Since 2020, the restructuring market in Slovenia has mostly been reliant on the state moratorium measures available to relieve the effects of state restrictions to prevent the spread of COVID-19. It was expected that when these state measures were no longer available or in cases where they were not sufficient to maintain the liquidity of companies, the number of regular restructurings would be significant and an increase in the number of liquidations and bankruptcies was also expected. Since the lifting of the restrictions on movement and the performance of several commercial activities, the economy has been on the rise, however, so these expectations have not (yet) come true in general, although certain sectors have been in more distress than others.
Statistical data relating to insolvency court proceedings shows a minor decrease in initiated proceedings, which can probably be predominantly attributed to different state restrictions related to COVID-19 which, among others, included moratorium measures, applicable both to enforcement and insolvency proceedings. In 2020, approximately 1,000 companies and 90 sole proprietors faced bankruptcy proceedings, 16 companies applied for compulsory settlement court proceedings, and 26 companies and seven sole proprietors applied for simplified compulsory settlement court proceedings. Furthermore, an additional 88 companies went through compulsory liquidation proceedings and 63 companies went through voluntary liquidation proceedings.
By contrast in 2021, up to and including October 2021, there were 834 bankruptcy proceedings (amongst which 746 companies, 57 sole proprietors); seven compulsory settlements and 21 simplified compulsory settlements; 26 compulsory liquidation proceedings against companies and 46 voluntary liquidation proceedings against companies.
A total of 74,124 companies and 104,734 sole proprietors were incorporated in Slovenia as of 15 October 2020.
Out-of-court financial restructuring processes are difficult to record statistically, as they are not always published. However, financial restructurings conducted before the court are published. In 2021 no restructurings were initiated up to September, while a total of four such precautionary financial restructuring court proceedings were initiated in 2020 (three in 2019, and similar in previous years).
The core legal framework for restructurings, reorganisations, insolvencies and liquidations in Slovenia is set out in the Insolvency Act. The latter governs financial operations of legal persons, insolvency proceedings against legal and natural persons, compulsory dissolution proceedings of legal persons and cross-border insolvency procedures.
In addition, voluntary liquidation of legal entities is governed by the Slovenian Companies Act, which distinguishes between a (regular) winding-up and the dissolution of a company under a simplified procedure.
Certain aspects of insolvency may also be subject to legislation in other areas of law, such as civil, corporate, labour, register, public procurement, tax, state aid, criminal and other.
Slovenian insolvency law governs both voluntary and mandatory liquidation and restructuring proceedings. On a voluntary basis, debtors are able to initiate:
The precautionary restructuring was introduced into Slovenian legislation in 2014 and already includes many aspects of the Directive (EU) 2019/1023 on restructuring and insolvency, which has not yet been fully transposed into Slovenian legislation.
The Insolvency Act also governs the following insolvency proceedings:
Initiating one of the above proceedings is mandatory in the case of permanent illiquidity and the long-term inability to pay, as described in more detail in 2.3 Obligation to Commence Formal Insolvency Proceedings.
Further details of Slovenian insolvency proceedings are described in 6. Statutory Restructuring, Rehabilitation and Reorganisation Proceedings and 7. Statutory Insolvency and Liquidation Proceedings.
When a company becomes insolvent (see 2.5 Requirement for Insolvency), it must limit its operations, treat all creditors equally and either restructure financially or petition for bankruptcy. The company’s management must prepare a report on the financial restructuring measures within one month of the occurrence of insolvency. The report must consist of a description of the company’s financial situation, an analysis of the causes of insolvency and the management's opinion on whether there is at least 50% probability of a successful financial restructuring. If the opinion on restructuring is affirmative, the management will, depending on the probability and outcome of the respective option, proceed with either the out-of-court financial restructuring or a compulsory settlement. If, however, the opinion on restructuring is adverse, the management will file for bankruptcy.
If the management or the supervisory board of the company fails to fulfil their respective duties, their individual members will be jointly and severally liable to the creditors for any damages incurred by the creditors due to the members' failure to achieve complete payment in bankruptcy proceedings. The Insolvency Act provides specific rules on damage liability, amount of damages, exemptions and limitations of the liability, enforcement of claims and more.
Any debtor’s creditor is entitled to file for insolvency in the form of bankruptcy proceedings or compulsory settlement proceedings (for the latter, creditors must jointly own over 20% of all financial claims against the debtor, as shown in the debtor's last-published annual report, in order to file the petition), provided such creditor has a claim against the debtor.
A creditor must file its application with the competent insolvency court, showing the existence of the creditor’s claim and the underlying reason for the debtor's insolvency (most commonly, creditors support their application by rebuttable and non-rebuttable presumptions of insolvency, described in more detail in 2.5 Requirement for Insolvency). After receiving the application, the court reviews it and sends it to the debtor, who may object, arguing that they are not insolvent or that the creditor’s claim does not exist. If the debtor agrees with the creditor’s petition or does not object within 15 days it shall, however, be deemed that the debtor is insolvent.
In practice, creditor’s petitions are less common, as the creditor must also pay an advance to cover the initial costs of bankruptcy proceedings (for legal persons the advance is approximately EUR2,500), which is later returned to the creditor, if the bankruptcy estate is sufficient.
In Slovenia, insolvency proceedings are usually initiated by the management of the company. For such cases it shall be deemed, unless proven otherwise, that the debtor is insolvent (proving actual insolvency is not required).
If insolvency is initiated by a creditor, the latter must, however, prove that the debtor is insolvent. The Insolvency Act defines insolvency as a situation that occurs when a company:
The Insolvency Act further provides for several rebuttable and non-rebuttable presumptions (eg, the company is more than two months late with payment of salaries in the amount of minimum wages), under which it shall be considered whether the company fulfils one or both of the above conditions.
