I INSOLVENCY LAW, POLICY AND PROCEDURE
i Statutory framework and substantive law
The consequences and effects of insolvency and general rules of insolvency proceedings are governed by the Insolvency Act (Financial Operations, Insolvency Proceedings and Compulsory Winding-up Act) (the Insolvency Act),2 which sets forth the fundamental legal framework of insolvency proceedings in Slovenia. Apart from the Insolvency Act, several acts regulate sector-specific insolvency regimes in case of insolvency of a bank, an insurance company, a payment system, a broker dealer or a clearing company and an investment fund manager.
Pursuant to the Insolvency Act, the first phase of the proceedings are preliminary insolvency proceedings that are initiated with the filing of a motion for initiation of the procedure. Such motion can generally be filed by the insolvent debtor, an unlimitedly liable shareholder of the debtor, a creditor (who demonstrates its claim against the insolvent debtor with payment of which the insolvent debtor is in default for more than two months) or, in some cases, the Public Guarantee, Maintenance and Disability Fund. The proposing party has to demonstrate that the prerequisites for commencement of insolvency proceedings have been met. The main prerequisite, as set forth by the Insolvency Act, is that the debtor is actually insolvent. Insolvency is a situation in which the debtor: is not able to settle all its liabilities within a longer period of time, which fall due within such a period of time (continuous cash-flow insolvency); or becomes long-term balance-sheet insolvent.
The initiation of insolvency proceedings gives rise to certain legal consequences for the insolvent debtor and its creditors, which somewhat vary as to the type of insolvency that was initiated.
Both in a compulsory settlement and bankruptcy proceeding there are various rules as to how the claims are effected by official initiation of the proceeding, for example, generally (with certain limitations) there is automatic set-off of claims of individual creditors against the insolvent debtor and counterclaims of the insolvent debtor against such individual creditors; non-monetary claims are converted to monetary claims; conversion of claims with occasional duties into lump-sum claims; conversion of claims expressed in foreign currency to claims expressed in euros; change of the interest rate in the bankruptcy proceeding, etc.
In regard to the creditors’ claims, the Insolvency Act also provides for distributional priorities to the benefit of the debtors with certain types of claim or certain debtors. First, the Insolvency Act recognises secured claims, which are secured with the right to separate settlement from sale of certain assets, and secondly, unsecured claims, which are repaid from the general bankruptcy estate (which is not subject to the right of a separate settlement). Certain unsecured claims, however, are assigned a priority repayment right. The Insolvency Act recognises eight classes of unsecured priority claims, all of which are related either to employee claims or taxes and other duties or restructuring loans, which are backed by a state guarantee.
The right of creditors to challenge the legal acts of their debtors under general civil law rules3 is, upon the commencement of bankruptcy proceedings, replaced by their right to challenge legal acts of the insolvent debtor in accordance with the provisions of the Insolvency Act.
Pursuant to the Insolvency Act, all legal acts and actions of the insolvent party (the same also applies to omissions), including, for example, conclusion of agreements, payments, deliveries made to the other party, etc., concluded or performed in the ‘suspect period’ of 12 months preceding the filing of the petition for commencement of bankruptcy proceedings until commencement of such proceedings may be challenged in bankruptcy proceedings by other creditors or the bankruptcy administrator. The right to challenge those acts is subject to a statute of limitations and has to be exercised within six months after the commencement of bankruptcy proceedings (with some exceptions).
The bankruptcy administrator or other creditors may challenge any legal act or action of the debtor that it concluded or performed in the suspect period if (the same applies mutatis mutandis for omissions) it resulted either in reducing the net value of the assets of the insolvent debtor so that, as a consequence, other creditors’ claims may be satisfied in a proportionally smaller share; and the person to the benefit of which the act was performed, was aware or should have been aware of the debtor’s insolvency.
If the legal act of the insolvent debtor is successfully challenged, the person to the benefit of which the voidable legal act was performed is obliged to return what it received on the basis of such act or, if this is not possible, the value of what it received.
Liability of the management
The Insolvency Act, among other things, prescribes obligations of the company and its management and supervisory board in the event of insolvency (and also prescribes very strict deadlines for each action to be performed). Failure to comply with such duties generally leads to joint and several liability of the members of the management4 towards the creditors for any damages arising as a result of breach of their obligations provided for in the Insolvency Act.
