Factoring Act (Unofficial Consolidated Text - NN, No. 94/14 and 41/16)

Factoring Act (Unofficial Consolidated Text - NN, No. 94/14 and 41/16) UNOFFICIAL CONSOLIDATED TEXT FACToring ACT (Narodne novine No. 94/14, 41/16) (The Factoring Act (NN No. 94/14) entered into force on August 8, 2014.) (The Act Amending the Factoring Act (NN No. 41/16) entered into force on May 10, 2016.)

Factoring Act (Unofficial Consolidated Text - NN, No. 94/14 and 41/16) FACToring ACT
CHAPTER I
GENERAL PROVISIONS
Subject of the Act
Article 1
This Act regulates:

1. the factoring contract
2. the rights and obligations of parties in factoring transactions
3. the conditions for the establishment, operation, and cessation of business of a factoring company
4. the manner and conditions for the cross-border performance of activities
5. reporting
6. supervision of the business of factoring companies
7. risk management.

Definitions
Article 2
Certain terms, within the meaning of this Act, have the following meanings:

1. Business entity is a legal person, a sole trader, or another natural person who performs another independent activity, a subject equal to a legal person who does not have the status of a legal person, and other subjects who do not have legal personality but independently appear in legal transactions and participate in the procedure of economic traffic of goods and services due to which mutual creditor-debtor relations arise.
2. Factoring fee is the compensation for the provision of factoring services.
3. Administrative fee is the compensation for operational activities related to the provision of factoring services (keeping records, negotiating and monitoring the repayment of factoring items, collecting data, preparing analyses, and providing information on the creditworthiness of the debtor of the factoring item, etc.).
4. Member State is a member state of the European Union and a state signatory to the Agreement on the European Economic Area.
5. Third country is a state that is not a member state.
6. State is considered any state body (legislative, executive, judicial), central, regional, and local bodies of state administration, independent agencies and bodies, and companies in which the state has a majority share.

Factoring Act (Unofficial Consolidated Text - NN, No. 94/14 and 41/16)
7. Factoring company of another Member State is a legal person with its seat in a Member State that is not the Republic of Croatia, which performs factoring activities in accordance with the regulations of that state.
8. Foreign factoring company is a legal person with its seat outside the territory of the Republic of Croatia and the Member State, which performs factoring activities in accordance with the regulations of that third state.
9. Qualified shareholding is a direct or indirect holding in a company that represents 10% or more of the share in capital or voting rights, or a share less than 10% in capital or voting rights that enables the exercise of significant influence on the management of that company. In the calculation of the share of voting rights, the provisions of the law regulating the capital market regarding information on the change of voting rights are applied accordingly.
10. Indirect holder of shares, business shares, or other rights that entitle him to a share in the capital of a legal person or in voting rights in a legal person is a person for whose account another person (direct holder) acquired shares, business shares, or other rights in a legal person, or a person who is related to the direct holder of shares, business shares, or other rights in a legal person, as well as members of the close family of that person or a person who is a member of the close family of the direct holder.
11. Agency is the Croatian Financial Services Supervisory Agency.
12. Factoring service provider is any person who, in accordance with the provisions of this Act, has the right to provide factoring services.
13. Factoring items are existing and/or future, unmatured, whole or partial monetary claims arising from the delivery of goods and/or provision of services by business entities in the domestic or foreign market.
14. Buyer is a business entity that is the debtor of the factoring item.
15. Supplier is a business entity that is the creditor of the factoring item.
16. Parent company is the parent company as defined by regulations governing the accounting of entrepreneurs and the application of financial reporting standards.
17. Subsidiary company is a company as defined by regulations governing the accounting of entrepreneurs and the application of financial reporting standards.
18. Consent or approval is a positive decision of the Agency regarding the submitted request, which is sought and issued before undertaking certain actions or transactions, when required by this Act.

CHAPTER II
FACTORING
Application of provisions of the law governing obligatory relations
Article 3
The provisions of the law governing obligatory relations apply to factoring transactions, unless otherwise determined by this Act.