Generally, insolvency proceedings involving legal entities and individuals are governed by the Insolvency Act. However, the latter does not apply in the case of the insolvency of banks, insurance companies, brokerage companies, fund management companies and other financial institutions, which are (primarily) regulated by industry-specific legislation (eg, the Insurance Act). Although such legislation also refers to the provisions of the Insolvency Act, at the same time, it includes certain deviations from the general provisions. For instance, the Insurance Act provides that a compulsory settlement proceeding cannot be initiated against an insurance company.
The applicable sectoral legislation also typically deviates from the general process of appointing bankruptcy administrators and provides that an administrator is appointed based on the proposal of the regulator.
In Slovenia, consensual workouts have played a vital role in the restructuring of some large companies that were in distress in the past decade. While there have been some cases where voluntary reprogramming has not been successful, many cases have shown that out-of-court restructuring can be vastly preferential in terms of retaining value for all the stakeholders.
Slovenia is not a large and very diverse market, especially when it comes to financing. Hence, there is not an infinite number of restructuring market participants, but among those there are, good practices have been established which facilitate the process in terms of speed and effectiveness.
Even though consensual restructuring negotiations are not mandatory in order to start a formal restructuring process, creditors are usually supportive of the process. While mutual trust among creditors has proved to be beneficial, an honest and transparent approach from the borrower’s side is a quintessential prerequisite to achieve sufficient support from the creditors and thus, a successful workout.
Where agreement among the stakeholders is not possible, and depending on the identity and influence of the obstructing party, the legislation provides for several options, ie, restructuring processes with increasing regulations and limitations, but consequently also with a decreasing return on the claims and assets. This encourages the parties to favour the voluntary option, but also provides a framework for cases where this is not possible.
Although daily co-operation has been established between participants in the restructuring market and some template documents (MRA) and “standard” approaches (standstill, typical undertakings and covenants) have been put in place, each case calls for a different tailored approach in order to meet the restructuring requirements. Some workouts require greater involvement or control of the creditors (sometimes by establishing a steering committee, rarely by appointing a chief restructuring officer) and restructuring of collateral, and are also time consuming. On the other hand, some restructurings are more straightforward and are done on a bilateral basis.
New lending in a pre-insolvency situation does not benefit from statutory protection, therefore, it is entirely up to the creditors and debtor to negotiate any new money injections. Typically, new money is provided by the largest financial creditors and, in certain cases, super-priority liens are awarded to them (or new overarching collateral structures may even be put in place).
In Slovenia, there are no specific regulations or legal doctrines imposing duties on creditors to each other. Borrowers and creditors are free to define the conditions of the restructuring; however, general principles of civil law apply in the negotiation, contracting and enforcement stages (such as bona fide negotiation, duty of fair dealing, prohibition of misusing one’s rights, duty to prevent and mitigate damages, etc).
Prior to the financial crisis of 2008 and 2009, syndicated loans were not common practice in the local Slovenian financial market. Thereafter, many large, distressed companies underwent a voluntary restructuring in the form of concluding an MRA with a portfolio of financial institutions with whom they had previously dealt on a bilateral basis.
A range of different majority lenders' provisions were introduced and were also transposed into several more recent restructuring or reprogramming agreements.
Majority lenders typically have some level of control over the interpretation, waivers or acceleration of the defaulted loan, but as a rule, not even a super-majority will be able to cram-down dissident minority creditors. In order to achieve this, one of the court-supervised restructuring processes is required.
Slovenian law enables creditors to take security for their claims over several classes of assets. A pledge (or, in most cases, several pledges) can be established over real estate, movable property, intellectual property, equity shares in joint stock companies or limited liability companies, bank accounts and trade or insurance receivables.
A business pledge or a floating charge over various types of assets is not possible except that, to a certain extent, a floating charge is possible over business equipment and stock located in designated premises.
Under the general principle of the accessory nature of liens, the holder of a lien will generally be the creditor of a secured claim. Slovenian law does not recognise the concept of trust and specifically provides for the parallel debt approach. While the latter is generally accepted in a cross-border financing (eg, if the parallel debt is provided for in an English or German law facility agreement, the security in Slovenia will be established in favour of the security agent, the holder of the parallel debt), registering security in the name of a security trustee should be approached with caution.
A standard security package might include all (or most) of the above-mentioned security types, but might also be cumbersome due to notarial and translation costs (although no stamp duties apply in Slovenia).
Depending on the type of collateral and the type of security agreement, creditors will mostly have the right to enforce security out of court or via a court-managed enforcement process. In certain cases, solemnisation of the loan documentation and security documents with the notary will enable the creditor to achieve an enforcement title, which will grant stronger rights in enforcement.
As a general rule, a creditor that is entitled to enforce its collateral out of court prior to restructuring or insolvency, will also keep such right during the restructuring and insolvency process.
As a general rule, secured creditors should not be affected by restructuring or insolvency; hence, they also have fewer procedural remedies available to them compared to unsecured creditors.
In cases where the secured creditors’ rights are subject to restructuring, such secured creditors will have certain specific rights in the process (separate voting, separate creditors’ committee).
The Insolvency Act initially ranks creditors' claims as secured and unsecured, where the main difference between the two classes lies in the method of repayment. Secured creditors receive a separate payment from the proceeds of the sale of encumbered assets which are subject to the right to separate settlement (special distribution estate). Where there is more than one secured creditor on the same encumbered assets, the creditors will receive payment according to the priority of rights to separate settlement. On the other hand, unsecured claims are paid from the common distribution estate in an equal amount proportional to the extent of the common distribution estate.
Unsecured creditors’ claims are further ranked (and repaid) in the following order of priority:
Lower-ranking claims will not be paid until the higher-ranking claims have been paid in full. If the common distribution estate is not sufficient for full repayment of claims falling within the scope of an individual ranking, all claims of such ranking will be paid proportionally.