The Insolvency Act, particularly after the 2013 and 2016 amendments, provides for precautionary restructuring, as well as for compulsory settlement, and encourages greater restructuring and deleveraging, compared to the winding up of an insolvent debtor. However, in spite of the fact that the legislator has provided sufficient options to avoid bankruptcy, the implementation of such options is, in practice, often complicated for several reasons, including lengthy and inefficient proceedings and a lack of judicial capacity owing to the high number of insolvency cases as a result of the financial crisis of 2009.
iii Insolvency procedures
Generally speaking, there are two types of insolvency proceeding provided for in the Insolvency Act with regard to an insolvent company. The first is the bankruptcy proceeding, the purpose of which is typically management and sale of assets of the bankrupt debtor, division of proceeds (bankruptcy estate) to ordinary, priority and secured creditors of the insolvent company, payment of costs of the proceeding and finally winding up of the company. The bankruptcy administrator is appointed by the court and acts as manager and legal representative of the bankrupt debtor. A creditors’ committee may be appointed to supervise the bankruptcy proceeding, which is also supervised by the court, all to the extent provided for in the Insolvency Act.
The other form of insolvency proceeding is compulsory settlement proceeding. The main difference is that compulsory settlement is a way to restructure the debt of the company without termination of the company as a legal entity. In compulsory settlement, a compulsory settlement administrator is appointed by the court (in case of creditors’ proposal for compulsory settlement the administrator may be appointed based on their proposal), but he or she does not take a role of manager of the company (the previous management of the company typically retains their role as management; however, their powers and the general business operations of the insolvent company are limited).
Apart from the two above-mentioned types of insolvency procedure, the Insolvency Act, since 2013, also provides for a procedure of precautionary restructuring. Such proceeding is intended for situations where it is likely that the debtor shall (in a period of one year) become insolvent.
The main difference between bankruptcy and compulsory settlement proceedings is that the bankruptcy proceeding finishes with termination of the company as the legal entity. In general, the main activities within the bankruptcy proceeding are:
- a preliminary proceedings: where the court decides if the formal prerequisites for initiation of the proceeding are met and officially initiates bankruptcy;
- b registration and verification of claims, which may, in practice, take a few months. Each creditor may register its claim (and rights to separate settlement and separation rights) in the bankruptcy proceeding within three months after a notice on commencement of the proceeding is published. The consequence of non-registration or incorrect registration of claims and the rights to separate settlement is usually loss of claims and separation rights;
- c management and sale of the assets of the bankruptcy debtor: the assets are sold in accordance with specific rules of the Insolvency Act; and
- d distribution of the bankruptcy estate: the estate is divided in different phases in accordance with specific rules of the Insolvency Act.
Generally, the high-level outline of the compulsory settlement procedure is in phases of preliminary procedure and registration and verification of claims similar to the bankruptcy. After the final list of recognised claims is issued it is followed by:
- a A process with an objection against the conducting of compulsory settlement if either the administrator or any of the creditors file an objection that the prerequisites for compulsory settlement proceeding are not fulfilled. If the court agrees with the objection against the compulsory settlement and finds that the substantial prerequisites are not fulfilled, the court may commence bankruptcy proceedings against the insolvent debtor.
- b The process of voting for or against compulsory settlement and confirmation of compulsory settlement by the court (if there is no founded objection filed against compulsory settlement and if (in a typical compulsory settlement proceeding) at least 60 per cent of the all votes are cast for the confirmation of compulsory settlement). If compulsory settlement is not confirmed, bankruptcy proceedings should be commenced.
As a rule (in case of a compulsory settlement proceeding concernign a small, medium-seized or large enterprise), two different types of compulsory settlement proposals may be made. First, restructuring of ordinary claims (haircut or deferral of maturity of ordinary claims or both), while secured claims remain unaffected. In this case, a haircut or prolongation of maturity of all ordinary claims (both financial and non-financial claims) may be proposed or, alternatively, this may be limited to financial ordinary claims (i.e., financial claims are affected in such a case, while other ordinary claims remain unaffected). If a secured claim is not paid in whole from the value of the collateral, the compulsory settlement applies to the unpaid amount of the claim. Secondly, restructuring of secured claims (in addition to restructuring of ordinary claims). As a rule, the position of secured creditors in a compulsory settlement is stronger than the position of ordinary creditors. For secured claims (to the extent that such claims are actually secured) a haircut or reduction of the amount of the principal may not be proposed, but only prolongation of maturity and reduction of interest. If restructuring of secured claims is proposed, the compulsory settlement has to be voted for by sufficient majority of both ordinary and of secured creditors.
