The turmoil within the Croatian retail company Agrokor, which owns Mercator, the largest Slovenian retailer, caused a significant stir in the Slovenian public, with the suppliers and especially in politics. The response of the Slovenian Government – with which additional measures for the protection of Mercator as a company of systemic importance are being established is also the Act on Conditions of Appointment of Associate Member of the Management Board in the Companies of Systemic Importance for the Republic of Slovenia. The Act was adopted by the Parliament on the 25th of April, 2017. It will become valid immediately on the day following its adoption.

The goal of the Act, commonly referred to as Lex Mercator, is to define companies of systemic importance for the Republic of Slovenia and to enable the appointment of a temporary associate member of the management board, if the majority shareholder of such company is in insolvency or other substantially similar procedures intended for the elimination of reasons for insolvency. In case such procedures exist, the Slovenian Government has the ability to use a state interventionist measure – the appointment of an associate member. The Act also presents a major exception to the rules on instructions to the subsidiary in contractual and actual corporate groups known to corporate law.

Mercator as the company of systemic importance

The Act defines a company of systemic importance as a company which: (i) employs at least 6,000 people in the territory of the Republic of Slovenia; and, (ii) its sales revenue exceeds EUR 1 billion. The majority shareholder is defined by the Act as a person/entity which holds, together with its related companies, a shareholding exceeding 50% or the majority of voting rights. Credit institutions and insurance companies are excluded from the applicability of the Act.

Pursuant to the analysis of the above mentioned conditions, and the Slovenian corporate environment, it turns out that Mercator is the only company for which the newly adopted Act will be applicable.

What does the Act bring?

The Government has an explicit right, but not an obligation, to propose to the District court in Ljubljana, to appoint an associate member of the management board of the company of systemic importance. The court must appoint the associate member within three days from receiving such request. The associate member has limited authority, since it only represents the company jointly with other board members in matters related to the majority shareholder. In case the associate member does not provide its consent for an individual transaction between the company and the majority shareholder, such transaction is null and void. The associate member does not have the authority to decide on the matters of day-to-day business operations which remain in the sphere of the "regular" board members. The associate member is liable for damages for its actions in relation to its authority.

The Act explicitly provides that, after the appointment of the associate member, general corporate regulation of corporate groups concerning the instructions by the mother company is not applicable for the company of systemic importance. Consequently, the management board can refuse the fulfilment of harmful instructions by the mother company.

Consequences for creditors and suppliers

The Act does not provide for any specific consequences for creditors and suppliers. Day-to-day business transactions, which are not related to the majority shareholder, will be normally conducted and managed by "regular" board members. Consent of the associate member is not needed in such cases.

Even though the intention of the Slovenian Government is to prevent any depletion of the company of systemic importance (i.e. Mercator) - which is generally favourable for the creditors, it is doubtful whether the Government had to regulate this with a new legal act. Namely, the existing corporate law regulates the question of harmful instructions and monetary compensations. It remains to be seen whether the Act will actually provide an additional safeguard against potential depletion.