In addition to the above, the Insolvency Act also separately defines the costs of the bankruptcy proceeding (the costs of the receiver, etc). Such costs will be repaid from the bankruptcy estate before any other creditors' claims, but only based on the consent of the respective court.
Generally, the ranking of creditors' claims in insolvency proceedings is as shown in 5.1 Differing Rights and Priorities, with no further subdivision of unsecured claims on financial and operating (trade) claims. However, in the case of pre-insolvency proceedings and (simplified) compulsory settlement proceedings, the Insolvency Act allows for individual measures (decrease of the claim, suspension of maturity, etc) to apply only to financial and/or operating claims. In practice, unsecured trade claims are, in most cases, not kept whole during a restructuring process, as they are usually (significantly) decreased and their maturity is suspended.
All creditors are free to initiate enforcement proceedings under the provisions of the Enforcement and Security Act, before any formal restructuring or insolvency proceeding is initiated.
Formal Restructuring Proceedings
After the initiation of such a formal proceeding, which can also be initiated based on a creditor’s petition (see 2.5 Requirement for Insolvency), creditors have creditors’ participation rights. The main right of unsecured creditors in formal restructuring proceedings (this does not include out-of-court restructurings, where debtors and creditors are more or less free to agree on the restructuring measures), is the right to vote for or against the proposed restructuring. Creditors also have the right to file various other material or procedural petitions and/or decisions of the debtor and/or the respective court.
The role of creditors in a bankruptcy proceeding is understandably less important, as the proceeding is mostly in the hands and under the review of the appointed administrator and the respective insolvency court. Nevertheless, creditors (including unsecured creditors) can challenge the decision on the initiation of the bankruptcy proceeding and other procedural and material petitions and/or decisions. Creditors can also challenge the claims of other creditors, which have already been acknowledged by the administrator. If the administrator contests a creditor’s claim, such creditor can initiate a legal proceeding against the debtor for the recognition of such claim.
In both restructuring and insolvency proceedings, creditors can also realise their interest though the creditors’ committee.
Prior to the initiation of an insolvency proceeding, pre-judgment attachments are available and governed under the Slovenian Enforcement and Security Act. However, once an insolvency proceeding is formally initiated, enforcement proceedings are suspended. This also applies to pre-judgment attachments.
Nevertheless, any creditor who plausibly demonstrates a claim towards the debtor, may request the court to issue a pre-judgment attachment (an interim injunction) to secure the monetary claims of all creditors against the debtor. The court may issue any pre-judgment attachment which enables this securing, such as prohibition of disposing of, or encumbering, immovable property, etc.
When distributing the bankruptcy estate, the costs of the bankruptcy proceedings are paid first, before the distribution of any of the bankruptcy estate to the creditors. The remaining bankruptcy estate is then used to repay the creditors, with secured creditors receiving separate payment from the proceeds of the sale of the encumbered assets, which are the subject of the right to separate settlement (special distribution estate). No other creditors, either priority or regular, participate in the repayment from the special distribution estate.
The common distribution estate is on the other hand distributed among the unsecured creditors, based on priority, as indicated in 5.1 Differing Rights and Priorities. Among the unsecured creditors, priority claims are generally the first to be repaid. However, the Insolvency Act also defines a special kind of unsecured claim, which arises from contracts or other legal transactions which occurred within the period from the initiation of the prior compulsory settlement until the initiation of the subsequent bankruptcy proceedings. Such claims have ultra-priority and are repaid from a common distribution estate before the repayment of any other priority claims.
The Insolvency Act expressly defines which claims are to be classified as priority claims (eg, unpaid salaries and wages for the last three months prior to the submission of the petition) and the definition applies equally to all restructuring and insolvency proceedings.
The Insolvency Act allows and governs both pre-insolvency and insolvency restructuring proceedings, with the purpose in both cases being to restructure the debtor and ensure continuation of their business operations.
Precautionary restructuring is a court-assisted proceeding (without any administrator being appointed), the purpose of which is to enable a debtor, who will most likely become insolvent within a one-year period, to impose certain measures for the restructuring of its financial obligations. As such, the proceeding is aimed only at restructuring financial claims (eg, bank credits, leases) and not operating (trade) claims.
The Insolvency Act allows the debtor and creditors to freely determine the restructuring plan, which makes it possible to decrease the unsecured financial claims and/or change the maturity date. Secured financial claims, on the other hand, can only be subject to deferral of maturity and/or modification of the interest rate.
To initiate the proceeding, the debtor must file a petition with the court, accompanied by a list of the total financial claims against the debtor, an auditor’s report on the review of the list, and notarised statements of consent of creditors holding at least 30% of all financial claims. The proceeding is started by a court’s decision which causes a standstill of ongoing enforcement proceedings.
For the restructuring plan to be adopted and confirmed by the court, it must be signed by the debtor as well as unsecured and secured (if included in the plan, whereby they vote in a separate class) financial creditors that hold at least 75% of the ordinary or secured financial claims included in the list. Small or medium-sized debtors must secure the requested approvals in no more than three months (five months for big companies).
Once all the requirements are met, the court approves the restructuring plan, which then also affects any dissenting and/or unknown creditors.
Compulsory settlement, on the other hand, is an insolvency proceeding, tightly monitored by the court and the appointed administrator. The proceeding is initiated by a petition of the debtor with no requirement to provide prior creditors' consents to the proceeding. The petition must, among other things, include:
The proceeding is initiated by a court decision, which causes a standstill of enforcement proceedings and also any potential prior petitions for bankruptcy, if not already ruled upon.
The proposed restructuring plan can include reorganisation of the debtor’s business operations. Generally, the compulsory settlement covers only (all) ordinary claims, which can be decreased, postponed and/or subjected to interest rate reduction. Under certain conditions (see 6.9 Secured Creditor Liens and Security Arrangements) the plan can also cover secured creditors. The debtor can also propose a debt-to-equity swap.
