SERBIA: How can creditors protect their rights when a debtor reduces assets that could be used for payment?
Newsletter 157
How to protect a creditor from a debtor who reduces their own assets from which the creditor could be paid?
It is not uncommon in practice for a creditor to have a claim against a debtor, while the debtor, by concluding various contracts with third parties, attempts to avoid fulfilling their obligation to the creditor by reducing their assets from which the creditor could be satisfied. An effective legal remedy available to the creditor in this case is the Paulian Action (Actio Pauliana).
Conditions for Filing a Paulian Action:
Any creditor whose claim is due for payment, regardless of when it arose, may challenge a legal act of their debtor that was undertaken to their detriment. A legal act will be considered detrimental to the creditor if, as a result of its execution, the debtor does not have sufficient means to fulfil the creditor’s claim. This condition is interpreted differently in court decisions. In one of the recent Supreme Court rulings, it was held that for a successful challenge of the debtor’s legal act, it is not necessary for the debtor to have no means at all to fulfil the creditor’s claim, but rather that the means available are insufficient for quick, efficient, and timely satisfaction of the creditor’s claim in full and within the shortest reasonable period.
Furthermore, the question arose whether the creditor must initiate enforcement proceedings against the debtor, in which a public enforcement officer would determine that the debtor lacks sufficient means to fulfil the creditor’s claim, in order for the court in the Paulian action to consider that the creditor has proven the debtor’s insolvency.
One of the recent positions in case law is that “the strongest evidence of the debtor’s insolvency is failure in enforcement proceedings, but it is neither the only nor a necessary one. It may also be the fact that other creditors unsuccessfully approached the same debtor, which the plaintiff proved during the first-instance proceedings (reports of public enforcement officers).”
A transaction for consideration (any contract concluded by the debtor for a certain compensation) may be challenged if, at the time of disposal, the debtor knew or could have known that the disposal would harm their creditors, and if the third party with whom or for whose benefit the legal act was undertaken knew or could have known this.
