Cause and Effect in European Politics and Law

A Judge Who Shook Croatia

Adelina Marini, August 1, 2013

The political summer this year in Croatia is as hot as the meteorological one, as even the political heat waves are sometimes much more unbearable than the usual July dog days. One of the culprits for the rising temperatures is a young judge from the commercial court in Zagreb. Mislav Kolakusic blew up the Croatian public and even drove Finance Minster Slavko Linic mad with his decision to sent the law on financial operations and pre-bankruptcy agreements to the Constitutional court. A law that has been in force since October 1st and is believed to be one of the most reasonable decisions of the Zoran Milanovic's coalition government ever since it is in power.

A law for 44 billion kunas (5.8 bn euros) and tens of thousands of jobs

Yet in the very beginning of his term, Finance Minister Slavko Linic took the ambitious task to set the frozen economy of Croatia in motion which, according to the forecasts this year will be the fifth in a row of recession. One of the main problems is the lack of money. "In Croatia there is a huge lack of liquidity", reiterated Minster Linic in an interview with the Croatian national television on Monday evening. Estimates from last year showed that 44 billion kunas (5.8 bn euros) were blocked. Such a situation had not been witnessed ever since the period 1998-2000. The blocked accounts and unpaid dues represent 90 per cent of the money mass which threatens even the healthy part of the Croatian economy.

In the summer of 2012, 73 000 entities were blocked, of which 52 per cent are legal entities comprising 82% of the blocked money. 16 000 subjects are with their accounts blocked for less than 360 days and 56 000 are with blocked accounts for more than 360 days. The blocked 38 676 legal entities provide jobs for 41 000 workers, while 34 000 craftsmen secure jobs for 25 000 people. That is why the main task of the government, as then explained Minister Linic, is to keep those people at work, especially at a time of rapidly growing unemployment.

The law on financial operations and pre-bankruptcy agreements was voted in the Croatian parliament on September 29, 2012 and entered into force on October 1st. It envisages a significant acceleration of payment procedures between the state and entrepreneurs, but also in between entrepreneurs. The state commits to pay its dues to businesses within 30 days and entrepreneurs are obliged to pay within 60 days. If these deadlines are not kept then a solution is to be sought in an administrative way again within 60 days. In case there is no success even after that, a procedure of pre-bankruptcy agreement is triggered which is entirely administrative but has to be confirmed by the commercial court. The procedure cannot last more than 120 days, the law says. Otherwise, the company is pronounced broke without restructuring.

Only in the first month after the law entered into force, 19 proposals for a pre-bankruptcy procedure were filed with overall dues amounting to 526 million kunas (70 mn euros) and affecting 85 jobs. In his interview on Monday, Mr Linic pointed out that for the nine months of functioning of the law, the lack of liquidity has declined from 44 billion kunas to 36 billion. Before that, the efficiency of bankruptcy procedures in Croatia were at a very low level. According to the Doing Business index of the World Bank, Croatia was in the 94 seat, lagging much behind its peers from the region because of slow procedures and payments of less than 30% of the claims, Nada Cavlovic Smiljanec, the chief of the tax administration, said.

The holy cow

In the very beginning of the July dog days, Judge Mislav Kolakusic was tasked to decide upon the pre-bankruptcy agreement with the energy firm Dalekovod, which has 1800 workers and for the first six months of the year it actually registered profit. The agreement with the company's debtors was concluded in April. Instead of deciding on whether to accept the deal with the debtors or reject, it thus opening the way for the company's default, Judge Kolakusic decided to send 11 titles of the law for analysis whether they are in line with the Constitution. His concerns are that some of the titles could lead to abuses with the pre-bankruptcy claims. Besides, the time for deciding in the court is too short, are the motives of the judge.