Creditors must report their claims to the court within a prescribed time. The claims are reviewed by the administrator, who then prepares a list of tested claims. The latter forms the basis for the vote on the restructuring plan (the number of votes assigned to a creditor depends on the nature of the claim – different multipliers are prescribed). If a debt-to-equity swap is proposed, the administrator also supervises the procedure and reports on it.
Only creditors whose claims were approved by the administrator may vote. The compulsory settlement is confirmed with a 60% majority (of each respective class of creditors).
After the initiation of the compulsory settlement, the debtor’s operations are limited to daily business and to settlement of liabilities from such activities. If action outside the regular course of business is required (eg, borrowing new money), the court’s prior consent is required. Special attention is given to prevention of further impairment of the debtor’s financial position and the equal treatment of creditors.
Although the management retains its powers, an administrator is appointed to supervise the debtor's operations (until the compulsory settlement is confirmed) and to manage the formalities (ie, preparing a list of all claims and conducting the vote).
After the proposed compulsory settlement is confirmed, the debtor can operate more freely, but must ensure the equal treatment of creditors and comply with the restructuring plan until obligations under the compulsory settlement are repaid.
Precautionary restructuring is only a court-assisted procedure, due to which there is no formal supervision or limitation of the company’s operations.
In compulsory settlement proceedings, creditors are represented by a creditors' committee, the formation of which is mandatory (see 7.3 Organisation of Creditors or Committees). Nevertheless, creditors can also exercise certain rights individually, especially the right to vote.
In order to sufficiently and regularly inform the creditors about the state of the restructuring, the debtor must regularly prepare and publish reports, which include an overview of the debtor's business activities (including accounting statements) and the implementation of the restructuring plan.
In precautionary restructuring proceedings, creditors can primarily exercise their rights through the right to vote on the proposed reorganisation plan.
If the restructuring plan suggested by the debtor in a compulsory settlement proceeding is approved by the creditors and also confirmed by the insolvency court (see 6.1 Statutory Process for a Financial Restructuring/Reorganisation), dissenting creditors can be crammed down. In such case, a confirmed restructuring plan also applies to all creditors, including those which are unknown or have not filed their claim in the process.
Cram-down is also possible in precautionary restructuring proceedings, however, only against the claims that have been included in the list of financial claims.
In principle, the Insolvency Act does not prohibit trading claims against a debtor in insolvency restructuring, provided that all requirements for a valid assignment of claims are satisfied.
In insolvency proceedings, the assignee or assignor must notify and prove such assignment to the insolvency administrator in order to become a party to the process. This is not applicable in a precautionary restructuring.
However, in practice, certain claims are not declared but are recorded in the debtor’s audited documents, so any assignment may make the audited list incorrect. This could influence the auditor’s statement and in practice cause difficulties for a creditor (eg, only listed receivables can be part of the debt-to-equity swap as they are audited).
The Insolvency Act does not allow the insolvency restructuring to be initiated for a corporate group as a whole.
In practice, companies and administrators of individual entities of the corporate groups could co-ordinate their restructurings, provided these are compliant with the Insolvency Act.
After filing for a compulsory settlement, the debtor is especially prohibited from disposing of its assets except for:
In the case of the latter, it is further required that such sale is included in the restructuring plan and that the court consents after having consulted the creditors’ committee.
The insolvency administrator will supervise whether the insolvent debtor respects the above restrictions and may request the court to prohibit the debtor from carrying out any transactions which are not compliant with the above.
The insolvency administrator also takes control of the debtor’s bank accounts and must approve any bank transactions.
Any breach of these restrictions may result in bankruptcy proceedings being initiated against the debtor.
The Insolvency Act does not regulate any restrictions on the use of the assets of the debtor, as the debtor is in principle not yet considered to be insolvent.
Asset disposition is not allowed in principle, save for certain exemptions explained in 6.7 Restrictions on a Company’s Use of Its Assets.
Otherwise, it is the company which executes the sale of assets and it should in principle do this in a manner that maximises the proceeds (preferably by a bidding process or direct negotiation, all under market price) and treats all creditors equally. In practice, this prevents one of the creditors from obtaining assets instead of repayment of their claims, being still subject to restructuring (eg, haircut of receivables), and makes it difficult to sell assets that are pledged or otherwise encumbered for the benefit of secured creditors (in particular, if secured claims are subject to restructuring).
Failure to comply with these restrictions may result in the insolvent company entering bankruptcy and/or the transaction being clawed back.
As noted above in 6.7 Restrictions on a Company’s Use of Its Assets, no restrictions on the use and disposition of the assets of the debtor apply.
In principle, insolvency restructuring is not aimed at releasing the security of the secured creditors.
However, since it has been realised that, for successful financial restructuring, certain debtors also need to restructure their secured creditors, amendments to the Insolvency Act have added new measures for restructuring.
It is not possible to propose a release of security but only to postpone the maturity of secured claims or decrease their interest rate (unless it is otherwise specifically agreed with the secured creditors and such specific agreement is lawful, in particular, in line with restructuring and the equal treatment of creditors).
It is, in principle, not possible to propose to restructure secured creditors; however, there are certain exemptions to this.
If the planned financial restructuring and audit of the debtor’s financials show that (voluntary) restructuring of secured creditors is required for successful restructuring, this measure should be proposed.
Furthermore, if the debt-to-equity swap is one of the proposed measures, this should also be offered to the secured creditors.
Although the principal measure is only postponement of maturity of secured claims or decrease of the applicable interest rate, restructuring requires re-evaluation of the security and the split of secured claims into new secured claims (covered by the so-called protected value of security) and new ordinary claims (exceeding the so-called protected value of security).
