Restructuring and Insolvency in Slovenia 2024

Restructuring and Insolvency in Slovenia 2024 – Supreme Court of Slovenia

RESTRUCTURING AND INSOLVENCY 2024

SLOVENIA

Ožbej Merc, Nastja Merlak, Aljaž Cankar, Ana Bokalič

(Jadek & Pensa)

GENERAL

Legislation

1. What main legislation is applicable to insolvencies and reorganizations?

Insolvency and restructuring proceedings are governed by the Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act (Official Gazette of the Republic of Slovenia 176/21, as amended).

Excluded entities and excluded assets

2. What entities are excluded from customary insolvency or reorganization proceedings and what legislation applies to them? What assets are excluded or exempt from claims of creditors?

The entities that are excluded from customary insolvency and reorganization proceedings include:

• l banks – as per the Resolution and Compulsory Winding-Up of Banks Act (Official Gazette of Republic of Slovenia 92/21), as amended;
• l insurance companies – as per the Insurance Act (Official Gazette of Republic of Slovenia 93/15), as amended;
• l brokerage firms – as per the Market in Financial Instruments Act (Official Gazette of Republic of Slovenia 77/18), as amended;
• l asset management companies – as per the Investment Funds and Management Companies Act (Official Gazette of Republic of Slovenia 31/15), as amended, and the Market in Financial Instruments Act (Official Gazette of Republic of Slovenia 77/18), as amended; and
• l energy service providers – as per the Energy Act (Official Gazette of Republic of Slovenia 60/19).

Sector-specific insolvency regimes apply to the above-mentioned entities; however, certain provisions of the main insolvency legislation still apply, insofar as they do not conflict with the applicable sector-specific insolvency regime.

As regards insolvency and reorganization proceedings over legal entities, no assets are excluded or exempt from creditors’ claims.

Public enterprises

3. What procedures are followed in the insolvency of a government-owned enterprise? What remedies do creditors of insolvent public enterprises have?

Slovenian insolvency legislation does not differentiate between privately owned and government-owned enterprises. Therefore, taking into account sector-specific legislation (if applicable), no special procedures are followed in the insolvency of a government-owned enterprise.

Accordingly, no additional remedies are made available to creditors of insolvent public enterprises in addition to those available to creditors of privately owned enterprises.

Protection for large financial institutions

4. Has your country enacted legislation to deal with the financial difficulties of institutions that are considered ‘too big to fail’?

The two main procedures available are compulsory liquidation and bankruptcy proceedings. The legislation offers regulators different resolution measures, including:

• l write-off and conversion of capital instruments;
• l sale of operations;
• l the establishment of a bridge bank;
• l exclusion of assets; and
• l write-off and conversion of qualified bonds.

The consequences of initiating such procedures are like those of standard insolvency procedures (eg, the financial institution may perform only regular operations and may not otherwise manage or dispose of its assets and the Bank of Slovenia has the right to appoint extraordinary administrators).

The Financial Collateral Act (Official Gazette of the Republic of Slovenia 67/11, as amended) transposes Directive 2002/47/EC (Financial Collateral) into Slovenian law and provides special rules for financial collateral; these are preserved in insolvency proceedings.

The Act Setting Conditions for the Appointment of Associate Members of Management Boards in Systemically Important Companies in the Republic of Slovenia (Official Gazette of the Republic of Slovenia 23/17, commonly known as ‘Lex Mercator’) is directed at systemically important companies whose majority shareholder is undergoing insolvency proceedings and thus seeks to protect systemically important companies from the actions of their majority holders through the appointment of a special member to the management board.

The Act was passed in response to the Croatian Lex Agrokor and sought to protect Slovenia’s largest retailer, Mercator, from the actions of its insolvent majority shareholder.

Courts and appeals

5. What courts are involved? What are the rights of appeal from court orders? Does an appellant have an automatic right of appeal or must it obtain permission? Is there a requirement to post security to proceed with an appeal?