The simplified compulsory settlement
The simplified compulsory settlement is intended for smaller (micro) companies and private entrepreneurs because the normal compulsory settlement would otherwise be too expensive for them. In case they could not afford to carry out the normal compulsory settlement, they would be forced into the bankruptcy proceeding. The simplified compulsory settlement is cheaper, as in this proceeding, a compulsory settlement administrator in not nominated, nor is an auditor or appraiser. Other main characteristics of this procedure include that registration of the claims of the creditors is not needed, therefore the claims are not tested (so there is not list of registered claims) and that a creditors’ committee is not formed. Otherwise, the provisions of the normal compulsory settlement apply mutatis mutandis.
The 2013 amendment of the Insolvency Act established a new pre-insolvency form of proceeding (i.e., a procedure of pre-emptive restructuring). Such proceeding is intended for a situation where it is likely that the debtor shall, in a period of one year, become insolvent.
The motion for initiation of such a preventive restructuring proceeding can be filed only by the debtor itself and has to include a list of all financial claims against the debtor and the auditor’s report encompassing a review of the basic list of financial claims, in which the auditor has given its audit opinion without reservation, and a notarised statement of consent of creditors having at least 30 per cent of ordinary claims that they submit before proceedings commence. The effect of commencement of the proceeding is a ‘standstill’ for secured and unsecured financial claims.
If an agreement between the debtor and creditors having three-quarters of unsecured financial claims and (if the proposal applies to secured claims) secured creditors having three-quarters of secured financial claims is reached, the court should issue a resolution on confirmation of the agreement. This agreement has effect for all the creditors who consented to the conclusion of the agreement and for other creditors with unsecured financial claims (haircut or postponing of maturity or both) or for those with secured financial claims (change of interest rate or postponing of maturity or both).
Slovenian law also recognises secondary insolvency proceedings, which will be described in more detail in subsection vii, infra.
iv Starting proceedings
The motion for initiation of the bankruptcy proceeding is typically filed either by the debtor or the creditor. The creditor has to prove with a degree of probability its claim vis-à-vis the debtor (against which it is proposed that bankruptcy proceedings should be commenced)and that the debtor has been in default (delay of payment) of that claim for more than two months.
Alternatively, the compulsory settlement procedure can generally be initiated only on the motion of the debtor or personally liable shareholder. However, the compulsory settlement for small, medium and large companies (but not micro companies) can be initiated upon motion of the creditors, which jointly have one-fifth of all financial claims. Such creditors are, for example, banks, which have all the necessary information and infrastructure, and can prepare an adequate restructuring plan later on.
The simplified compulsory settlement is initiated upon motion of a debtor or a personally liable shareholder of the debtor and the precautionary restructuring upon the motion of a debtor.
v Control of insolvency proceedings
The final decision-making in insolvency proceedings is conferred upon the competent district court, more precisely, a district court judge. The court supervises the process and gives consent to all major decisions of the insolvency administrator (and in some cases also creditors). The Higher Court in Ljubljana has the exclusive appellate jurisdiction for the territory of Slovenia.
The compulsory settlement procedure is supervised and the bankruptcy procedure is managed by the administrator who is, as a rule, named by the court. The administrator’s role is managing the estate or performing other roles, predominantly aimed at safeguarding and executing creditors’ interests.
In the compulsory settlement procedure, the administrator supervises the business activities of the debtor. The insolvent debtor has to grant the administrator access to all the information necessary for effective supervision and enable inspection of all documentation and business records. On the other hand, in the bankruptcy procedure, the administrator manages the business of the insolvent debtor and represents the insolvent debtor, if necessary. Its functions include all necessary acts in connection with testing of claims, clawback and damages actions, all acts required for realisation of the bankruptcy estate and other acts and transitions, as may be required from time to time.
vi Special regimes
Slovenian law provides for several sector-specific insolvency regimes, namely in case of insolvency of a bank, an insurance company, a payment system, a broker dealer or a clearing company and an investment fund manager. The specifics of such insolvency proceedings are governed by sector-specific legislation and not by the Insolvency Act. However, there are very few cases of special sector-specific insolvency procedures in Slovenia and there is essentially no established practice.
vii Cross-border issues
Secondary insolvency proceedings in Slovenia are to be distinguished with regards to the country of plenary insolvency proceedings. Namely, if the plenary insolvency proceedings are pending in an EU Member State, the secondary insolvency proceedings are governed by EU law,5 and if the plenary insolvency proceedings are pending in a third country, the secondary insolvency proceedings are governed by the Insolvency Act.