Two specific restructuring measures also indirectly involve restructuring of secured creditors. One is the pooling of collateral and the other is the spin-off of the debtor’s business. Both options can, in addition to the above split of the secured claim, if applicable, also result in the release of liens and other security of creditors, either due to the insufficient value of the security (in the case of pooling of collateral) or to ensure the capital adequacy and solvency of the spin-off company (by converting all or part of the secured claims into equity of the spin-off company).
In the case of an initiated compulsory settlement, the debtor may not raise new loans and credits, save for those which are necessary to finance the regular business operation and cover the costs of compulsory settlement proceedings. Such loans and creditors may be subject to a certain priority repayment should such proceedings devolve into bankruptcy proceedings. There is no provision under the Insolvency Act by which the debtor may impose new pledges and security on its assets; hence, the general prohibition not to dispose of its assets should apply, so it may be subject to claw-back.
In the case of an initiated precautionary restructuring, certain financial receivables (such as loans and credits) which occurred after such initiation may be subject to a certain priority repayment, should such proceedings devolve into insolvency. If, in the case of precautionary restructuring, the debtor is already insolvent, any new pledges and security may be subject to claw-back.
Save for the above, such new financing may under certain conditions be subject to a safe harbour against claw-back in later potential bankruptcy proceedings.
Court insolvency proceedings may, to a certain extent, also be used as a forum for determining the value of claims of creditors but only of those which are the subject of such proceedings.
Claims are, in principle, the subject of review either by being listed in the documents of the debtor which must be audited and submitted to the court (eg, the Restructuring Plan or list of creditors) or by creditors declaring their claims in the insolvency proceedings and then having their claims acknowledged or rejected by the insolvency administrator and the court.
The purpose is either the restructuring of such claims and/or the calculation of creditors’ votes for confirmation of the insolvency restructuring.
Plan of the Financial Restructuring ("Restructuring Plan")
In a compulsory settlement, the most important document is the Restructuring Plan which also includes the measures to be taken in the financial and other business restructuring.
The Restructuring Plan is subject to examination by a certified evaluator of business, who will confirm the insolvency of the debtor as well as the likelihood of the debtor’s successful financial restructuring as per the Restructuring Plan.
Creditors may file objections against the compulsory settlement (which can, in practice, force the insolvent debtor to change the Restructuring Plan).
Finally, based on the Restructuring Plan, in particular the proposed measures therein (eg, decrease of claims and postponement of their maturity, debt-to-equity swaps, payment of new cash and in-kind contributions, restructuring of secured creditors), the creditors will vote for or against the adoption of the compulsory settlement.
The fairness of the plan is to a certain extent also ensured by the possibility to challenge the confirmed compulsory settlement (entirely or partially), if it is later established that the insolvent debtor can satisfy all or a higher percentage of its liabilities, as opposed to what is envisaged by the Restructuring Plan.
Mutually Unfulfilled Bilateral Agreements
The Restructuring Plan can require withdrawal from certain contracts for the success of the restructuring. The insolvent debtor may withdraw from certain contracts under the powers given by the Insolvency Act, if it obtains a court’s consent to do so.
In principle, non-debtor parties are not released from their liabilities in the case of restructuring, unless there is such an agreement between all of the parties involved.
It is specifically provided by the Insolvency Act that claims against the debtor’s guarantors, joint and several fellow debtors, and persons liable to recourse are not affected by the confirmed compulsory settlement.
In a compulsory settlement, a statutory and automatic set-off occurs between a creditor’s claim and debtor’s counterclaim. This applies also to non-monetary claims and unmatured claims, as well as in the case of claims arising out of rescinded mutually unfulfilled bilateral agreements. However, this does not apply to a qualified financial contract and offset arrangement (close-out netting arrangements) and other qualified contracts, as defined by the Insolvency Act.
One needs to consider that set-off might be prevented by a contractual or statutory moratorium. Such moratorium suspends the maturity of receivables, which is a condition for set-off, thereby preventing set-off.
In practice, transactions in which set-off receivables could raise suspicion with the administrator might be reviewed for potential claw-back or annulment (eg, if the debtor could not repay a creditor and thus made deliveries or provided a service to the creditor which was also not paid, but set off).
There are no specific implications set out by the Insolvency Act in the case of failure to observe the terms of the agreement on the financial restructuring. This is probably subject to the contract laws and the terms of the agreement on the financial restructuring, which should be in line with the Insolvency Act.
Failure to satisfy the prerequisite conditions of the Restructuring Plan prior to confirmation by the creditors may result in the initiation of bankruptcy proceedings.
After the compulsory settlement is confirmed by the creditors, the company must satisfy the confirmed Restructuring Plan, otherwise (if it is in default for more than two months), such company shall be considered insolvent (but may be proven otherwise), which can result in bankruptcy proceedings. The company must report quarterly on the implementation of the financial restructuring.
In precautionary restructuring, equity owners retain ownership unless they have voluntarily agreed otherwise (as part of measures for the financial restructuring).
On the other hand, in compulsory settlement proceedings, the existing equity owners may keep only the proportion of the debtor's share capital that corresponds to the value of the debtor's remaining assets, which they would have received as equity owners in bankruptcy (provided that, among others, all creditors are repaid in the bankruptcy). There are detailed and complex rules implementing this.
In either case, equity owners can be diluted if financial restructuring includes debt-to-equity measures or the issuance of new shares.
As opposed to restructuring proceedings, described in more detail in 6. Statutory Restructuring, Rehabilitation and Reorganisation Proceedings, the main purpose of bankruptcy and liquidation proceedings is to discontinue the debtor's business operations, realise the remaining assets, distribute the proceeds among the creditors and liquidate the company.
The Slovenian Insolvency Act distinguishes between three types of bankruptcy proceedings (see 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership), which can be initiated either by the debtor or by the creditor (see 2.4 Commencing Involuntary Proceedings). After a bankruptcy proceeding is started, the respective insolvency court appoints a bankruptcy administrator, whose main obligations are to complete the necessary business operations of the debtor and liquidate the company. Although the business operations of the company are in most cases suspended immediately, the Insolvency Act also allows that a debtor may continue its business under the supervision of the administrator, if this would ensure more favourable conditions for the sale of the debtor's assets.
