What is the primary legislation governing insolvency and restructuring proceedings in your jurisdiction?
In Slovenia, insolvency and restructuring proceedings are governed by the Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act (Official Gazette of the Republic of Slovenia 126/2007).
On an international spectrum, is your jurisdiction more creditor or debtor friendly?
In general, Slovenia is considered to be more creditor friendly. The primary purpose of insolvency and restructuring proceedings of insolvent companies is to ensure the maximum repayment of creditors’ claims.
Do any special regimes apply to corporate insolvencies in specific sectors (eg, insurance, pension funds)?
Special insolvency regimes apply to:
- banks (based on the Resolution and Compulsory Dissolution of Credit Institutions Act);
- investment funds;
- brokerage firms; and
- energy service providers.
Are any reforms to the legal framework envisaged?
No reforms to the legal framework are currently envisaged.
Director and parent company liability
Under what circumstances can a director or parent company be held liable for a company’s insolvency?
Slovenian insolvency legislation differentiates between two types of director liability:
- liability towards the company; and
- liability towards the company’s creditors.
- perform their duties with professional due diligence;
- strive for short and long-term solvency of the company; and
- ensure compliance with insolvency and financial operations legislation (eg, rules concerning business finance and corporate governance, risk management, liquidity risk management, monitoring and capital adequacy).
Supervisory boards must supervise the company’s solvency positions and the directors’ discharge of their duties.
Directors and supervisory board members may be held jointly and severally liable for any damages caused by their failure to properly discharge their respective duties towards the company. The business judgement rule is used to determine whether a director’s duties were performed with required due diligence. Under certain circumstances, creditors may bring an action on behalf of a company for the reparation of damages.
Direct liability towards a company’s creditors is limited to bankruptcy proceedings. Directors and supervisory board members are liable for any shortfall that the creditors suffer when trying to recover their claims in full in bankruptcy proceedings if they violate certain insolvency legislation rules (eg, equal treatment of creditors or timely reporting on financial restructuring measures). Directors and supervisory board members bear the burden of proving that a shortfall is not the result of a failure on their part to discharge their duties.
Parent company liability is prescribed as part of the general Companies Act, which also applies outside of insolvency and restructuring procedures to solvent companies. A parent company may be held liable under the piercing-the-corporate-veil rules or where it instructs a subsidiary to enter into a harmful transaction. Damages to a subsidiary must be compensated in the same financial year, otherwise the parent company (as well as its directors) may be held liable for damages suffered by the subsidiary. Directors of a subsidiary must disclose harmful instructions in annual reports or face being held liable for damages suffered by the subsidiary.
What defences are available to a liable director or parent company?
Directors and supervisory board members are not liable towards the company if they can prove that they could not have prevented, eliminated or avoided the consequences which led to damages. Further, they are not liable towards the company if they can prove that they performed their duties with professional due diligence. In accordance with Supreme Court case law, due diligence is assessed on the basis of the business judgement rule.
Directors and supervisory board members are not liable towards creditors if they can prove that damages occurred due to the actions of other people which the directors could not have prevented, eliminated or avoided even if they had acted with professional due diligence. Further, each director or supervisory board member is free of liability towards creditors if:
- they can prove that they could not have performed the necessary actions individually, but suggested at the management or supervisory board meeting that certain actions should be carried out, which was opposed by other managers or board members;
- the director or member of the supervisory board responsible for the company’s financial operations failed to prepare the necessary materials; or
- a director was unaware of or could not have prevented non-compliance, even though they performed their duties with professional due diligence.
What due diligence should be conducted to limit liability?
Directors or supervisory board members must act with professional due diligence at all times. Further, once the company’s insolvency is established internally, the Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act (Official Gazette of the Republic of Slovenia 126/2007) should be strictly followed to avoid or limit any damages towards the company’s creditors.
Position of creditors
Forms of security
What are the main forms of security over moveable and immoveable property and how are they given legal effect?
The main forms of security over real estate are mortgages and maximum mortgages. Mortgages are perfected with their entry in the land register. A mortgage agreement must be concluded in a written form with the signature of the pledgor notarised; however, mortgages are generally concluded in the form of a directly enforceable notarial deed. Maximum mortgages, which may be used for securing several existing and future claims of an individual creditor (up to a maximum secured amount), may also be concluded under Slovenian law, in which case the same perfection requirements apply.