II INSOLVENCY METRICS
In the first quarter of 2016, GDP growth continued as a result of a notable strengthening of exports. GDP was 0.5 per cent higher than in the last quarter of 2015 and 2.5 per cent higher than in the same period of 2015. The GDP growth can be attributed mainly to the growth in exports, boosted by rising foreign demand and a competitive tradable sector. The labour market situation continues to improve compared to the years 2014 and 2015. The number of registered unemployed declined significantly in the first quartile of 2016. A total of 102,289 people were registered as unemployed as of mid-2016; a drop of 9 per cent compared with the previous year.
The decline in domestic non-banking sector loans, which has been a trend for a few years, is slowing predominantly because of the increased borrowing of the corporate sector abroad. In 2015, company performance improved significantly for the second consecutive year, and the indebtedness and overindebtedness of the corporate sector declined further. In addition, the corporate sector has undergone intense deleveraging since 2013. The ability of companies to repay their debts has improved significantly in the last three years.6
In the first half of 2016, four compulsory settlement procedures, 70 simplified compulsory settlement procedures and 109 bankruptcy procedures were commenced. The number of opened insolvency proceedings has continued to decline since 2013.
III PLENARY INSOLVENCY PROCEEDINGS
T–2 d.o.o. is one of the leading Slovenian telecommunication companies with the third-largest market shares in the Slovenian market of broadband internet services, IP telephony and IP TV.7 T–2 underwent a compulsory settlement proceeding that was initiated in January 20118 because the company was overindebted and therefore insolvent. As a consequence, a compulsory settlement procedure was commenced and also concluded in 2012.9 The restructuring plan of T–2 envisaged haircut of the unsecured creditors’ claims to 44 per cent and deferment of their payment to the year 2021 (with no fixed payment schedule). The restructuring plan also explicitly indicated that the company had to promptly service the debt to the secured creditors (also those with pledges on the telecommunication network of the debtor) until the sale of the network by the end of 2014. Furthermore, the restructuring plan envisaged business restructuring with fixed milestones in the business plan that included measurable objective goals, like the number of clients, market shares, etc., as well as financial goals. Since a part of the financial plan was also prompt service of the secured claims until the sale of the pledged property, the debtor had to generate enough income to meet the financial goals as well.10
During the compulsory settlement, a (minor) debt-to-equity swap was executed, and a second debt-to-equity swap was performed in 2012, when the claims in the amount of €17.7 million were converted. The result of the debt-to-equity swap was that the former shareholders lost their shares and new shareholders entered into the shareholders structure of T–2.
After the compulsory settlement, T–2 failed to service the outstanding debt (loans) of the secured creditors and also failed to achieve both the financial and non-financial goals provided for in the restructuring plan. The secured creditors (four commercial banks) consequently induced pressure on T–2 in order to force the company to promptly service the financial debt (in the amount of approximately €107 million); however, the debtor argued that the generated income of the company cannot serve as source for payment of the secured creditors. Under T–2’s view the only source for their repayment can be the proceeds from the pledged property, while the unsecured part of their claims can be repaid as unsecured claims (i.e., until 2021).
In early 2013 the banks first attempted a civil execution proceeding against the debtor; however, since T–2 filed an objection against the decision of the court (that is still pending), the civil execution procedure was, in principle, blocked. Furthermore, the debtor filed a lawsuit against the bank, in which it had been claiming that the established security interest was null and void.
In mid-2014, the secured creditors filed a motion to initiate bankruptcy proceedings against T–2 because of continuous insolvency. The motion was, inter alia, based on refutable assumptions on the debtor’s insolvency that were introduced with the amendment of the Insolvency Act in 2013. On 16 September 2014, the District Court in Ljubljana initiated bankruptcy proceedings against T–211 because of permanent illiquidity. T–2 and its shareholders filed appeals against the first instance court decision and on 29 October 2014 the Higher Court in Ljubljana12 reversed this decision and remanded the case. The reasoning of the court was that, in this case, the secured creditors could only be paid from the collected collateral, not from the generated income. On 22 June 2015, the District Court in Ljubljana13 rejected the motion to initiate bankruptcy proceedings against T–2 (with the same reasoning that arose from the second instance court decision).