The initiation of the bankruptcy will suspend all enforcement proceedings, and further repayment of creditors’ claims can only be achieved through the bankruptcy proceeding. Similarly, litigation and other relevant proceedings, which could affect the debtor's financial position, are suspended and the appointed administrator is called to take control of such proceedings. The administrator can also decide to continue or withdraw from prior litigation proceedings initiated by the debtor, although in practice, this is usually conditional on whether there are sufficient funds in the bankruptcy estate to finance the proceedings. The Insolvency Act also gives the administrator the right to withdraw from certain ongoing agreements concluded by the debtor (eg, lease agreements), which the administrator deems to be no longer necessary.
All creditor claims become due and payable on the day the bankruptcy is started, and the creditors must file their claims (including contingent claims) against the debtor within three months of the start of the bankruptcy. The Insolvency Act provides that the debtor's and creditors’ claims are offset ex officio upon the initiation of the bankruptcy. The administrator then reviews the filed creditors’ claims and prepares a list of tested claims in which the administrator either recognises or challenges the claims.
During the bankruptcy, the administrator must regularly publish reports on the progress of the bankruptcy process. After all the remaining assets of the debtor have been successfully realised, the administrator repays any potential bankruptcy costs and then distributes the available proceeds to the creditors. The bankruptcy is ended by the administrator's final report, based on which, the court issues a decision on the termination of the bankruptcy and deletes the company from the Slovenian business register.
Liquidation of a company is usually initiated by the shareholders of the company and is therefore carried out on a voluntary basis, under the provisions of the Slovenian Companies Act. However, the Insolvency Act also governs a special compulsory liquidation, which can be initiated ex officio or on the basis of a petition in a limited range of situations. The purpose of the proceeding is to realise the remaining assets and liquidate the company, with the whole proceeding overseen by an appointed administrator. In practice, most compulsory liquidations are later continued as a bankruptcy proceeding, due to the fact that the remaining assets are not sufficient to repay all the creditors’ claims.
After the initiation of a bankruptcy proceeding, the previous management is recalled and the administrator is given full managerial powers and full control over the bankruptcy proceeding.
Valuation of the Assets
The main goal of the appointed administrator is to realise all the remaining assets of the debtor and to distribute the bankruptcy estate to the creditors. The Insolvency Act requires that the administrator must provide an estimate of the value of each asset in a bankruptcy estate, except for individual exceptions (eg, perishable goods), and this forms the basis for determining the minimum selling price (the amount is decreased by each unsuccessful sale).
Sale of the Assets
During the bankruptcy proceeding, the administrator can propose to the relevant insolvency court to sell a certain asset of the debtor, after which the court and the creditors' committee (if formed) must give consent to the sale and its conditions before the sale can take place. If the asset being sold is pledged to the benefit of a creditor and the proposed purchase price is insufficient to cover the whole secured claim, the administrator must also acquire the opinion or consent of such creditor prior to the sale.
The sale is generally concluded on the basis of a public auction or a binding call for tenders. In certain cases, the contract of sale of such asset may also be concluded on the basis of direct negotiations with the purchaser. The Insolvency Act does not include any specific provisions for a stalking horse or credit bid process.
In practice, each of the debtor's assets is usually sold individually and transferred to the benefit of the buyer free and clear of all encumbrances, save for individual exceptions (ie, real easements). However, the Insolvency Act also allows that all assets which form a business unit are sold simultaneously. In such a case, the purchaser is considered as the universal legal successor of the debtor, due to which all obligations and public burdens associated with the acquired assets are also transferred to the purchaser.
Pre-negotiated sales transactions are usually not effectuated after the commencement of the bankruptcy proceeding, as the appointed administrator is obliged to ensure that a given asset will achieve the maximum purchase price. However, there is no general rule against such transactions, due to which it would be possible to effectuate such a transaction in certain situations (eg, the asset in question is specific and has a limited number of interested buyers).
A creditors' committee is formed in compulsory settlement proceedings (mandatory) and bankruptcy proceedings (only if so demanded by the creditors). The Insolvency Act expressly provides that only regular (unsecured) creditors may be members of the creditors' committee, except in compulsory settlement proceedings, if they also include restructuring of secured claims (in which case, a separate creditors' committee of secured creditors is formed). The members of the committee are appointed by the court (in such case, the court appoints the creditors with the highest claims as members) or elected by all the creditors (in a bankruptcy).
If formed, the creditors' committee carries out certain stipulated procedural acts on behalf of all the creditors who are subject to the insolvency proceeding, especially issuing opinions, giving consents, and reviewing the administrator’s and other reports. The creditors' committee may also review the debtor's accounting and business books. In addition, it may review the administrator’s documentation, which the administrator must hold in accordance with the Insolvency Act.
Expenses that the creditors have in relation to their participation in the creditors' committee are not reimbursed in any way.
Insolvency proceedings in Slovenia are universal proceedings and therefore extend to all the debtor’s assets (in Slovenia or abroad) and to all creditors (domestic or foreign). Nevertheless, foreign insolvency proceedings, whether initiated against a debtor located within an EU member state or a debtor from a third country, may be recognised in Slovenia.
EU Member States
If a debtor is located within an EU member state, the recognition process is governed by Regulation (EU) 2015/848, provisions of which are directly used in Slovenia. Consequently, the courts of the member state, in which the debtor’s centre of main interests (COMI) is situated, have jurisdiction to open the main insolvency proceedings, after which, recognition in other EU member states is automatic.