Factoring Act (Unofficial Consolidated Text - NN, No. 94/14 and 41/16) Factoring Transaction
Article 4
Factoring is a legal transaction in which the factoring service provider, based on and in accordance with a factoring contract concluded with the supplier and/or buyer, purchases factoring items with or without the right of recourse.

Proof of Factoring Items
Article 5
For the purposes of transfer, factoring items may be proven by an invoice or other document according to which the supplier of goods or provider of services, or the person to whom he instructs, charges for delivered goods and performed services regardless of how that document is called in business traffic, either in the form of a written document or electronic record in accordance with applicable regulations.

Future Claims
Article 6
(1) Future claims may be the subject of factoring only if they are sufficiently determinable at the time of concluding the factoring contract.
(2) Future claims are considered sufficiently determinable if the factoring contract specifies the creditor and debtor, the maximum possible amount of those claims, and indicates the basis for the emergence of those future claims. (3) For the purposes of the previous paragraph, the basis for the emergence of future claims is sufficiently determined if it is defined as the provision of a certain type of service or delivery of a certain type of goods, regardless of whether there is a contractual basis for providing those services or delivering those goods at the time of concluding the factoring contract. (4) The transfer of future claims produces legal effects at the time of the emergence of those claims.

Parties in Factoring Transactions
Article 7
The parties in factoring transactions are the supplier, the factoring service provider, and the buyer.

Types of Factoring
Article 8
(1) Factoring, with regard to its characteristics, can be domestic or foreign, recourse or non-recourse.
(2) A special type of factoring is supplier (reverse) factoring.

Factoring Act (Unofficial Consolidated Text - NN, No. 94/14 and 41/16) Domestic and Foreign Factoring
Article 9
(1) Domestic factoring is factoring in which all parties are residents within the meaning of the law governing foreign exchange business.
(2) Foreign factoring is factoring in which at least one of the parties is a non-resident within the meaning of the law governing foreign exchange business.
(3) A factoring company may pay a resident in foreign currency for the factoring item and collect the factoring item from a non-resident in foreign currency in the case where it purchases a factoring item that is validly expressed in foreign currency in accordance with applicable regulations. (4) The provisions of the law governing foreign exchange business apply accordingly to foreign factoring.

Recourse and Non-Recourse Factoring
Article 10
(1) Recourse factoring is a factoring transaction in which the supplier guarantees the factoring service provider for the buyer's obligation.
(2) In the event of uncollectability of the factoring item in recourse factoring, the factoring service provider, in addition to the rights from the guarantee in paragraph 1 of this Article, has the right to claim factoring interest, factoring fee, administrative fee, and other costs in accordance with the factoring contract, without applying the limitations from provisions governing liability for the collectability of assigned claims in accordance with the law governing obligatory relations. (3) Non-recourse factoring is factoring in which the entire collection risk falls on the factoring service provider, and the supplier is not liable for the collectability of the factoring item.

Supplier (Reverse) Factoring
Article 11
(1) Supplier (reverse) factoring is a special type of factoring in which the factoring service provider and the buyer agree on a payment program for the buyer's debts to suppliers in such a way that the factoring service provider undertakes to pay claims that the buyer's suppliers have against the buyer before maturity or upon maturity of the factoring item at the request of the supplier or by instruction of the buyer, with the transfer of such paid factoring items from the supplier to the factoring service provider. (2) In the case of supplier (reverse) factoring, the factoring service provider undertakes by the factoring contract to the buyer in a certain period or until the occurrence of another specific circumstance and in accordance with the conditions of the factoring contract:

• to purchase factoring items that the supplier or several suppliers have against the buyer at the request of the supplier, or
• to acquire factoring items by fulfilling factoring items that the supplier or several suppliers have against the buyer, by instruction of the buyer, with or without the consent of the supplier, with the right to collect factoring interest, factoring fee, administrative fee, and other factoring costs determined by the factoring contract.