The creditors filed an appeal and on 7 August 2015 the Higher Court in Ljubljana14 initiated bankruptcy proceedings against T–2 on the grounds of continuous insolvency. The court based its decision on the new refutable assumptions of insolvency introduced with the amendment of the Insolvency Act in 2013. The court explained that the debtor should fulfil its obligations to the secured creditors until the collateral is collected and that failure to do so could constitute a reason for bankruptcy. The court also established that the debtor had failed to meet its obligations from the restructuring plan in the compulsory settlement, which also constitutes a reason for bankruptcy.
One of the shareholders of T–2 subsequently filed a constitutional appeal against the decision of the Higher Court in Ljubljana. The Constitutional Court first suspended the bankruptcy proceeding15 until the decision of the court. On 5 November 2015, the Constitutional Court reversed the decision of the Higher Court in Ljubljana on initiation of bankruptcy on the grounds that the shareholders of T–2 were deprived of their right to be heard in the proceeding, since an appeal of the creditors was not served to them and they were therefore unable to file a reply.16
The District Court in Ljubljana and the Higher Court in Ljubljana then followed the reasoning of the Constitutional Court, served an appeal of the creditors to the shareholders for reply and upon receipt of the replies, the Higher Court in Ljubljana on 4 March 2016 reinitiated the bankruptcy proceeding against T–2 with essentially the same reasoning as the last time.17 The shareholders of T–2 again filed a constitutional appeal and the Constitutional Court again suspended the bankruptcy proceeding until it has made a final decision.18 The decision is pending.
The Constitutional Court will have to determine whether the Insolvency Act was used in accordance with the Constitution, especially if the refutable assumptions of insolvency, introduced on 15 June 2013 that relate to performance of the debtors under concluded compulsory settlement proceedings, are also applicable in cases where the compulsory settlement was concluded before 15 June 2013, and new motions for insolvency proceedings filed after 15 June 2013.
The T–2 case reveals the consequences of frequent changes to the legislation that are notorious in the Slovenian legal system and highlights that the role of the Supreme Court (the highest instance court) in the insolvency proceedings should be strengthened. One of the main consequences is that, because of limited access to the Supreme Court in the insolvency proceeding, the role of the Constitutional Court is more prominent, which means it is often regarded as an appellate court.
Sava, d.d. (Sava) is a large holding company with considerable stakes in the tourism sector (approximately 30 per cent of the market share) and financial sector (approximately 44 per cent ownership of the eighth-largest Slovenian bank and approximately 40 per cent ownership of the mutual fund Alpen SI).
The main reason for Sava’s insolvency was an impairment of assets as a result of the global financial crisis. Consequently, Sava was permanently illiquid and overindebted, since the liabilities of the company were lower than its assets.19 In 2013, Sava concluded a master restructuring agreement (MRA) with the financial creditor that lapsed in November 2014. Since Sava was unable to repay the entire financial debt when it was due, pursuant to the MRA, a preventive restructuring proceeding was initiated. During this proceeding Sava drafted a restructuring plan that proposed significant haircut of the claims and, to a certain extent, also a debt-to-equity swap and vague commitments regarding the sale of assets.
The largest financial creditor20 (with an exposure of approximately €125 million) opposed this plan and filed a motion for compulsory settlement proposed by creditors, while at the same time an opposing block of financial creditors (supported by the debtors friendly to Sava and its affiliates) also filed its own motion for compulsory settlement proposed by creditors. Since the Insolvency Act does not regulate a situation where two groups of creditors would propose compulsory settlement against the debtor (with different views on the restructuring plan, etc.), the burden to set the procedural rules was passed to the court, which unfortunately did not manage to resolve the controversies that had arisen. The controversies between both groups of creditors escalated to the extent that the proceeding was almost blocked with filing of controversial motions, legal remedies, etc.
The most important conclusion of the court was that there may be more than one group of initiating creditors that may file a motion for compulsory settlement proposed by the creditors.21 During the course of the compulsory settlement22 several of the initiating creditors assigned their claims to a non-related third party, which then became the initiating creditor. During the proceeding the government also issued a decision that the Bank Assets Management Company (BAMC) has to assign its claims to certain other state-owned companies and the CEO of Sava resigned. All of the above resulted in a reduction of tensions, where only one restructuring plan was filed, and the compulsory settlement would most likely be concluded.
