For years, Montenegrin insolvency practice has been facing a recurring problem: companies that would stop performing their business activities and fail to submit annual financial statements to the tax administration could not conduct a liquidation process. These companies were effectively blocked from liquidation unless they could demonstrate that all tax obligations had been settled. In practice, this was unattainable because the tax administration treated missing statements as evidence of possible outstanding liabilities and debts.
A related issue often seen in practice involves a company whose executive director, as a foreigner, is appointed but never obtains a residence and work permit. Thus, an employment relationship was not established. Even though such an employee could not be formally employed, the tax administration often imputes liabilities without a formal basis and considers that taxes and contributions should be paid. While no financial statements were filed, such entities have no way of proving compliance, and liquidation could not proceed.
During our experience, we turned to a workaround – bankruptcy. Founders would file a proposal to open bankruptcy proceedings under the Bankruptcy Law, citing the company’s inability to continue operating the business. The process, while procedurally straightforward, remained largely artificial in nature: the founder pays a court fee of EUR 560, usually one or two hearings are held, and no creditors appear, including the tax authority. In most cases, the judge closes the case within a few months. This allows companies to exit the market but places an unnecessary burden on the Commercial Court, which becomes clogged with cases that are not genuine bankruptcies.
The cause is structural. The tax administration could not file for bankruptcy under Article 12 of the Bankruptcy Law unless insolvency grounds were met and proven – permanent inability to pay or over-indebtedness. Even if such grounds existed, the same EUR 560 court fee applied, discouraging the authority from acting.
This is supposed to change with the new Companies Law entering into force on January 1, 2026. It introduces forced liquidation as a streamlined alternative. Under Article 622, if a company fails to submit annual reports for two consecutive years, the tax administration notifies the Central Registry of Business Entities (CRBE). The CRBE then initiates liquidation and publishes a decision to start the forced liquidation, starting the notice period.
During the forced liquidation, the company’s scope of action is narrow. It may complete existing contracts, pay debts, and fulfil obligations toward employees, but it cannot take on new business, distribute dividends, or amend registration details. All judicial and administrative proceedings against it are suspended. If bankruptcy is initiated, liquidation is stopped; if bankruptcy fails or is withdrawn, liquidation resumes. This creates a direct link between the two regimes: liquidation provides an administrative solution for non-compliant companies, while bankruptcy remains available for collective creditor satisfaction.
After the notice period, which is 30 days from delivering the decision to the company or publishing the decision on the website of the CRBE – whichever is later, the CRBE deletes the entity from the registry. Any remaining assets transfer to members in proportion to their ownership, who then assume liability up to the value received. Creditors may pursue claims directly against members, but only for three years after deletion.
The new regime promises greater efficiency. It resolves the long-standing stalemate and offers predictability. Still, it is not without open questions. Unlike bankruptcy, which consolidates creditor claims into a single proceeding, forced liquidation fragments enforcement. Creditors may need to pursue lawsuits individually, raising the possibility of more scattered litigation. Thus, while courts will be spared from certain bankruptcies, they may face a different type of caseload. This could also lead to uncertainty in the collection of creditors’ claims and the unsustainability of the principle of economy. A gap also appears in the question of how and who transfers ownership from the liquidated company to the founders.
By introducing this procedure, Montenegro is making a decisive step toward modernizing its corporate framework. It is transitioning from reliance on court-driven bankruptcies to an administrative model designed for efficiency. While further refinement will be needed to ensure full creditor protection and procedural clarity, the introduction of forced liquidation marks a pivotal step toward a more transparent and efficient Montenegrin business environment, aligning it with broader European trends.
By Lana Vukmirovic Misic, Senior Partner, and Dajana Drljevic, Associate, JPM & Partners
This article was originally published in Issue 12.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