Non-EU Member States
For cases of insolvency proceedings held against the debtor from a third country (non-EU member state), the Insolvency Act provides a special recognition process, which is modelled on the basis of the UNCITRAL Model Law on Cross-Border Insolvency. The recognition process is initiated on the basis of a request, filed by the appointed (foreign) administrator. Similarly, as in the case of insolvency proceedings from EU member states, a third-country insolvency proceeding can be recognised as a main or subsidiary proceeding. The Insolvency Act also expressly states that a Slovenian court may refuse to recognise foreign insolvency proceedings or a request on the part of a foreign court or receiver for assistance or co-operation, if this could have a negative impact on the sovereignty, safety and public interest of the Republic of Slovenia.
Although requests for recognition of foreign insolvency proceedings are quite rare, Slovenian courts have in the past adopted a decision in relation to recognition of an insolvency proceeding against a big Croatian holding, which had subsidiaries in several EU and non-EU states. In the case at hand, the Supreme Court of the Republic of Slovenia in the end rejected the request for recognition, due to the main proceeding held in Croatia being in violation of the public interest of the Republic of Slovenia.
The Insolvency Act provides the possibility of co-ordination between domestic and foreign insolvency courts and appointed administrators, where such co-ordination may be executed in any form which provides for the realisation of the purpose of co-operation.
See 8.1 Recognition or Relief in Connection with Overseas Proceedings.
The position and rights of foreign creditors in Slovenian domestic insolvency proceedings, concerning entitlement to present a petition and execute procedural acts in such proceedings, are equal to those of domestic creditors.
In relation to foreign creditors, the Insolvency Act also provides that the appointed administrator must, as soon as possible and not later than within one month following the initiation of domestic bankruptcy proceedings, provide all known foreign creditors of the debtor in bankruptcy with a notification of the initiation of bankruptcy proceedings.
Generally, enforcement of foreign judgments is subject to the provisions of the Slovenian Private International Law and Procedure Act ("ZMZPP"), which is used for personal, family, social/labour, property and other civil law relations which include an international element. If recognised by the Slovenian courts, a foreign judgment is considered equal to the judgment of a Slovenian court and has the same legal effect as a domestic judgment.
The provisions of ZMZPP, however, apply only to judgments issued in countries that are not members of the EU. Furthermore, under the general rules of supremacy of international treaties over national acts, the ZMZPP also does not apply, if recognition and enforcement of foreign judgments, involving monetary claims, are regulated by an international treaty (the Republic of Slovenia is a signatory or a successor of several bilateral and multilateral agreements).
For judgments issued in EU member states, EU regulations apply, namely:
Judgments Issued in Non-EU Member States
Recognition and enforcement of judgments originating from non-EU member states, which are enforced under the ZMZPP, follow a two-step procedure. First, a foreign judgment must be recognised by any Slovenian district court. In order to request recognition, a certified translation of the foreign money judgment is always required (the translation must be prepared by a sworn translator certified in Slovenia), in addition to submission of the original foreign money judgment or a certified copy, together with a certificate of finality. The ZMZPP provides that foreign judgments will be recognised under the general rule of reciprocity (ie, they will be declared enforceable only if they are enforceable in the state of origin and if reciprocity is ensured by state treaties or ordinances).
During the recognition phase, the opposite party and other parties to the proceedings may object to the recognition of a foreign judgment involving a monetary claim (adversarial principle applies). Such an objection is decided upon by the same court (consisting of a panel of three judges), which may reject the recognition in the following statutory-provided cases:
Where such objection is rejected, an appeal may be filed with the Supreme Court of the Republic of Slovenia.
Only once the judgment has been recognised by a Slovenian court may the enforcement proceeding be carried out in front of the competent local court. The opposite party, ie, the debtor, may, pursuant to the adversarial principle, object the enforcement decree only on the grounds which bar the enforcement. An appeal against the court decision rejecting the proposed enforcement, or against the court decision on such objection, may be filed with a competent higher court.
Judgments Issued in EU Member States
Recognition and enforcement of judgments issued in EU member states are, on the other hand, carried out according to the applicable EU regulations (see above). Generally, such judgments are directly enforceable, as a result of which, no separate recognition proceeding is required. Furthermore, potential objections to the recognition or enforcement of such judgments are very limited and only possible in accordance with the provisions of Regulation (EC) No 44/2001 and Regulation (EU) No 1215/2012.
Enforcement may be carried out in front of the competent local court, where the creditor must generally present a copy of the initial judgment and the basis for enforcement (usually a certificate issued by the initial court), as provided in the applicable EU regulations.
As a general note, Slovenian courts are relatively strict when assessing objections against the enforcement of foreign judgments, particularly if the opposing party objects to the enforcement due to a supposed violation of public order. The Supreme Court of the Republic of Slovenia has held, on several occasions, that the concept of public policy is an indefinite legal concept. In assessing whether the effect of recognition of a foreign judicial decision is contrary/manifestly contrary (as applicable) to public policy in the Republic of Slovenia, so-called international public policy is considered. This means that Slovenian public policy does not include all the mandatory provisions of Slovenian law, but only those imperative legal norms and moral rules the violation of which would jeopardise the legal and moral integrity of the Slovenian legal system.
In Slovenia there is only one type of statutory officer appointed in insolvency proceedings, the insolvency administrator. However, they are not appointed in precautionary restructurings and simplified compulsory settlements, due to the nature of such proceedings.
Administrators must become members of the Chamber of Administrators of Slovenia, which guarantees the reputation of the administrator and the development of good business practice among administrators.
Other bodies are also appointed in insolvency proceedings, such as a creditors’ committee and creditors’ proxy.
The administrator is an officer of the court, with statutory competencies and tasks, all with the aim of protecting and realising the interests of creditors.
A bankruptcy administrator is appointed as management and represents the bankrupt debtor in relation to the testing of claims of creditors, claw-back actions, liquidation of assets and repayment of creditors, withdrawals from mutually unfulfilled bilateral agreements and rent contracts, etc. The administrator also manages other legal transactions.
