1. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Working Group for Chapter 20 – Enterprise and Industrial policy Bilateral screening: Chapter 20 PRESENTATION OF MONTENEGRO Brussels, 28 November 2012

2. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Working Group for Chapter 20 – Enterprise and Industrial policy- Poglavlje 25 Nauka i istraživanje Bilateral screening: Chapter 20 Presentation of Montenegro Brussels, 28 November 2012 Chapter 20: Enterprise and Industrial policy

3. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 20: Enterprise and Industrial policy Chapter 20: Enterprise and Industrial policy Directive 2011/7/EU on combating late payment in commercial transactions Bojan Rovčanin Senior Adviser Central Bank of Montenegro bojan.rovcanin@cbcg.me

4. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Celex: 32011L0007 Relevant acquis Chapter 20: Enterprise and Industrial policy Chapter 20: Enterprise and Industrial policy

5. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Effects of late payments on operations of SMEs in Montenegro Legislation in Montenegro Statistical data Current activities Future activities Contents Chapter 20: Enterprise and Industrial policy Chapter 20: Enterprise and Industrial policy

6. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Delays in settling liabilities to creditors cause a set of adverse effects:  Decrease in liquidity of undertakings  Brings creditors in situation of defaulting on their due liabilities, causing illiquidity that spreads in a form of concentric circles among small and medium-sized enterprises (SMEs)  Reduces the pace of cash in circulation, which is of utmost importance for a small economy like Montenegro  Decrease in competitiveness of undertakings  Misuse of preferential position of large traders who disable regular operations of SMEs, prescribing long-term deadlines for the collection of claims, which cause illiquidity of SMEs  Due to a limited number of clients, SMEs often agree to various blackmails by large undertakings Effects of late payments on operations of SMEs in Montenegro Chapter 20: Enterprise and Industrial policy Chapter 20: Enterprise and Industrial policy

7. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Delays in settling liabilities to creditors cause a set of adverse effects:  Aggravated solvency of undertakings  Long-term illiquidity of creditors’ company may lead to insolvency and bankruptcy in the long term, particularly in the case of SMEs in Montenegro  Increased operational costs to undertakings  Instigating claim collection procedures results in additional costs to creditors, which may be very high to SMEs. Effects of late payments on operations of SMEs in Montenegro (cont.) Chapter 20: Enterprise and Industrial policy Chapter 20: Enterprise and Industrial policy

8. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union  Law on Default Interest Rate (OGM, No. 83/09)  The interest rate pursuant to Directive 2000/35/EC on combating late payment in commercial transactions  The amount of default interest rate is determined semi-annually  Default interest rate = ECB reference interest rate + 7 percentage points  The Law does not foresee final deadlines for settling obligations Legislation in Montenegro Chapter 20: Enterprise and Industrial policy Chapter 20: Enterprise and Industrial policy

9. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union  Law on National Payment Operations (OGM 61/08, 40/11, and 31/12)  Increased transparency in operations  Since July 2012, the Central Bank of Montenegro has been publishing the list of undertakings with the account frozen exceeding 30 days and the value of freezing exceeding EUR 10,000  Instructions on State Treasury Operations (OGM 80/08, 02/09, 45/10, 15/11, and 17/12)  According to the Instructions, the due date for settling an invoice is 30 calendar days from the receipt of an invoice. Exceptionally, due dates may be longer than 30 days, providing that payment terms and conditions are defined by a contract Legislation in Montenegro (cont.) Chapter 20: Enterprise and Industrial policy Chapter 20: Enterprise and Industrial policy

10. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union  Law on Contracts and Torts (OGM 47/08 and 04/11)  Should a commercial law contract fail to stipulate time limit for performance of monetary obligation, the debtor shall be bound to, without creditor being obligated to invite him to comply, perform such obligation within a time limit of 30 days (Article 322)  Possibility of offsetting  Public Procurement Law (OGM 42/11)  The Law governs the conditions, manner and procedure of procurement of goods and services and awarding work assignments, protection of rights in the public procurement procedures and other issues of relevance for public procurement. Legislation in Montenegro (cont.) Chapter 20: Enterprise and Industrial policy Chapter 20: Enterprise and Industrial policy

11. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Statistical data Chapter 20 – Enterprise and Industrial policy Chapter 20: Enterprise and Industrial policy  Illiquidity and insolvency are significant problems in the Montenegrin economy  Constant growth in frozen accounts and debt based on freezing  As at 30 June 2012, the number of legal persons and entrepreneurs declined since data from the Central Registry of Accounts kept by the Central Bank of Montenegro were harmonized with the records on the Central Registry of Commercial Subjects of the Tax Administration and the Central Registry of Commercial Court in which these legal persons and entrepreneurs are registered as deleted.

12. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Statistical data (cont.) Chapter 20 – Enterprise and Industrial policy Chapter 20: Enterprise and Industrial policy  The value of debt serving as the base for freezing is on an uptrend  Debt concentration is relatively high –10 largest debtors account for 25.8% or EUR 100.8 million of the frozen amount, at end-October 2012

13. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union  Working Group on issues of corporate financial restructuring  The group comprises of members from the Ministry of Finance, Central Bank, Commercial Court and foreign experts  Deals continuously and actively with the issues of corporate financial restructuring and non-performing loans  The work of the Group resulted in the new Payment System Law  One of possible solutions for solving illiquidity problem is passing the Law on Contractual Financial Restructuring of Corporate Entities (a draft has been prepared), which shall enable out-of-court restructuring of corporate debt  The Central Bank of Montenegro, in cooperation with the World Bank, is working on drafting “Podgorica Approach” for the out-of-court loan restructuring of corporate sector experiencing problems with liquidity  The Central Bank’s recommendations to the Government regarding the issue of corporate illiquidity workout Chapter 20: Enterprise and Industrial policy Chapter 20: Enterprise and Industrial policy Current activities

14. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union  Amending existing legislation or drafting a new one which would include deadlines for settling liabilities pursuant to the Directive 2011/7/EU on combating late payment, aimed at increasing corporate liquidity  Creating instruments for more efficient collection of claims in order to reduce the amount of the existing corporate debt serving as the basis for freezing Chapter 20: Enterprise and Industrial policy Chapter 20: Enterprise and Industrial policy Future activities

15. Thank you for your attention! QUESTIONS