Mediation in Macedonia: What Businesses Need to Know Supported by government of Kingdom of the Netherlands

Legal uncertainty in contract enforcement is a significant obstacle to –Foreign investment –Economic development Large backlog of cases in the courts Bosnia and Herzegovina and Macedonia - 1 million cases in each In Serbia and Montenegro the backlog increases 10% a year On average in the region – it takes 460 days to enforce a contract, including over 34 procedures* *World bank ’ s Doing Business Report WHY Alternative Dispute Resolution?

What is Mediation? Mediation is an extra-court procedure for dispute resolution based on the freely expressed will of the parties, assisted by a third neutral party – a mediator – who does not have a right to impose a solution to the dispute.

Principles of Mediation Voluntary Impartiality Confidentiality Equality Efficiency

Mediation Procedure Many questions... How does it begin? Who participates? How many mediator? How does it go (flow)? How long does it last? The outcome … Agreement Enforcement document

FINANCIAL EFFECTS OF MEDIATION

 An order is not the same as cash  Sales can often not be completed until money is collected  Receivables occur when selling goods on credit  Question: why would a company sell goods on credit?  Answer: to grow faster and/or to gain an advantage over the competition RECEIVABLES

PROBLEMS To survive, the company takes short-term loans At the same time, the company is crediting other companies Good buyers lose confidence Suppliers are not willing to credit the company anymore

CONSEQUENCES Costs of obtaining loan of MKD (at an interest rate of 14%) Delayed paymentAmount in MKDAmount in % 10 days days days days days

What we need to make up for a loss of MKD Net profitReceivablesVolume of sales needed 20% % % % CONSEQUENCES

POSSIBLE SOLUTIONS Court procedure Mediation

COURT PROCEDURE 1. Initiating court procedure – first instance  Preparation hearing  Main hearing  Questioning witnesses  Expertise  Final remarks 4-6 MONTHS 2. Initiating second instance procedure - appealing 3. Enforcement agents 1-2 MONTHS TOTAL DURATION: 6-10 MONTHS

FIRST INSTANCE Receivables up to 100,000 MKD 3,000,000 MKD Court fees 2,50060,000 Decision 2,50060,000 Lawyer to file claim 3,900 Lawyer per hearing 4,680 Minimum 5 hearings 23,400 Expert’s opinion 12,000 Total: 48,980 MKD163,980 MKD % of receivable 48.98%5.47%

Receivables up to MKD Court fees and taxes MKD Fee for verdict MKD Preparing appeal - lawyer MKD Total: MKD SECOND INSTANCE

Receivables up to MKD Administration MKD Reward MKD Total: MKD HOW MUCH ARE THE TOTAL COSTS? WHAT ABOUT THE LOST TIME? WHAT ABOUT LOST OPPORTUNITIES? Enforcement Agent

MEDIATION Costs for mediator 20 Euro / hour Average 100 Euro6.100 den Notary / Court seal den 1-2 MONTHS

SUMMARY Court procedureMediation First instance MKD 0 Second Instance MKD 0 Enforcement agent MKD 0 Mediation MKD TOTAL MKD MKD Duration6-10 monthsUp to 2 months Receivable up to MKD

First results –Mediation initiatives 42 –Accepted mediations 21 (50 %) –Completed mediations 15 (71 %) –Pending mediations 30 Pilot mediation Project - Skopje 2 Court –For current cases –Before opening court procedure OPPORTUNITIES

Invitation to Mediation Informational Material Return (confirmation) letter Pre-addressed Return envelope Skopje – 2 Pilot Project 4000 commercial cases ( )

NEXT STEP IS YOURS! COMPLETE THE PUZZLE NEXT STEP IS YOURS! COMPLETE THE PUZZLE Marina Perunovska Alternative Dispute Resolution - Mediation International Finance Corporation