of greater value, significantly impairs the environment, disrupts economic activity or causes significant economic damage. Furthermore, exceptions were set out in which FINA would not suspend the enforcement on funds in relation to debtors who are natural persons: if the enforcement is carried out to settle a claim for statutory child support, other claims where the enforcement is carried out to settle future instalments as they fall due, claims based on due but unpaid salaries, salary compensation or severance pay, in the case of security measures from criminal proceedings and in the case of enforcement on a specific-purpose account. It is worth noting that the moratorium did not apply to legal entities as debtors.

The main intention of the legislator was to unblock the accounts of a large number of natural persons, given that the Act stipulates that if the debtor, after the start of the enforcement moratorium, does not have any active enforcement claims, FINA will send the debtor's banks an order to unblock the accounts. Despite the fact that the debtors were unblocked for the entire duration of the special circumstances, FINA was obliged to receive new enforcement claims and process them. However, in the case of a natural person debtor, FINA recorded the enforcement claim in the Register of the Order of Payment Grounds, but without sending orders to banks for the seizure of funds from the debtor's account to the creditor's account.

Finally, it is important to note that despite such measures, the 60-day seizure period ran for the duration of the special circumstances. Namely, with the cessation of special circumstances, i.e. on 19 October 2020, FINA could order the bank to carry out the seizure and/or transfer of funds, given that the 60-day seizure period may have expired during the special circumstances.

ENFORCEMENT

At its session held on 16 July 2020, the Government passed a Decision to extend the duration of special circumstances until 18 October 2020, so on 19 October 2020 FINA continued to enforce the claims which it had temporarily stopped enforcing for the duration of special circumstances. Accordingly, for all debtors who are natural persons and for whom enforcement claims were recorded in the Register of the Order of Payment Grounds, FINA ordered the bank to seize and/or transfer funds from the debtor's account to the account of the creditor.

Furthermore, the provision of Article 25b of the Act, as well as the provision of Article 7 of the Act on Intervention Measures, stipulates that no statutory default interest shall accrue whilst special circumstances are in force. Therefore, during the enforcement after the expiration of special circumstances, FINA calculated statutory default interest, in relation to the debtors of natural and legal persons for the period from 18 April 2020 until 18 October 2020, in the amount of 0%. On 19 October 2020 FINA resumed the calculation of statutory default interest.

With the intention of easing the influx of enforcement proposals, the Ministry of Justice and Administration proposed that after the moratorium expires, enforcement decisions begin to be delivered to debtors in three phases:

• 19 October 2020 for decisions issued on proposals received by 30 June 2020 inclusive,
• 20 November 2020 for decisions issued on proposals received by 31 August 2020 inclusive,
• 20 January 2021 for decisions issued on proposals received by 18 October 2020 inclusive.

However, in such a way, a paradoxical situation arose where an enforcement decision issued on a proposal for enforcement received by 16 October 2020 would be delivered to the debtor only after 20 January 2021, whereas if the proposal for enforcement was submitted to the notary public three days later, on 19 October 2020, the enforcement decision would be delivered to the debtor during the month of October.

CONCLUSION

After the expiration of the 6 month moratorium, on 19 October 2020 the course of enforcement proceedings continued, including enforcement of funds and enforcement of wages, default interest continued to accrue; no special decisions will be made on this in each individual case, as it applies by operation of law. It is important to note that it is possible that in the future the implementation of enforcement will be suspended again, given that the Government of the Republic of Croatia may in special circumstances decide to suspend enforcement proceedings due to the continuation of the COVID-19 pandemic, for a maximum duration of six months.