The Sava case has revealed that the intention of the legislator to regulate the procedural rules in detail does not help the court, which (in absence of rules) prefers to avoid resolving controversies, if possible, than to provide guidance to the parties. It is also evident that the compulsory settlement proposed by the creditors is not an appropriate forum to resolve controversies between creditors with different interests.
iii Rimske Terme
The company Rimske Terme d.o.o. (RT) is a fairly small debtor, operating a newly refurbished, previously abandoned spa resort in east Slovenia. The company became insolvent because of a lack of liquid funding at the initiation of a business operation. The business operation was supported by EU funding; however, owing to irregularities (which resulted in the criminal proceeding against the company) RT was also obliged to repay part of the received funding. In order to resolve the insolvency, the company proposed a compulsory settlement that was not successful and, as a result, the bankruptcy proceeding was initiated in March 2013.23
The bankruptcy proceeding against RT is interesting because it is one of the few bankruptcy proceedings in Slovenia where the debtor continued business operations. Namely, because of the nature of its business operations (a spa resort with three hotels) the bankruptcy administrator assessed that the value of the bankruptcy estate would be worth more in case of sale as an ongoing concern. The bankruptcy estate was consequently sold as a going concern business, where the buyer of the business entity purchased the entire business operation for a price of €8.5 million. During the process the spa resort and the hotels continued business operations throughout the proceeding and the resort was not even closed for a day.
Vegrad d.d. (Vegrad) was one of Slovenia’s largest construction companies. The company was permanently illiquid and overindebted, and in addition to that, the bank accounts of Vegrad were continuously blocked for over eight months. After several creditors filed motions to initiate bankruptcy proceedings, Vegrad’s management attempted to rectify the insolvency in a compulsory settlement proceeding; however, the attempt failed and on 6 October 2010 a bankruptcy proceeding was initiated.
The bankruptcy proceeding revealed that the financial situation was far worse than expected, since the assets of the company were valued at approximately €69 million, debt exceeded €240 million and there were also potential liabilities in an amount exceeding €228 million. Almost all the assets of the debtor were pledged and consequently only secured creditors would (and to a certain extent already had) receive payment of their claims. The gap between the claims and assets of the debtor was so wide that even the general costs of the bankruptcy proceeding had to be borne from the proceeds, received from the sale of pledged property. The proceeding also clearly demonstrated that the possibilities of the creditors to increase the recovery of claims after the initiation of bankruptcy proceedings are very limited and therefore a proactive approach from the creditors prior to the insolvency proceeding (e.g., filing the motion to initiate insolvency proceedings sooner) leads to better recovery of the claims.
Merkur, d.d. (Merkur) was the largest wholesale dealer and specialised retailer in Slovenia with a dominant market position.
In 2010, the company became insolvent owing to the global financial crisis that resulted in a drop in sales. Furthermore, the company was forced to increase its financial debt to an unsustainable level and experienced a negative impact from the takeover of the company by the management. Consequently, Merkur became overindebted and thus insolvent. In 2011, it went through a compulsory settlement, where a 40 per cent haircut of the non-secured claims was imposed as a major measure of restructuring.
This first compulsory settlement plan should have rescued Merkur but it proved to be insufficient and the company continued to struggle. Thus, by the end of 2013, the second compulsory settlement procedure had been initiated. In course of this second compulsory settlement procedure the profitable businesses of the insolvent debtor had been carved out into two independent companies, namely, Merkur Nepremičnine d.d., which took over the debtor’s real estate, and Merkur Trgovina d.d., which continued with the debtor’s retail business. The owners of the newly established companies are the financial creditors of Merkur, who thereby achieved higher repayment of their financial claims. After these carveouts, the courts opened a bankruptcy procedure against Merkur (the insolvent debtor), during the course of which other creditors shall be proportionally repaid from the remainder of the bankruptcy estate.
IV ANCILLARY INSOLVENCY PROCEEDINGS
i Alpine Bau GmbH Podružnica Celje
There is currently only one pending ancillary bankruptcy proceeding in Slovenia, which involves the Slovenian branch office of the primary insolvency proceeding against the construction company Alpine Bau GmbH in Austria. The bankruptcy proceeding was initiated in 2013 and is still pending. Since this ancillary proceeding is thus far the only ancillary proceeding in Slovenia, the case law regarding ancillary proceedings in Slovenia has not yet been properly developed.