The main forms of security over movable property are pledges, fiduciary transfers of title and retention of title arrangements. Possessory pledges, which require the delivery of pledged items are rare in practice; non-possessory pledges are more common. For certain assets (eg, motor and rail vehicles, equipment, stock and livestock), registration in a public register is required for a pledge to be perfected.
Pledges are also created on shares. For shares in a limited liability company, the pledge agreement must be concluded in the form of a notarial deed and entered into the court register. Shares in corporations are validly created by their registration in the securities register.
Receivables are also commonly pledged, either by the pledge of receivables or by the fiduciary assignment of claims. The former is created by notification of the underlying debtor and the latter by a written agreement. If the creditor wishes to obtain the right to a separate settlement in insolvency, the fiduciary assignment of claims must be concluded in the form of a notarial deed.
Ranking of creditors
How are creditors’ claims ranked in insolvency proceedings?
Creditors’ claims in insolvency proceedings are ranked as follows:
- secured creditors (as the same collateral may be used for securing several creditors’ claims, creditors’ claims are also ranked in relation to individual collateral);
- priority unsecured claims (eg, costs of bankruptcy proceedings; six-month back salaries, wage compensations and other employment-related payments, as well as taxes relating to such payments and social security contributions);
- unsecured claims;
- subordinated claims; and
- shareholder claims and equity interests.
Can this ranking be amended in any way?
In general, individual creditors of an insolvent debtor have few legal ways in which to improve their ranking to the detriment of other creditors without the latter’s consent. Nonetheless, individual creditors may decrease the rank of their own claim (ie, any creditor can subordinate their claim in agreement with the debtor). Intercreditor agreements, concluded between all creditors of a particular type (eg, all banks or agreements where a pari passu clause is agreed) are common. These may also include provisions on changes to a particular creditor’s rank.
What is the status of foreign creditors in filing claims?
Foreign creditors may file claims, and are treated, in the same way as domestic creditors. However, information on insolvency proceedings is available only in Slovenian.
Are any special remedies available to unsecured creditors?
No special remedies are available to unsecured creditors.
By what legal means can creditors recover unpaid debts (other than through insolvency proceedings)?
Before the start of insolvency proceedings, debt is recovered through enforcement proceedings; however, the beginning of insolvency proceedings (eg, a bankruptcy procedure or compulsory settlement) results in an automatic stay on enforcement proceedings.
Nonetheless, except in certain circumstances, out-of-court realisation of collateral (where generally applicable) continues to be a possibility in insolvency proceedings.
Is trade credit insurance commonly purchased in your jurisdiction?
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.
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.
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.
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.
What are the eligibility criteria for initiating restructuring procedures? Are any entities explicitly barred from initiating such procedures?
Initiating restructuring proceedings is available to companies which are:
- already insolvent (compulsory settlement proceedings); and
- likely to become insolvent in the next year (preventive restructuring proceedings).
Further, any company can initiate informal restructuring of its debt via an agreement with its creditors.
Certain entities are barred from the initiation of restructuring proceedings. Compulsory settlement proceedings cannot be initiated over credit institutions, insurers, investment fund management companies or brokerage companies. Micro companies are barred from initiating preventive restructuring procedures; on the other hand, simplified compulsory settlement (which is governed by fewer procedural rules and requires less court involvement) is available only to micro companies and sole entrepreneurs in certain instances.
What are the primary formal restructuring procedures available in your jurisdiction and what are the key features and requirements of each?
The main formal restructuring proceedings under the Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act (Official Gazette of the Republic of Slovenia 126/2007) are:
- compulsory settlement, which is available only to insolvent companies; and
- preventive restructuring proceedings, which are available only to companies that are not yet insolvent, but are likely to become insolvent within the year.
Procedures for insolvent companiesCompulsory settlement is the primary restructuring procedure in case of an insolvent debtor. It may be initiated only where:
- further business operation of the debtor is possible; and
- the debtor’s creditors are provided with more favourable conditions for repayment of their claims than they would be in case of bankruptcy.
Certain additional rules and procedures apply only in compulsory settlement proceedings of small, medium and large companies. These include the restructuring of secured creditors and the possibility of creditors initiating compulsory settlement proceedings.
In simplified compulsory settlement proceedings, the court involvement is diminished and several provisions which govern regular compulsory settlement proceedings do not apply (eg, there is no lodging of claims procedure and no need to provide auditors’ opinions). Simplified compulsory settlements are available only to micro companies and sole entrepreneurs.
