Montenegro is preparing changes to its insolvency legislation that would enable financially distressed companies to restructure before entering formal bankruptcy and introduce a conditional debt-discharge mechanism for entrepreneurs after a repayment period of up to three years.
The draft amendments, reported, envisage preventive restructuring procedures through which commercially viable companies could negotiate with creditors before financial difficulties become irreversible. Under the proposed framework, courts could suspend certain creditor-enforcement actions for up to 12 months, allowing time to prepare and negotiate a restructuring plan. Corporate restructuring arrangements could generally remain in place for up to five years.
The main provisions are intended to take effect in connection with Montenegro’s EU accession and are not yet operative law.
New Debt-Discharge Mechanism for Entrepreneurs
The proposed legislation would introduce a conditional second-chance mechanism for individual entrepreneurs. Qualifying individuals could obtain a discharge of remaining eligible debts after completing a repayment period of up to three years.
This would change the consequences of business failure by allowing entrepreneurs who meet the prescribed conditions to avoid carrying qualifying liabilities indefinitely. The mechanism would require safeguards to prevent abuse. Eligibility requirements, asset disclosure and good-faith conduct would be central to ensuring that debt relief supports genuine business failure rather than strategic non-payment.
Implications for Banks and Creditors
The proposed changes would affect how banks and other creditors recover outstanding debts. Where a company remains commercially viable but faces temporary liquidity difficulties, early restructuring could preserve more value than liquidation.
Creditors may be able to recover more from a functioning business than from the sale of its assets following insolvency. Suspending enforcement would delay the exercise of creditor rights while restructuring negotiations take place. The proposed 12-month enforcement suspension would give companies additional time to negotiate, but could also reduce recovery values if a debtor lacks genuine prospects of restructuring.
Judicial Capacity and Blocked Corporate Debt
The effectiveness of the framework would depend on judicial efficiency and creditor protection. Courts would need sufficient financial expertise to distinguish businesses with realistic restructuring prospects from companies using the procedure merely to postpone failure.
The reform is also relevant to Montenegro’s substantial volume of blocked corporate debt. Thousands of companies and entrepreneurs remain subject to account blockages, while a relatively small number of debtors account for a large share of total arrears. Preventive restructuring would introduce an alternative to allowing financial obligations to accumulate until they become impossible to resolve.