Mr Kolakusic's decision caused a sharp and excessive reaction by Minister Linic who threatened that no judge is a holy cow and even suspected that war was declared on the law and the government's efforts. On Monday evening, Linic stood behind his words pointing out that there was no way that he could have a good opinion of a judge who practically refuses to judge. His job is to decide whether to accept the agreement or send the company for a bankruptcy procedure. Nothing more, nothing less, Linic said. And there would not be any problems with any of the decisions. The problem is that he refuses to judge on a law that is in force. Linic does not see a problem with the Constitutional court to view the law, admitting that it is not perfect, but for him it remains to be much more important the payment procedure to be accelerated because, the minister recalled, very rare are the cases when the court procedures last three years. Usually it takes ten and sometimes 15 years. And payments are usually between 8 to 10%, depending on the claims.

Linic again stated that Judge Kolakusic put at risk the stability of the entire system not simply that of the government. Moreover, the minster lost his nerves to such an extent that he announced that with this decision the judged revealed Croatia's legal uncertainty. The Union of Croatian Judges stood behind their member saying that it is not civilised a minister to attack a judge in such a way. The public in Croatia is relatively divided in their opinion on the issue, but the criticisms of Judge Kolakusic prevail. There were even revelations that he used his personal account on Facebook to recruit young girls for fashion photography which was his hobby.

The weekly political magazine Globus in its last edition published an investigation about the work of the commercial court. It shows that the courts in Zagreb and Zadar are the slowest in the country when it comes to solving pre-bankruptcy cases. Out of 175 pre-bankruptcy files in the Zagreb commercial court in the past seven months, only three are resolved. In the commercial court in Zadar, out of 20 cases none is resolved. One of the problems, according to the Globus's information, is the huge vacations the judges have - 30 working days - as well as their inefficiency. Definitely the reason is not the small number of judges. On the contrary - they are too many, the magazine claims. And because of not very transparent personnel policies, the level of expertise has dropped significantly.

The respected business magazine Lider also attacks Judge Kolakusic. In an editorial, Miodrag Sajatovic, the editor in chief, writes that if the judge opposed the inefficiency of the pre-bankruptcy cases first, he would have secured much more reliability on the issue with the Linic's law. Mr Sajatovic goes farther in his criticism pointing out that in times of recession when many households and enterprises have serious problems, but not the judges who constantly boast with their untouchable condition. "I'm not a specialist on judiciary and law and I don't know how can the judiciary be restructured in the shortest term. But if private companies have to be restructured, the public administration, then the judiciary should not be an exception", the editor in chief of Lider writes and points out that "If in the real sector the number of employed is reduced by ten percent then every tenth judge should be laid off. If all employed in the real sector have to increase their productivity and compensate for the layoffs, the same should do the judges too".

There are, however, comments that express some serious concerns with the pressure the government is exercising on the judiciary. Although such voices are fewer and weaker, they nonetheless raise some serious questions. Marinko Jurasic, columnist with the Vecernji list, praises Minister Linic acknowledging that he is one of the most precious minsters in the government who has managed to put into order the chaos in the tax administration, but beyond emotionality his statement hides a serious danger. "With their latest statements, individual members of the government undermine the confidence in the institutions in a rule of law state which do not judge the way they would want them to. In this way, a wave of discontent is created against decisions of the judiciary which are not 'on the side' of the banks, the government, Linic ... In fact, this is a very dangerous game with the judiciary [...]", writes the columnist.

It is not clear what will be the opinion of the Constitutional court on the matter, nor when will it be. Except Judge Kolakusic's claim three more claims for evaluation of the same law are filed with the Constitutional court. There is also no clarity what will happen with all those already concluded pre-bankruptcy agreements, but also with those that are currently being negotiated. According to information Lider published, the already approved restructure plans are 650. When a procedure of pre-bankruptcy agreement is under way all the distraints are lifted, but it is not clear will they be imposed again if the procedure is suspended. A solution is expected as early as in September because the court is in summer recession from July 15th till the end of August, unless, of course, the vacation is interrupted as there were precedents in the past. No matter what is decided, though, this issue raises a very serious question - during a crisis is the economy more important or the rule of law?

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