Procedures for companies that are not yet insolventA preventive restructuring procedure may be initiated in cases where a debtor is not insolvent, but is likely to become insolvent within the next year. There is a presumption that insolvency is likely if the debtor acquires consent to start preventive restructuring proceedings from its financial creditors which together hold at least 30% of the debtor’s total financial debt. Only the debtor’s financial obligations may be restructured in preventive restructuring proceedings.
How are restructuring plans formally approved?
Compulsory settlement proceedings are usually initiated by the debtor. In such case, the proposal to initiate compulsory settlement must be accompanied by a financial restructuring plan and the opinion of a certified business valuator. The creditors may also propose:
- their own financial restructuring plan if they initiate the compulsory settlement proceedings themselves; or
- a competing financial restructuring plan in case of debtor-initiated compulsory settlement proceedings.
In the latter case, the creditors’ proposed plan has absolute priority over the debtor’s plan, and only the former is voted on. When deciding on the start of compulsory settlement proceedings, the court merely verifies that the financial restructuring plan contains all elements as required by the law (including the opinion of a certified valuator that the plan is more than 50% likely to succeed in restructuring the debtor and in providing better repayment of the creditors than bankruptcy), but does not itself perform a viability test. The financial restructuring plan is formally approved by the creditors’ vote on the compulsory settlement.
In preventative restructuring proceedings, the debtor files the proposal to initiate the proceedings, but the financial restructuring plan is agreed at a later stage between the debtor and the debtor’s financial creditors. Preventive restructuring requires the approval of creditors holding at least 75% of financial claims (a separate majority of 75% of secured financial claims is required for the restructuring of secured claims). The financial restructuring plan must be reviewed and approved by an auditor. The financial restructuring plan is formally approved by the court, whereas the court merely verifies that the formal requirements have been met (eg, auditor approval and the required majority) and that the financial restructuring plan has been agreed within the prescribed statutory time limit.
What effects do restructuring procedures have on existing contracts?
Restructuring proceedings do not generally affect existing agreements. Upon the commencement of compulsory settlement proceedings, the debtor acquires the right to withdraw from mutually unfulfilled bilateral contracts based on the court’s consent, which will be given if termination of an agreement is required for the implementation of the financial restructuring plan. The creditors are not given such right of termination by law; however, individual contracts often include provisions under which such contracts can be terminated in case of a debtor’s insolvency.
What is the typical timeframe for completion of restructuring procedures?
Several deadlines are stipulated under the law. As such, the compulsory settlement procedure usually takes between nine and 12 months. In preventative restructuring proceedings, the agreement on financial restructuring must be concluded within three months for small and medium companies and five months for large companies. These deadlines can be extended with the creditors’ consent, but such extensions cannot exceed two months for small and medium companies and three months for large companies.
What is the extent of the court’s involvement in restructuring procedures?
The petition to initiate compulsory settlement proceedings or preventative restructuring proceedings is filed with the court, which verifies that the formal requirements have been met and issues the decision on the commencement of the relevant proceedings. The court also formally approves the restructuring plan in both the compulsory settlement and the preventative restructuring proceedings.
What is the extent of creditors’ involvement in restructuring procedures and what actions are they prohibited from taking against the company in the course of the proceedings?
Creditors can file the motion to commence compulsory settlement proceedings without the debtor’s involvement and can also propose their own financial restructuring plan where the debtor initiated the compulsory settlement proceedings.
In a compulsory settlement procedure, a so-called ‘creditors’ committee’ is formed, which comprises the largest creditors of the debtor. The role of the creditors’ committee is to:
- decide on opinions of or consent to matters prescribed for by law;
- review the insolvency administrator’s reports;
- perform other responsibilities if so provided by law.
Creditors can force a debt/equity swap and wipe out existing shareholders in compulsory settlement proceedings. They can also assume management of the debtor in certain cases.
Creditors cannot initiate any new enforcement proceedings against an insolvent debtor and ongoing enforcement proceedings regarding unsecured claims are stayed. In preventive restructuring proceedings, the same applies to financial claims.
Under what conditions may dissenting creditors be crammed down?
Dissenting creditors may be crammed down in both preventive restructuring and compulsory settlement proceedings. Preventive restructuring and compulsory settlement require the consent of the prescribed majority of creditors; therefore, if the prescribed majorities and other procedural rules are observed, approved preventive restructuring and compulsory settlement are binding on dissenting creditors.
