On 16 March 2022, the Slovak Parliament approved the anticipated new act on solving threatened bankruptcy (the Act) and also amended related legislative documents. It implements the Directive (EU) 2019/1023 on preventive restructuring, whose implementation was postponed by one year to 17 July 2022 due to the COVID-19 pandemic. The Act aims to reform insolvency in Slovakia and make preventive mechanisms effective enough to reduce the number of bankruptcies.
To whom does the Act apply?
The Act applies to all entrepreneurs that are legal entities threatened with insolvency. Certain financial entities such as banks, insurance companies, health insurance companies and state-owned companies are excluded. According to the amended Slovak Insolvency Act, an entrepreneur is threatened with insolvency if illiquidity is possible, i.e. if considering all circumstances it can be reasonably assumed that the entrepreneur will become illiquid (unable to pay its debts) within the next 12 months. This adds to the specification of a company in crisis in accordance with the Slovak Commercial Code, fulfilled if the ratio of its equity and liabilities falls below 8:100.
What possibilities exist?
Under the existing law, a debtor is obliged to take steps to prevent insolvency. However, the specification of appropriate measures adopted in that respect is missing.
Preventive restructuring is split into public preventive restructuring and non-public preventive restructuring, whereby the public preventive restructuring is governed by secondary legislation.
Unless the debtor obtains the required creditors consent with the moratorium, it must engage a professional advisor with adequate experience and liability insurance. The details are subject to contract, but certain provisions on liability and fees can be adjusted only with the approval of the creditors committee.
Public Preventive Restructuring
Public preventive restructuring has two phases subject to court approval: (i) approval of public preventive restructuring; and (ii) approval of the restructuring plan.
Only the debtor can file a motion together with the outline of the restructuring plan on the form which will be published by the Ministry of Justice on its website: vod - Ministerstvo spravodlivostiSR (gov.sk). The court will/must/should approve the public preventive restructuring if certain conditions are met, in particular if the debtor is not insolvent, cancelled, in liquidation or enforcement proceedings. In the same decision, if requested the court will/must/should grant a moratorium for three months (which can be extended up to six months in total) provided that certain creditors agree and conditions are met. The Act replaces the existing Act on Bankruptcy Moratoria about which you can find more information here. The moratorium can be accompanied with a preliminary injunction if necessary and justified.
The court selects at random and appoints a trustee only in certain situations (moratorium, expectation of cram down, request by the debtor or majority of creditors).
Following a meeting of affected creditors and the creditors committee, the debtor prepares the restructuring plan to be subsequently approved by the creditors meeting and the court (including the cross-class cram down if necessary).
Certain creditors, such as employees, small creditors and non-monetary creditors, are considered by law or by the plan itself as unaffected by the plan.
Non-public Preventive Restructuring
This tool is available only to creditors subject to supervision by the National Bank of Slovakia or similar foreign institutions. The debtor notifies the court of the initiation of such proceedings (if the affected creditors agree) and must submit the restructuring plan to the court within three months of the notification. If the court does not reject the plan within 15 days of its submission, it is deemed approved with effect against the creditors agreeing to it in writing.
The Act envisages more transparency and simplification in insolvency proceedings through the mandatory publication of information in the Insolvency Register, mandatory electronic forms for most actions, as well as the possibility of videoconferences for creditors meetings.
Public preventive restructuring will be supervised by special trustees that have to pass an exam to ensure higher professionality and transparency; the special committee will prove the competence of such future special trustees with the mandatory re-testing every five years.
The Act intends to fulfil the long-desired reform of Slovak insolvency law and provide some guidance for debtors to avoid potential insolvency. Success will depend on the seriousness of their approach, openness and quality of the proposed solution.
Read the original here:
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