Slovakia is getting ready for a major amendment of the Commercial Code, which will also amend the Slovak Act on Bankruptcy and Restructuring. Significant changes are expected in the corporate as well as bankruptcy and restructuring law sector which is underperforming and provides insufficient protection to creditors, despite many previous attempts to improve the regulation of this area.
The relevant amendment was passed by the Slovak Parliament in October 2014; however, it was recently vetoed by the Slovak President. The official grounds for the veto are substantially the same as the critics of the amendment publicly communicated in the media by TaylorWessing. It remains to be seen whether the parliament decides to override the veto and adopt the amendment.
On one hand, the amendment formally reflects requirements of the current business practice and introduces the possibility of establishment of a Limited Liability Company (“LLC”) with a share capital in the amount of one euro. On the other hand the amendment interferes with the legal principles of a LLC as such and causes systematic disadvantage in comparison with other forms of companies. For example, it implements rules concerning prohibition of the so-called concealed repayment of shareholders’ contributions, which shall apply only to LLCs and surprisingly not in relation to joint-stock companies and other corporate legal forms with limited liability available in Slovakia.
The Amendment also implements a relatively extensive “company in crisis regulation” which is significantly inspired by Austrian law concerning the repayment of the equity capital and practically extends already existing subordination of claims of creditors – shareholders of capital companies to situations preceding insolvency.
The proposed amendments concerning directly the Act on Bankruptcy and Restructuring are not problematic. The amendment is aimed at the common practice where restructuring administrators refuse to grant the voting rights to creditors, including tax authorities, who have valid execution titles (e.g. final judgements), thereby effectively excluding these creditors from the restructuring process, which in turn creates room for various manipulations. Pursuant to the amendment, such creditors shall be entitled to ask the court to reverse the administrator’s decision on the refusal of voting rights (a similar procedure is already implemented in bankruptcy proceedings).
The Amendment introduces a stricter duty of directors to pay a “penalty” in case of breach of their duty to file for bankruptcy, with the aim to secure enough liquid means to cover the costs of opening of bankrutpcy. As legislator’s response to the requests of creditors in construction industry, the amendment also significantly strengthens the position of creditors who benefit from a contractual retention of title agreement (these shall have similar position as other secured creditors).