The trend of rising insolvency activity from the previous years is likely to reduce or at least stagnate during the coming year. Namely, the Slovenian economy is predicted to grow further in the coming year as private consumption is predicted to rise because of private investments. The predicted growth rate for 2016 is 1.5 per cent. Considering the macroeconomic background and forecasts, stagnation of the insolvency proceedings is expected. For the coming year, the development of the T–2 insolvency case should be monitored as it could have a severe impact on insolvency practice.
In the past few years the market of non-performing loans has been revived, particularly because of increased activity of the BAMC in this field in relation to domestic loans, followed by increased activity in the trade of non-performing loans of commercial banks to foreign entities.
The legislator’s proactive approach, which resulted in six changes to the Insolvency Act from 2009 to 2013, was suspended, and therefore the legislator enabled the court practice to develop. The most recent changes to the Insolvency Act in 2016,24 inter alia, excluded small enterprises from participating in the simplified compulsory settlement;25 extended the possibility for the creditors to initiate compulsory settlement proceedings against their debtor even if the debtor is a small enterprise; and extended a time period in which a clawback action can be brought in a bankruptcy proceeding (from six to 12 months after the initiation of the proceeding).26 It is expected that the most recent amendment of the Insolvency Act shall result in an increased number of clawback lawsuits in bankruptcy proceedings and an increase in the number of compulsory settlements are also expected. In addition, this recent amendment clearly shows the tendency of the legislator to regard bankruptcy as the least favourable option and restructuring of an insolvent debtor as the most preferable, the latter being a principal focus of the Insolvency Act.
1 Grega Peljhan is managing partner, Blaž Hrastnik is a senior associate and Urh Šuštar is a junior associate with Rojs, Peljhan, Prelesnik & partners o.p., d.o.o.
2 Official Gazette of the Republic of Slovenia, No. 13/14 – official consolidated text, 10/15 – corr., 27/16, 31/16 – dec. US and 38/16 – dec. US.
3 Articles 255–260 Code of Obligations, Official Gazette of the Republic of Slovenia No. 97/07 – officially consolidated text.
4 Applies also to the members of the supervisory board.
5 Council Regulation (EC) No. 1346/2000 of 29 May 2000 on insolvency proceedings, Official Journal L 160, 30 June 2000, pp. 1–18.
6 Slovenian Economic Mirror, No. 4 / Vol. XXII / 2016, IMAD, Ljubljana, available at:
7 IP telephony (17.5 per cent), mobile communications (2.8 per cent), broadband internet services (18.4 per cent) and IP TV (33.9 per cent).
8 The decision of the Maribor District Court, No. St 29/2011 of 13 January 2011.
9 The decisions of the Maribor District Court, No. St 29/2011 of 28 November 2011 and the Higher Court in Ljubljana No. Cst 22/2012 of 16 February 2012.
10 The restructuring plan is publicly available at www.ajpes.si/eObjave/objava.asp?s=51&id=878989.
11 The decision of the Ljubljana District Court, No. St 2340/2014 of 16 September 2014.
12 The decision of the Higher Court in Ljubljana, No. Cst 485/2014 of 29 October 2014.
13 The decision of the Ljubljana District Court, No. St 2340/2014 of 22 June 2015.
14 The decision of the Higher Court in Ljubljana no. Cst 456/2015 of 5 August 2015.
15 The decision of the Constitutional Court, No. Up-653/15-9 of 22 September 2015.
16 The decision of the Constitutional Court, No. Up-653/15-176 of 5 November 2015.
17 The decision of the Higher Court in Ljubljana, No. III Cpg 1756/2015 (St 2340/2014) of 4 March 2016.
18 The decision of the Constitutional Court, No. Up-280/16-9, Up-350/16-7 of 10 May 2016.
19 The equity of the company was approximately €40 million, with the total debt of approximately €240 million.
20 Slovenian bad bank (BAMC).
21 The decision of the Higher Court in Ljubljana, No. Cst 450/2015 of 23 July 2015.
22 That was initiated on 10 June 2015 and reinitiated on 16 September 2015, after the initial decision on invitation of the proceeding was reversed.
23 The decision of the District Court in Celje, No. St 2422/2011 of 13 March 2013.
25 This amendment was introduced to prevent financial holding companies from misusing the simplified compulsory settlement.
26 Amended Article 277(1) of Insolvency Act.