District courts have jurisdiction as first-instance courts in all insolvency proceedings. All appellate proceedings fall under the jurisdiction of the higher courts in Ljubljana.

The court’s role depends on the type of insolvency proceeding; however, it generally supervises and verify stakeholders’ actions and decides on possible appeals and disputes.

Unless otherwise stipulated, appellants have an automatic right of appeal against all court decisions and orders, and appeals do not preclude the enforcement of court decisions.

There is no requirement to post security to proceed with an appeal; however, the applicable court fees must be paid.

TYPES OF LIQUIDATION AND REORGANIZATION PROCESSES

Voluntary liquidations

6. What are the requirements for a debtor commencing a voluntary liquidation case and what are the effects?

Any solvent company may be liquidated by following the voluntary liquidation proceedings set out in the Companies Act (Official Gazette of the Republic of Slovenia 65/09, as amended). To open voluntary liquidation proceedings, the Companies Act requires a shareholders’ resolution. Liquidation proceedings are designed to ensure that creditors are fully repaid and any remaining assets are distributed to shareholders, after which the company may be liquidated and deleted from the court register.

Bankruptcy proceedings are initiated where a liquidator finds that a company has insufficient assets to repay all of its creditors.

Voluntary reorganizations

7. What are the requirements for a debtor commencing a voluntary reorganization and what are the effects?

The main formal restructuring proceedings under the Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act (Official Gazette of the Republic of Slovenia 176/21, as amended) are:

• l compulsory settlement proceedings, available only to insolvent companies; and
• l preventive restructuring proceedings, available only to companies that are not yet insolvent, but are likely to become insolvent within one year.

Both types of procedure may be initiated by a debtor, in addition to other stakeholders. Furthermore, any company can initiate an informal restructuring of its debt via an agreement with its creditors whereby general rules apply.

On 20 September 2023, amendments to the Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act (Official Gazette of the Republic of Slovenia 102/23) were adopted, introducing several material changes that will enter into force on 1 November 2023. Among other things, another pre-insolvency restructuring procedure has been introduced in addition to the existing preventive restructuring proceedings, namely a judicial restructuring procedure to remedy threatened insolvency.

Provisions introducing this new procedure will only become applicable on 1 January 2025. Furthermore, the amendments to the insolvency legislation provided for certain changes in the existing compulsory settlement proceedings and personal bankruptcy proceedings.

Procedures for insolvent companies

Compulsory settlement is the primary restructuring procedure in the case of an insolvent debtor. It may be initiated only where:

• l the debtor can conduct further business operations; and
• l the debtor’s creditors are provided with more favorable conditions for repaying their claims than they would be in the case of bankruptcy.

Debtors initiate an insolvency procedure by submitting a proposal that includes the following documents:

• l a report on the debtor’s financial situation and business operations;
• l an auditor’s report in which the auditor gives its opinion without reservations;
• l a financial restructuring plan;
• l a certified evaluator’s report on the company’s value; and
• l proof of payment of an initial advance payment for costs.

Once all required documentation is submitted, the court evaluates the application and if all procedural requirements are met, the court issues a decision to start the compulsory settlement procedure.

Having submitted its proposal to initiate the insolvency procedure, the debtor may perform only regular business activities and cannot:

• dispose of its assets, except to the extent necessary for carrying out normal business activities;
• take on loans;
• give guarantees; or
• perform transactions or other actions that result in:
• creditors being treated unequally; or
• financial restructuring being disrupted.

The debtor – including its shareholders’ assembly and supervisory board – must have the court’s prior consent to perform certain actions.

The creditors’ committee and creditors on whose petition the court initiated compulsory settlement proceedings may request the court’s authorization to manage the debtor’s business in certain cases. The court’s authorization entitles the creditors’ committee or the creditors to recall or dismiss the current members and appoint new members of the debtor’s management and supervisory bodies.

