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Liquidation procedures

Eligibility

What are the eligibility criteria for initiating liquidation procedures? Are any entities explicitly barred from initiating such procedures?

Slovenian law differentiates between liquidation proceedings for solvent and insolvent entities. Any solvent company may be liquidated by following the voluntary liquidation proceedings provided for in the Companies Act. In order to open voluntary liquidation proceedings, the Companies Act requires a shareholders’ resolution. The liquidation proceedings are designed to ensure the full repayment of creditors and the distribution of remaining assets to shareholders, following which the company may be liquidated and deleted from the court register. If a liquidator finds that a company has insufficient assets to repay all of its creditors, bankruptcy proceedings will be initiated.

If the entity is insolvent, bankruptcy proceedings may be initiated, as prescribed by the Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act (Official Gazette of the Republic of Slovenia 126/2007). Bankruptcy proceedings may be initiated by:

  • the debtor;
  • its personally liable shareholders;
  • one of its creditors; or
  • the Public Guarantee, Maintenance and Disability Fund of the Republic of Slovenia.

The party initiating the proceedings must prove that the debtor is insolvent. Broadly speaking, ‘insolvency’ is defined as capital inadequacy or long-term illiquidity. In addition, there are certain irrefutable presumptions of insolvency – for example, where there is a delay of more than two months in paying minimum wages or the related taxes and social contributions.

Procedures

What are the primary procedures used to liquidate an insolvent company in your jurisdiction and what are the key features and requirements of each? Are there any structural or regulatory differences between voluntary liquidation and compulsory liquidation?

Bankruptcy proceedings are the only procedure available for liquidation of an insolvent company. Bankruptcy proceedings may be initiated by:

  • the debtor;
  • its personally liable shareholders;
  • one of its creditors; or
  • the Public Guarantee, Maintenance and Disability Fund of the Republic of Slovenia.

Regardless of which party initiates the proceedings, they begin with the court’s decision on their commencement and the appointment of a bankruptcy manager. Once the court’s decision becomes final, there are no structural or regulatory differences based on which party initiated the proceedings. The commencement of bankruptcy proceedings is followed by a three-month period in which the creditors may file their claims. Following the final determination of creditors’ claims, assets of the debtor in bankruptcy are sold and creditors are repaid pro rata(secured creditors are paid primarily out of the collateral that they hold). Bankruptcy proceedings are terminated by a court decision and the company will be deleted from the court register based on such a decision.

Conversely, procedures for liquidating solvent companies are less formal and – particularly in case of voluntary liquidation – less court driven. Shareholders of companies that are not insolvent may initiate voluntary liquidation proceedings and appoint a liquidator in order to:

  • repay existing creditors;
  • liquidate the company’s assets; or
  • distribute any remaining assets among the shareholders.

A liquidator will initiate bankruptcy proceedings if it finds during the course of (voluntary) liquidation proceedings that the company’s assets are insufficient to repay creditors.

The courts may also initiate compulsory liquidation proceedings in certain cases (eg, where a company is not operating at its registered address or has failed to publish its annual reports). However, this step has become increasingly rare in recent years.

How are liquidation procedures formally approved?

Voluntary liquidation proceedings require only a resolution of the company’s shareholders holding at least a 75% majority.

Bankruptcy proceedings require a formal application to the court, which will decide whether to commence the proceedings.

What effects do liquidation procedures have on existing contracts?

Bankruptcy proceedings do not affect the mutual claims of creditors and the debtor arising out of a mutually unfulfilled bilateral contract. On the commencement of bankruptcy proceedings, the debtor in bankruptcy acquires the right to withdraw from a mutually unfulfilled bilateral contract (this right is exercised by the bankruptcy manager). The creditor is given no such right by law, but the right to terminate agreements once the counterparty becomes insolvent is usually contractually agreed.

What is the typical timeframe for completion of liquidation procedures?

Voluntary liquidation proceedings are completed in approximately 12 months. The law requires that they stay open for at least six months as of the second call to the creditors to notify their claims to the company.

Bankruptcy proceedings are typically completed within 12 months to five years. The duration of the proceedings largely depends on the insolvent debtor’s assets and the possible disputes between the debtor and its creditors or among the creditors themselves.