Factoring Act (Unofficial Consolidated Text - NN, No. 94/14 and 41/16) (3) In the case of supplier factoring where the factoring service provider undertakes to acquire factoring items by paying factoring items by instruction of the buyer without the consent of the supplier, factoring interest represents the interest charged by the factoring service provider on the amount of the paid factoring item to the supplier for the period between fulfillment and the day of settlement of the factoring item by the buyer to the factoring service provider. (4) The provisions of this Act governing factoring apply accordingly to supplier (reverse) factoring.

Purchase of Bills of Exchange
Article 12
(1) The provisions of the law governing bills of exchange apply to factoring transactions that include the purchase of bills of exchange, unless otherwise determined by this Act.
(2) A factoring company may only purchase bills of exchange that were issued as a means of settlement of a claim arising from the delivery of goods and provision of services in the domestic or foreign market.

Factoring Contract
Article 13
(1) Factoring transactions may only be performed on the basis of a factoring contract concluded in written form.
(2) By the factoring contract, the factoring service provider undertakes to provide factoring services to the supplier with the right to collect interest, factoring fee, administrative fee, and other factoring costs determined by the contract. By the factoring contract or a separate written agreement between the factor and the cost bearer, it may be agreed that the factoring fee, administrative fee, interest, and/or other costs determined by the contract are borne by another person instead of the supplier, who is the cost bearer. (3) The purchase price of the factoring item represents the nominal amount of the factoring item. (4) For the purposes of factoring transactions, interest is the interest charged by the factoring service provider on the advanced part of the purchase price of the factoring item for the period between the payment of the advance and the agreed due date for payment of the purchase price of the factoring item. (5) If the due date for payment of the purchase price of the factoring item is not agreed upon, it is assumed that for recourse factoring, the due date for payment of the purchase price of the factoring item is the day on which the debtor of the factoring item fulfills his obligation to the factoring service provider regardless of the due date of the factoring item (the day of collection of the factoring item), and for non-recourse factoring, the due date of the factoring item.

Factoring Act (Unofficial Consolidated Text - NN, No. 94/14 and 41/16) Content of the Factoring Contract
Article 14
(1) The factoring contract must necessarily contain the following provisions or data:

1. data on the contracting parties (company name, short name, first and last name, seat, or address of residence, and personal identification number - OIB)
2. determination of the factoring transaction with regard to the characteristic and type from Article 8 of this Act
3. determination of the factoring item
4. determination of the interest rate and method of calculation, or indication that this is determined by a separate agreement between the factoring service provider and the cost bearer of the interest
5. determination of the factoring fee, administrative fee, and other costs, or indication that this is determined by a separate agreement between the factoring service provider and the cost bearer of those costs
6. signatures of authorized persons of each contracting party.
   (2) The Agency will more precisely prescribe the content of the factoring contract by rulebook.

Notice to Buyer
Article 15
Notice to the buyer regarding the assignment of factoring items is valid regardless of whether it covers one or more claims and whether the claims are existing or future.

Assignment of Factoring Items
Article 16
The provisions of the law governing obligatory relations apply to the assignment of factoring items to the factoring service provider.

Liability for Defects
Article 17
(1) The supplier, except when supplier factoring is performed without the supplier's consent, guarantees to the factoring service provider the existence of the factoring item and that there are no legal obstacles to its realization. (2) If it turns out that there are obstacles from paragraph 1 of this Article, and the factoring contract does not explicitly exclude liability, the factoring service provider has the right of recourse against the supplier from paragraph 1 of this Article in accordance with the provisions of this Act governing recourse factoring and when non-recourse factoring is agreed.

Factoring Act (Unofficial Consolidated Text - NN, No. 94/14 and 41/16) Performance of Factoring Transactions
Article 18
(1) Factoring transactions may be performed by:

1. factoring company from Article 20 of this Act
2. factoring company from another Member State from Article 59 of this Act
3. branch of a factoring company from a third state and factoring company from another Member State from Article 61 of this Act.
   (2) In addition to the parties from paragraph 1 of this Article, factoring transactions may be performed by a credit institution in accordance with regulations governing the business of credit institutions in the Republic of Croatia. (3) The general provisions of this Act, as well as provisions governing the rights and obligations of parties in factoring transactions and the factoring contract (Chapter I and II), apply to credit institutions from paragraph 2 of this Article performing factoring transactions, and to the parties from paragraph 1, points 2 and 3 of this Article, in addition to the general provisions of this Act, the provisions of this Act as prescribed by Articles 60 and 63 of this Act apply. (4) The provisions of Article 21 of this Act apply to the persons from paragraph 1, points 2 and 3 of this Article performing factoring transactions, and the provisions of paragraphs 4 and 5 of Article 21 of this Act apply to credit institutions from paragraph 2 of this Article performing factoring transactions.