As the current regime does not allow the shareholders to appeal against the court’s authorization, the Constitutional Court of the Republic of Slovenia has recently decided that such regulation is partially unconstitutional. The legislator must remedy the unconstitutionality until the end of March 2024; amendments to the insolvency legislation adopted in September 2023 have not yet completely addressed this issue.

Procedures for companies that are not yet insolvent

A preventive restructuring procedure may be initiated where a debtor is not insolvent but is likely to become insolvent within one year. There is a presumption that insolvency is likely if the debtor acquires consent to start preventive restructuring proceedings from its financial creditors that together hold at least 30 per cent of the debtor’s total financial debt. Only the debtor’s financial obligations may be restructured in preventive restructuring proceedings.

The debtor is entitled to file a proposal to initiate the preventive restructuring procedure. The proposal must contain the following documents:

• a list of all financial claims against the debtor as of the end of the last calendar quarter before the proposal’s submission;
• an auditor’s report on the review of the list of financial claims in which the auditor gives its opinion without reservations; and
• notarized statements of consent with the commencement of the preventive restructuring process of creditors that hold shares of the sum of all financial claims against the debtor included in the basic list of financial receivables.

Once a preventive restructuring procedure has begun, no enforcement proceedings can be initiated against the debtor and any existing enforcement proceedings are stayed. During the procedure, the limitation period of claims is suspended and the debtor must have no outstanding late payments for financial claims listed in the proposal.

Successful reorganizations

8. How are creditors classified for purposes of a reorganization plan and how is the plan approved? Can a reorganization plan release non-debtor parties from liability and, if so, in what circumstances?

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.

For the purpose of compulsory settlement, restructuring plans may propose to affect only financial claims (ie, regular business claims may be excluded).

Under certain conditions, secured claims may also be restructured. In the case of preventive restructuring, the restructuring plan will affect only financial claims (regular business claims are excluded from preventive restructuring). The new judicial restructuring procedure to remedy threatened insolvency (applicable as of 1 January 2025) will allow the restructuring of both financial and commercial claims.

According to Slovenian insolvency law, non-debtor parties cannot be released from their liabilities under reorganization plans.

Involuntary liquidations

9. What are the requirements for creditors placing a debtor into involuntary liquidation and what are the effects? Once the proceeding is opened, are there material differences to proceedings opened voluntarily?

Slovenian law allows for bankruptcy proceedings and compulsory liquidation.

Bankruptcy proceedings

Bankruptcy proceedings differ from regular liquidation proceedings to the extent that the former are reserved for situations where a debtor is insolvent and the creditors are unlikely to be repaid in full once the proceedings are complete.

Bankruptcy proceedings may be initiated by:

• the debtor;
• the debtor’s personally liable shareholders;
• one of the debtor’s creditors; or
• the Public Scholarship, Development, Disability and Maintenance Fund.

Under the recent amendments to the Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act (Official Gazette of the Republic of Slovenia 102/23), which will enter into force on 1 November 2023, if the debtor does not have management, any shareholder (if the debtor is a limited liability company), member of supervisory board (if the debtor is a joint-stock company) or a founder (if the debtor is any other type of legal entity) of the debtor will be obliged to initiate bankruptcy proceedings.

The party initiating the proceedings must prove that the debtor is insolvent.

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 is made, 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 first 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.

Compulsory liquidation

In certain cases, compulsory liquidation may be initiated over a company. Creditors are not parties to compulsory liquidation proceedings and cannot initiate such proceedings. Nevertheless, where a liquidation manager determines that the company is insolvent, bankruptcy proceedings will be initiated. In such cases, creditors will have all prescribed rights.

Additionally, the company may also be involuntarily wound-up by deletion from the court register without liquidation procedure (eg, where a company is not operating at its registered address or has failed to publish its annual reports).

Involuntary reorganizations

10. What are the requirements for creditors commencing an involuntary reorganization and what are the effects? Once the proceeding is opened, are there any material differences to proceedings opened voluntarily?