The general required majority for confirmation of compulsory settlement is the consent of the creditors which together hold at least 60% of the weighed claims subject to compulsory settlement. Some types of compulsory settlement require higher majorities. In case of a preventive restructuring procedure, the agreement on financial restructuring is binding for all financial creditors, if confirmed by financial creditors whose claims represent at least 75% of the aggregated amount of unsecured financial claims. The secured financial creditors may also be crammed down – the financial restructuring plan is also effective for secured financial claims if it is additionally confirmed by financial creditors whose claims represent at least 75% of the aggregated amount of secured financial claims.
Director and shareholder involvement
What is the extent of directors’ and shareholders’ involvement in restructuring procedures?
In case of preventive restructuring proceedings, the legislation does not prescribe a change in the company’s management. However, such change may be agreed outside formal proceedings.
In case of compulsory settlement, the company’s management may remain in position; however, significant limitations are imposed regarding its powers. In addition, under certain circumstances, creditors may require that the creditors’ committee be authorised to manage the debtor instead of its management.
The main obligation of an insolvent company’s management is to declare insolvency in a timely manner; otherwise, exposure of liability for damages exists. Further, the management must prepare the proposal to:
- initiate the compulsory settlement (this can also be initiated by the creditors);
- prepare the restructuring plan; and
- execute restructuring measures or, if restructuring is not viable, file for bankruptcy.
Shareholder involvement in restructuring proceedings is limited. Under certain conditions, existing shareholders can be partially or wholly eliminated from the debtor’s shareholder structure (mainly achieved through debt-to-equity operations).
Are informal work-outs available for distressed companies in your jurisdiction? If so, what are the advantages and disadvantages in comparison to formal proceedings?
Informal work-outs are available. The main disadvantages in comparison to formal proceedings are that:
- no cram down of the dissenting creditors is available (the consent of all relevant creditors is required); and
- there is no automatic stay on the enforcement proceedings.
The main advantages of such proceedings are:
- flexibility for the creditors and the debtor; and
Setting aside transactions
What rules and procedures govern the setting aside of an insolvent company’s transactions? Who can challenge eligible transactions?
As a general rule, according to the Obligations Code, any creditor can challenge legal transactions of a debtor where it can be established that the transaction was to the creditors’ detriment. These rules apply in all cases when the debtor has insufficient funds to fulfil the creditor’s claim. The challenge period is generally one year (three years for transactions with certain affiliates or where little or no consideration was paid).
However, in bankruptcy proceedings, specific provisions of the Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act (Official Gazette of the Republic of Slovenia 126/2007) apply to the setting aside of an insolvent company’s transactions. In bankruptcy proceedings, any participating creditor may challenge the insolvent company’s legal actions and transactions. The same right to challenge is also given to the bankruptcy manager. In case of any legal action or transaction by the debtor in the challengeable period (generally 12 months before filing for bankruptcy proceedings), such legal act or transaction may be challenged if it resulted in:
- a reduction in the net value of the assets of the debtor in such a way that other creditors may receive lower payment of their claims as if the legal act or transaction had not been performed; or
- more favourable conditions for one of the creditors for the payment of their claim against the debtor.
In order for the challenge to be successful, it must be proven that the person who benefited from the legal act in question had known or should have known that the debtor was insolvent. There are certain statutory legal presumptions that make it easier to prove the necessary requirements for the challenge of a transaction.
Operating during insolvency
Under what circumstances can a company continue to conduct business during an insolvency procedure?
In bankruptcy proceedings, the business activities which the debtor can perform are limited to the management and liquidation of the bankruptcy estate. As an exemption to this rule, an insolvent debtor may continue to conduct business provided that more favourable conditions for the disposal of its assets as a business entity are achieved, subject to court confirmation.
In compulsory settlement proceedings, the debtor’s business activity is limited to its regular business operations. The insolvent debtor cannot:
- dispose of its assets, except to the extent necessary for carrying out its regular business activities;
- incur loans;
- give guarantees; or
- perform transactions or other legal actions that would result in the unequal treatment of creditors or the disruption of the implementation of financial restructuring.
Notwithstanding the above, if the debtor obtains court consent, it may:
- dispose of assets which are not needed for its business, provided that the sale of such assets is envisaged in the financial restructuring plan; and
- incur loans, to the maximum amount of liquid assets needed to finance its regular business.
