Constitutional Court Approves Government’s Intervention in Agrokor

By 8 May 2018

ZAGREB, May 8, 2018 - Expounding the Constitutional Court's ruling that the law on emergency receivership in systemically important companies, dubbed "Lex Agrokor", is in accordance with the Constitution, Court president Miroslav Šeparović said on Tuesday that, when it came to the case of the ailing private Agrokor retail and food group, the Croatian government was supposed to intervene, otherwise it would have breached the Constitution's definition of Croatia as a welfare state.

"It would have been against the Constitution had the government failed to intervene," Šeparović said.

The government is supposed to act in compliance with the Constitution that declares Croatia as a welfare state, the judge underscored at a news conference at which he presented the Court's judgment.

The material the press received before the news conference shows that the Court did not sustain the objections submitted by a total of 12 physical and legal entities that asked for assessing the constitutionality of the said law's regulations. The Court obtained the opinions of the government and constitutional experts of the Zagreb Law School.

Three Constitutional Court judges gave dissenting opinions.

The said law, aimed at protecting the sustainability of business operations of vital companies, was adopted by the Croatian Parliament on 6 April 2017. To be considered systemically important, a company must have more than 5,000 employees and liabilities exceeding 7.5 billion kuna. All companies meeting the said criteria and facing financial difficulties will be given the same legal framework for further action.

Šeparović said that the objections could be divided into two groups: objections to formal procedures and objections about substantive issues.

The Constitutional Court judges admit that it is recommendable that laws be adopted in fast-track procedure as seldom as possible, however, the situation surrounding the debt-laden Agrokor conglomerate required a fast-track procedure for Lex Agrokor.

Furthermore, an objection made by Agrokor founder Ivica Todorić, that the passage of such law required a two-third majority, was dismissed as irrelevant.

Considering substantive objections, the Court assesses that the legislation has the legitimate purpose to protect the viability of companies of systemic importance so as to prevent negative repercussions for the overall economic, social and financial stability of Croatia, which might occur if such company abruptly ceases operating.

The government's intent was to prevent the spillover of the Agrokor crisis, having in mind that the Agrokor Group companies' liabilities exceeded three billion kuna on 31 March 2017. Apart from difficulties in the Konzum retail chain, the continuity of cattle growing and agricultural production was also at the risk of collapse due to the developments in Agrokor at the time, the Court recalls.

The Court dismissed the objections of some of the plaintiffs that the law insufficiently protected the rights and interests of some of the creditors.

Šeparović concluded that the troubles of the Agrokor Gorup could not have been addressed through the usual official receivership proceedings.