CHAPTER III
STATUS PROVISIONS
Application of provisions of the law governing the establishment, organization, and business of commercial companies
Article 19
The provisions of the law governing the establishment, organization, and business of commercial companies apply to factoring companies, unless otherwise determined by this Act.

Factoring Company
Article 20
(1) A factoring company is a legal person with its seat in the Republic of Croatia that is entered in the court register on the basis of approval from the Agency for the performance of factoring activities. (2) A factoring company may be established as a joint-stock company or as a limited liability company. (3) A factoring company may not be entered in the court register before obtaining the approval from paragraph 1 of this Article.

Factoring Act (Unofficial Consolidated Text - NN, No. 94/14 and 41/16) (4) The expressions "factoring", "factoring", and their derivatives may be entered in the company name or used in legal traffic only by a factoring company that has obtained the approval from paragraph 1 of this Article.

Activities of Factoring Companies
Article 21
(1) A factoring company may only perform activities from Articles 4, 8, and 12 of this Act as a business activity on a continuous basis.
(2) A factoring company may also perform activities that are directly or indirectly related to factoring activities, and these activities are especially:

• collecting, preparing, analyzing, and providing information on the creditworthiness of legal persons and natural persons performing independent activities
• managing client receivables arising from sold goods and provided services and consulting in relation to that
• export financing based on discount purchase without recourse of long-term unmatured claims secured by financial instruments (forfaiting)
• purchase of matured claims
• issuing credit coverage when performing foreign factoring.
  (3) A factoring company may not perform the purchase of matured uncollected placements or purchase of risk and benefits from matured uncollected placements of a credit institution as defined by the law governing the conditions for the establishment, operation, and cessation of business of credit institutions and the provision of banking and/or financial services and relevant decisions of the Croatian National Bank, nor the purchase of matured uncollected claims or purchase of risk and benefits from those claims arising from those financial services that have the basic characteristic and purpose of financing, and which are performed by other subjects on the basis of regulations applicable to those subjects. (4) The maturity of the factoring item at the time of purchase by the factoring company may not be longer than one year calculated from the day of purchase. (5) Exceptionally from the limitation in paragraph 4 of this Article, the maturity of the factoring item at the time of purchase by the factoring company may be longer than one year in the case of performing export financing based on discount purchase without recourse of long-term unmatured claims secured by financial instruments (forfaiting) and in cases where the state appears as the creditor of the factoring item. (6) In the case of purchase of matured claims, the factoring company may agree with the debtor of the factoring item on a new due date for claims which may not be longer than one year calculated from the day of purchase. (7) The Agency will more precisely prescribe the conditions and manner of performing the activities of factoring companies by rulebook.

Factoring Act (Unofficial Consolidated Text - NN, No. 94/14 and 41/16) Initial Capital of Factoring Company
Article 22
(1) The initial capital of a factoring company may not be less than one (1) million kuna.
(2) The initial capital must be fully paid in cash before the registration of establishment.

Capital of Factoring Company
Article 23
(1) A factoring company is obliged to always maintain capital in an amount that may not be less than the amount of the minimum initial capital from Article 22 of this Act.
(2) If the capital of a factoring company falls below the level of the minimum amount of capital from paragraph 1 of this Article, the Agency may order that factoring company one of the supervisory measures prescribed by the provisions of this Act. (3) The Agency will prescribe criteria and/or rules and additional requirements for the capital of a factoring company by rulebook.