Preventative restructuring proceedings impose no statutory limitations on the debtor’s operations.
Stakeholder and court involvement
To what extent are relevant stakeholders (eg, creditors, directors, shareholders) and the courts involved in any business conducted during an insolvency procedure?
In case of bankruptcy proceedings, the bankruptcy manager is responsible for conducting any necessary business (provided that conditions to conduct any business are fulfilled), and their actions will be monitored and approved by the court. The role of the creditors’ committee in bankruptcy proceedings is to:
- give opinions and issue consent where envisaged by the law;
- review the bankruptcy manager’s reports; and
- perform other responsibilities if so provided by the law.
In compulsory settlement proceedings, the company’s management is responsible for conducting business, but limitations apply. The court must consent to an insolvent debtor conducting business outside the scope of its regular business activities. The role of the creditors’ committee is the same as in bankruptcy proceedings, as set out above. In certain cases, the creditors’ committee may be authorised by the court to run the insolvent debtor’s operations. The involvement of shareholders and the supervisory board is limited to actions which are specifically prescribed by insolvency legislation.
Preventive restructuring proceedings impose no particular restraints on an insolvent debtor’s management or shareholders.
Can an insolvent company obtain further credit or take out additional secured loans during an insolvency procedure?
As a general rule, insolvent debtors cannot obtain further credit; however, exemptions to this rule apply. In bankruptcy proceedings, the insolvent debtor can obtain credit subject to the court’s consent and only where the court has allowed the continuation of the debtor’s business operations. In compulsory settlement proceedings, the insolvent debtor may obtain further credit, subject to the court’s approval, but only to the maximum amount of liquid assets needed to finance the debtor’s regular business.
Effect of insolvency on employees
How does a company’s insolvency affect employees and the company’s legal obligations to employees?
In bankruptcy proceedings, the debtor’s employment relationships will be terminated, as it will generally cease to exist once the proceedings are completed. Special (simplified) rules apply regarding the termination of employment contracts in bankruptcy proceedings, whereby the bankruptcy manager may terminate the employment contracts of employees whose services are no longer needed within shorter notice periods than would normally apply. Compulsory settlement has no effect on employment relationships, as the debtor continues to operate. Nonetheless, employment contracts may have a shorter termination period in compulsory settlement if the termination is envisaged in the financial restructuring plan.
Employee claims have special status in insolvency procedures. Salaries and wage compensations for the six months prior to the commencement of an insolvency procedure, as well as other employee claims for taxes and social security contributions, are paid as priority unsecured claims. Preventive restructuring procedures have no effect on employee claims.
Recognition of foreign proceedings
Under what circumstances will the courts in your jurisdiction recognise the validity of foreign insolvency proceedings?
Foreign insolvency proceedings are generally recognised in Slovenia, subject to conditions set out in the insolvency statute and the general conditions on the recognition of foreign court judgments. However, these rules are not applicable in cases:
- which fall within the scope of the EU Insolvency Regulation (1346/2000), which is directly applicable in Slovenia since it is a member of the European Union; or
- where an international treaty applies.
Slovenia has also adopted the United Nations Commission on International Trade Law Model Law on Cross-Border Insolvency.
Domestic courts may generally refuse to recognise foreign insolvency proceedings or a request by a foreign court if this could have a negative impact on Slovenia’s sovereignty, security or public interest.
Winding up foreign companies
What is the extent of the courts’ powers to order the winding up of foreign companies doing business in your jurisdiction?
The courts’ power is limited to companies or subsidiaries which:
- are registered in Slovenia;
- have their centre of main interest in Slovenia; or
- have assets in Slovenia.
Centre of main interests
How is the centre of main interests determined in your jurisdiction?
A company’s centre of main interests is determined in accordance with the EU Insolvency Regulation, where applicable.
Under Slovenian law, if not proven otherwise, a company’s centre of main interest is determined as the country in which it has its registered seat.
What is the general approach of the courts in your jurisdiction to cooperating with foreign courts in managing cross-border insolvencies?
According to Slovenian insolvency legislation, the courts must cooperate with foreign courts in managing cross-border insolvencies to the highest extent possible. No special form for cooperation is prescribed.
Domestic courts are entitled to:
- exchange information directly with a foreign court or administrator;
- request information or legal assistance directly from a foreign court or administrator; and
- provide information or carry out acts of legal aid on the basis of a direct request from a foreign court or administrator.