Role of liquidator

How is the liquidator appointed and what is the extent of his or her powers and responsibilities?

The shareholders appoint the liquidator in voluntary liquidation proceedings. After the proceedings have commenced, the liquidator represents the company. The liquidator’s main responsibilities include:

  • completing existing transactions;
  • recovering any claims owed to the company;
  • liquidating the remaining assets; and
  • repaying creditors.

New agreements may be concluded for the purpose of completing unfinished transactions. The liquidator then distributes the remaining assets to the shareholders and files for the company’s deletion from the court register.

In bankruptcy proceedings, the liquidator (bankruptcy manager) is appointed by the court among persons who are qualified bankruptcy managers. The bankruptcy manager may be removed upon request by the creditors’ committee in certain cases, such as violation of duties in proceedings or loss of licence. The bankruptcy manager must comply with mandatory instructions of the court. The bankruptcy manager:

  • carries out the sale of the assets of the debtor in bankruptcy;
  • collects its claims; and
  • carries out any other legal transaction aimed at realising its assets.

The bankruptcy manager proposes bankruptcy proceedings plan, which is confirmed by the court based on the opinion of the creditors’ committee.

Court involvement

What is the extent of the court’s involvement in liquidation procedures?

In voluntary liquidation proceedings, the court merely verifies that certain procedural rules have been observed prior to the company’s deletion from the court register. In certain specific cases, the court can also order a company’s compulsory liquidation; however compulsory liquidation proceedings are rarely carried out in practice.

While the court has only a minor supervisory function in voluntary liquidation proceedings, its involvement in bankruptcy proceedings is much broader in scope. The petition to initiate bankruptcy proceedings is filed with the court, which takes a final decision on the start of the proceedings. The court also appoints a bankruptcy manager. Based on the proposal by the bankruptcy manager and the opinion of the creditors’ committee, the court decides on the bankruptcy proceedings plan. The court plays an important role in determining creditors’ claims and takes decisions on the disposal of assets. The court may also permit the continuation of the debtor’s operations on consent from the creditors' committee if more favorable conditions are expected for the disposal of the debtor’s assets of the debtor in bankruptcy. After the entire bankruptcy estate is realised (ie, assets are sold, claims are collected and other legal transactions are concluded), the bankruptcy manager must submit a final report to the court. The court issues the resolution on the termination of bankruptcy proceedings based on the bankruptcy manager’s final report and the opinion of the creditors’ committee.

Creditor involvement

What is the extent of creditors’ involvement in liquidation procedures and what actions are they prohibited from taking against the insolvent company in the course of the proceedings?

In voluntary liquidation proceedings, creditors merely lodge their claims with the liquidator and otherwise have little influence on the proceedings. Creditors may still initiate enforcement proceedings during the course of voluntary liquidation and, until their claims are repaid, the company cannot be liquidated and deleted from the court register.

However, in bankruptcy proceedings, there is an automatic stay on most of the enforcement proceedings and creditors are generally repaid only through bankruptcy (or the out-of-court enforcement of collateral, where applicable). In general, creditors have little control over bankruptcy proceedings. The proceedings are carried out by the court and the bankruptcy manager. Nevertheless, creditors opine on certain matters (eg, prices in proposed asset disposals) and may initiate bankruptcy proceedings. During the course of bankruptcy proceedings, unsecured creditors may exercise their rights through the creditors’ committee. The creditors' committee:

  • decides on the opinion of or consents to matters provided for by law;
  • discusses reports which will be submitted by the administrator pursuant to the law; and
  • exercises other competencies.

Secured creditors may provide their opinions or consent in relation to the sale of assets on which they have security (right of separate settlement).  

Director and shareholder involvement

What is the extent of directors’ and shareholders’ involvement in liquidation procedures?

In voluntary liquidation proceedings, shareholders initiate the liquidation proceedings and appoint a liquidator. A director is often appointed as the liquidator, as they are best acquainted with the company’s business and remaining creditors.  

With the commencement of bankruptcy proceedings, the powers of the debtor’s representatives, holders of procuration and other persons authorised to represent the debtor, as well as the powers of the debtor’s management to conduct its operations, expire. The shareholders are not parties to the bankruptcy proceedings, unless they are creditors of the company and report their receivables to the bankruptcy manager.

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