Shares
Article 24
(1) If a factoring company is established as a joint-stock company, the shares of the company must be registered.
(2) Preferred shares of a factoring company established as a joint-stock company may be up to 25% of the total shares from paragraph 1 of this Article.
(3) Shares must be issued in dematerialized form.

Related Persons and Indirect Shareholding
Article 25
Relatedness, within the meaning of this Act, refers to the relatedness of two or more natural or legal persons, or subjects, in one of the following ways:

1. by a participation relationship
2. by a control relationship.

Article 26
Participation, within the meaning of this Act, refers to the participation of a person in another legal person if:

1. it has direct or indirect investments on the basis of which it participates with 20% or more of the share in the capital of that legal person or voting rights in that legal person, or
2. it has a share in the capital of that legal person or in voting rights in that legal person less than 20%, which was acquired with the intention to, on the basis of permanent relatedness with that legal person, enable influence on its business.

Factoring Act (Unofficial Consolidated Text - NN, No. 94/14 and 41/16)
Article 27
Control, within the meaning of this Act, refers to the relationship between a parent company and a subsidiary company or a similar relationship between any natural or legal person and a company.

Article 28
(1) Indirect investments, within the meaning of this Act, are investments in the capital of a legal person or acquisition of voting rights in that legal person through a third person.
(2) Indirect holder of shares, business shares, or other rights that entitle him to a share in the capital of a company or in voting rights in that company is:

1. a person for whose account another person (direct holder) acquired shares, business shares, or other rights in that company
2. a person who is related to the direct holder of shares, business shares, or other rights in the company in the manner from Article 25 of this Act, as well as members of the close family of that person, or
3. a person who is a member of the close family of the direct holder.
   (3) Members of the close family, within the meaning of this Act, are considered:
4. spouse of that person, or a person with whom they live in a joint household which, according to the law governing marriage and family relations, has a legal status equal to a marriage
5. children, or adopted children
6. other persons who are under the guardianship of that person.
   Related persons are also considered other forms of relatedness within the meaning of the law governing the establishment, organization, and business of commercial companies.

Change of Holder of Qualified Shareholdings in Factoring Company
Article 29
(1) Any legal or natural person (intended acquirer) who intends to directly or indirectly acquire or increase a share in a factoring company, which would result in the level of share in capital or voting rights reaching or exceeding 10%, 20%, 30%, or 50%, or for the factoring company to become a dependent company of the intended acquirer, is obliged to previously submit a request to the Agency for the issuance of consent in written form and obtain the Agency's consent for that acquisition. (2) The request from paragraph 1 of this Article must contain:

1. data on the level of share intended to be acquired
2. documentation from Article 31 of this Act.
   (3) Exceptionally, the provisions of this Act on consent for the acquisition of a qualified shareholding in a factoring company do not apply to states as legal persons.

Factoring Act (Unofficial Consolidated Text - NN, No. 94/14 and 41/16)
Article 30
(1) Any legal or natural person who intends to directly or indirectly alienate a qualified shareholding in a factoring company is obliged to notify the Agency in writing, stating the level of share intended to be disposed of. (2) The person from paragraph 1 of this Article is obliged to notify the Agency also of the intention to reduce their qualified shareholding in such a way that the share in capital or voting rights falls below the threshold of 20%, 30%, or 50%, or if the factoring company ceases to be a dependent company of that person. (3) If a factoring company learns of the acquisition or disposal of a qualified shareholding in the company that exceeds or falls below the threshold of 20%, 30%, or 50%, it is obliged to immediately notify the Agency.

Request for Issuance of Consent for Acquisition of Qualified Shareholding
Article 31
(1) The documentation necessary for the assessment that must be submitted to the Agency with the request for the issuance of consent for the acquisition or increase must be adapted and appropriate to the intended acquirer and the intended acquisition. (2) The Agency will prescribe by rulebook the list of documentation from paragraph 1 of this Article and the criteria on the basis of which it assesses the appropriateness and financial status of the intended acquirer of the qualified shareholding.

Article 32
If the acquisition of a qualified shareholding enables predominant influence or control over the business of the factoring company, the intended acquirer is, at the request of the Agency, obliged to submit with the documentation from Article 31 of this Act...