Creditors can initiate compulsory settlement only on limited liability companies and joint-stock companies, and only if they are classified as small, medium or large companies under the Companies Act (Official Gazette of the Republic of Slovenia 42/06, as amended).

To initiate the proceedings, creditors must jointly hold a sum exceeding 20 per cent of the debtor’s financial obligations, as reported in the debtor’s last published annual report.

In certain cases, if creditors initiate compulsory settlement proceedings, they may request the court’s authorization to manage the debtor’s business. The court’s authorization entitles the creditors’ committee or the creditors to recall or dismiss the current members and appoint new members of the debtor’s management and supervisory bodies.

Pursuant to the amended Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act (Official Gazette of the Republic of Slovenia 102/2023) (applicable as of 1 November 2023), creditors will be able to initiate compulsory settlement procedures on limited liability companies and joint-stock companies regardless of their size (ie, also on micro companies).

Limitation to financial claim holders as the creditors who can initiate the proceedings has also been removed (ie, holders of all claims, and not only financial claims, are to be considered). A debtor will be granted a right to object against the creditors’ proposal to initiate the procedure, whereas under the current regime a debtor can only file an objection against the court’s decision to start the procedure.

Expedited reorganizations

11. Do procedures exist for expedited reorganizations (eg, ‘prepackaged’ reorganizations)?

No prescribed processes can be opened and closed at the same time based on a prepackaged solution. Preventive restructuring comes closest in terms of large organizations, but still takes (at least) six months.

Further, the Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act (Official Gazette of the Republic of Slovenia 176/21, as amended) allows for simplified reorganizations, which may be held only over a company classified as a micro company under the Companies Act or over a sole proprietor in certain cases.

In simplified compulsory settlement proceedings, court involvement is diminished and several provisions that govern regular compulsory settlement proceedings do not apply (eg, there is no lodging of a claims procedure and no need to provide auditors’ opinions).

Recent amendments to the Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act (Official Gazette of the Republic of Slovenia 102/2023) have renamed the existing ‘simplified compulsory settlement’ procedure to a ‘compulsory settlement procedure for small businesses’ that will still be applicable to micro companies (however, the definition has changed slightly and will apply to less companies than previously) and sole proprietors, but will bring certain simplifications, in particular in terms of costs.

Unsuccessful reorganizations

12. How is a proposed reorganization defeated and what is the effect of a reorganization plan not being approved? What if the debtor fails to perform a plan?

Preventive reorganizations

The procedure of voluntary preventive reorganization may be defeated in the following cases:

• if the court rejects the request for the approval of a financial restructuring agreement (eg, for lack of equal treatment of creditors);
• if the debtor does not submit a request for confirmation of the financial restructuring agreement in the prescribed time frame;
• if stoppage of the procedure is requested by creditors who hold at least 30 per cent of the total amount of the financial claims included in the basic list of financial claims;
• if stoppage of the procedure is requested by the debtor before the submission of a complete request for the approval of a financial restructuring agreement; or
• if the debtor is late paying workers’ wages up to the amount of the minimum wage or paying employment-related taxes and contributions for more than 15 days.

Following the stoppage of the preventive restructuring proceedings, the debtor and the creditors have one month to initiate compulsory settlement proceedings; otherwise, the legal consequences of the initiated preventive reorganization proceedings cease.

If the debtor fails to perform a plan, the creditors can initiate enforcement proceedings or any other insolvency proceedings in accordance with the conditions for the initiation of such proceedings.

Compulsory settlement

Each creditor and manager can file an objection that conditions for initiation of the compulsory settlement are not met – namely, due to the following reasons:

• if the debtor is not insolvent and can fulfil all of its obligations in full and in a timely manner;
• if the insolvent debtor can fulfil most of its obligations within shorter deadlines than offered by a compulsory settlement;
• if there is a less than 50 per cent likelihood that the implementation of the financial restructuring plan will enable a financial restructuring of the debtor to become solvent;
• if there is a less than 50 per cent likelihood that the creditors will have more favourable conditions for the payment of their claims than if the debtor was initiating a bankruptcy procedure; or
• if the insolvent debtor acts contrary to restrictions imposed by insolvency legislation or is late paying workers’ wages up to the amount of the minimum wage or employment-related taxes and contributions for more than 15 days.

