Overview

Serbia was plagued by a bankruptcy process that was susceptible to corruption—including an infamous group known as the “bankruptcy mafia.” Something had to change, especially when winding up a failed Serbian enterprise could take 10 years or more. As the country moved to privatize more state-owned enterprises in 2001, the Ministry of Economy estimated that 3,000 enterprises were irretrievably inefficient and impossible to privatize through regular auctions and tenders. They would first have to be restructured and then privatized in bankruptcy proceedings. Bankruptcy reform in Serbia was thus closely linked to privatization.

Serbia’s bankruptcy reforms successfully sped up the process while reducing its costs, as this case study shows. As a result, greater transparency and professionalism now make for a more orderly business exit in Serbia. The hard-won reform continues to inspire efforts to further improve the country’s bankruptcy law and eliminate corruption.

Main Findings

• A new bankruptcy law drafted was in December 2001, but progress was relatively slow until 2003. After several crises, it was finally entered into force in August 2004 and took effect in February 2005.
• The law measurably improved all the major areas it was intended to address with strict deadlines, clearly defined roles for administrators, higher standards for administrators, and priority rankings for secured creditors.
• The average time for a Serbian company to go through bankruptcy has fallen from 7.3 years to only 2.7.