An administrator appointed in a compulsory settlement proceeding, on the other hand, does not replace the management, but only acts as an additional body of the court with duties and powers of supervision, while the management remains in place. The administrator must monitor and supervise the insolvent debtor and may inspect their business books and documentation. The administrator also gives opinions to the court, may object to certain business dealings of the insolvent debtor and in certain cases gives mandatory consent for the debtor’s business (eg, transactions on the debtor's bank accounts). The administrator may also raise objections and request the court to initiate bankruptcy proceedings.
An administrator reviews and decides on the declared claims (by submitting a list of such claims). This process is detailed and also includes objections and appeals against the list of claims and related litigations/enforcements. An administrator is also involved in restructuring at the court (eg, debt-to-equity conversions). An administrator in bankruptcy also tries to repay declared claims, while in a compulsory settlement, the administrator calculates the votes for and against adoption of the settlement.
Administrators must publish regular quarterly reports and extraordinary reports on particular matters (if the court or creditors’ committee requests them to do so).
Administrators may be liable for damages and are also subject to supervision, disciplinary proceedings and related measures before the Chamber of Administrators, as well as the Ministry of Justice.
In turn, creditors may supervise administrators by filing objections against them (eg, for unequal treatment of creditors).
The court appoints administrators from its list of licensed administrators, whilst considering certain limitations (eg, conflicts of interest).
An administrator's licence may be granted to a person who satisfies certain conditions (among others, the person must have passed an exam for administrators). This licence may be annulled by the Ministry of Justice (eg, if the administrator commits a criminal offence), or may cease to be valid (eg, if the administrator waives their right to their licence).
The court appoints an administrator on the initiation of insolvency proceedings (with certain exceptions). Different rules apply regarding the appointment of an administrator in the compulsory settlement of large, medium and small companies. In such a case, the court must appoint an administrator on the day following the filing of the motion for insolvency proceedings and can choose any person from the list (irrespective of the order in which they are listed), preferably an expert. If a petition is filed by the creditors, the creditors may suggest who to appoint.
In general, the court appoints a different person each time from the list of administrators, in the order in which they are listed, but in the bankruptcy proceedings of large companies, the administrator must have at least two years' prior experience. A person will not be appointed as an administrator, if:
An administrator will be dismissed by the court, at their own request or at the request of an entitled subject, if the administrator:
The administrator may appeal against their dismissal.
Prior to Insolvency
In addition to the general duties and liabilities of management and supervisory boards under the Slovenian law of companies, there are duties regarding the financial operations of companies under Slovenian insolvency law.
The management must ensure that:
A supervisory board will regularly supervise the management’s compliance and the company’s short and long-term ability to pay.
Members of the management and supervisory board may be held jointly liable for damages, unless they can prove that they were acting with the due diligence of the profession of business finance and of the profession of corporate governance.
In a nutshell, when a company becomes insolvent:
There are strict duties and deadlines for an out-of-court restructuring, as well as for filing petitions for insolvency proceedings, and in practice it is advisable to plan these in advance.
Expiry of Restrictions
Restrictions apply until the initiation of insolvency proceedings (when they are replaced by duties in insolvency proceedings) or until the successful completion of out-of-court restructuring, including restructuring measures and repayment obligations.
Members of the management and supervisory board may be held jointly liable to creditors for damages as a result of not receiving full payment in a bankruptcy proceeding, if they fail to comply with their duties regarding insolvency (see 10.1 Duties of Directors, After Insolvency).
A claim may be filed only for the account of all (declared) creditors of the bankrupt debtor (so that compensation is paid to the bankrupt debtor), either by the bankruptcy administrator or any (declared) creditor.
Slovenian insolvency law provides specific rules on liability, capped limitations and exemptions, as well as rules on enforcement of claims for compensation of damages.
The insolvency law does not preclude members’ liability for damages under other areas of the law, eg, duties of carrying out financial business (see 10.1 Duties of Directors, Prior to Insolvency).
In Slovenia, causing a bankruptcy by fraud or unconscientious business, or damaging creditors, may also represent a criminal offence.
Under Slovenian insolvency law, historical transactions may be set aside or annulled, if they occurred in the look-back period and if, at that time, the debtor was insolvent and further objective and subjective conditions were satisfied. The objective condition is in principle satisfied if the debtor’s actions resulted either in:
The subjective condition is in principle satisfied when the other (benefited) person, at the time of the debtor’s actions, was aware of (or should have been aware of) the debtor’s insolvency.
Consequently, the bankruptcy administrator may claim return or compensation of what is made under the transaction and/or successfully object to any creditors’ claims raised under such transaction.
Claw-back in practice needs to be assessed on a case-by-case basis; however, the insolvency law does set out certain statutory assumptions for a claw-back.
Claw-back may also be important to consider when doing business with parties in distress or which are already insolvent.
Transactions which may be subject to claw-back are only those made in a look-back period starting from 12 months prior to the day of filing of the motion for bankruptcy and ending on the day on which the bankruptcy proceeding is initiated.
The look-back period is extended to 36 months, if the other (benefited) person received assets of the company without being obliged to provide consideration, or if only obliged to provide consideration of a small value.
A claim to set aside or annul a transaction is brought by a claw-back of the debtor’s legal actions, either as a lawsuit or as an objection against a lawsuit. There are strict rules on how and when such claw-back may be filed.
In a bankruptcy proceeding, a claw-back may only be brought under insolvency law. In all other situations, where there is no bankruptcy, a claw-back may be brought under civil law, although under different rules.
A claw-back in bankruptcy may be brought not only by the bankruptcy administrator, but also by any creditor, although in both cases it is made on behalf of and for the account of the bankrupt debtor. The bankruptcy administrator may also request creditors to finance the claw-back and this is often the case where the bankrupt debtor has no other assets.
In practice, the courts may also consider certain transactions to be null and void under rules other than claw-back.