The consequences of the above reasons differ. If the objection under the first bullet is confirmed, the court rejects the proposal to initiate a compulsory settlement procedure.

However, if the objections under other bullets are confirmed, the court stops the compulsory settlement proceedings and initiates bankruptcy proceedings.

The recently amended Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act (Official Gazette of the Republic of Slovenia 102/23), applicable as of 1 November 2023, provides for additional reasons for terminating the proceedings, namely if the debtor has provided untrue, incorrect or incomplete information in the report on its financial situation and business operations, or if the debtor has failed to give the creditor access to its documentation. If objection is confirmed, the court will immediately initiate bankruptcy proceedings.

Furthermore, after the compulsory settlement procedure is confirmed, each creditor has the right to challenge a confirmed compulsory settlement in certain cases, including if the debtor can pay a higher proportion of its debt than was confirmed in compulsory settlement (a partial challenge is also possible). If the court accepts the challenge, the debtor is ordered to pay the unpaid portion of the claims (the portion of the claims that was subject to the haircut) under the confirmed compulsory settlement.

If the debtor fails to perform a restructuring plan, the creditors can initiate enforcement or bankruptcy proceedings. Under Slovenian insolvency law, the court’s decision on the confirmation of the compulsory settlement acts as title for the enforcement of claims determined in the compulsory settlement procedure in accordance with the terms of the confirmed compulsory settlement. This makes the enforcement of claims under confirmed compulsory settlement easier.

Corporate procedures

13. Are there corporate procedures for the dissolution of a corporation? How do such processes contrast with bankruptcy proceedings?

Any solvent company may be liquidated by following the voluntary liquidation proceedings set out in the Companies Act. To open voluntary liquidation proceedings, the Companies Act requires a shareholders’ resolution (at least a 75 per cent majority). 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. The ability to fully repay all debtors is also the main contrast with the bankruptcy proceedings and accordingly, the provisions of both procedures are tailored to consider these circumstances (eg, liquidation managers can be part of a company’s existing management; however, bankruptcy managers are specially certified third persons). Liquidation procedures are far less formal and have less strict deadlines.

Moreover, two other proceedings may result in the dissolution of a company:

• an action requesting the court to decide on the dissolution of the company (filed by a shareholder if they believe that the company’s goals cannot sufficiently be achieved or that some other well-founded reasons exist for the dissolution of the company); and
• action for the invalidity of a company with share capital if certain basic conditions for the operation of the company are not fulfilled.

Conclusion of case

14. How are liquidation and reorganization cases formally concluded?

How liquidation and reorganization cases are formally concluded depends on the type of proceeding.

Liquidation proceedings are formally concluded when all of the company’s assets are liquidated, all of its creditors are repaid in full and the remaining liquidation estate has been distributed between its shareholders. The company will then be deleted from the court register.

Preventive restructuring procedures are formally concluded by a court decision on which all legal effects of the agreement on financial restructuring become binding.

Compulsory settlement procedures are formally concluded by a court decision if all required conditions are fulfilled.

Bankruptcy proceedings are formally concluded when all of the debtor’s assets are liquidated and distributed and the bankruptcy manager has submitted their final report to the court. The court issues a decision on which the bankruptcy proceedings are formally concluded and the bankruptcy manager is dismissed. The company will then be deleted from the court register.

INSOLVENCY TESTS AND FILING REQUIREMENTS

Conditions for insolvency

15. What is the test to determine if a debtor is insolvent?

Broadly speaking, ‘insolvency’ is defined as capital inadequacy or long-term illiquidity. Also, there are certain irrefutable presumptions regarding insolvency – for example, where there is a delay of more than two months in paying minimum wages or the related taxes and social contributions.

Mandatory filing

16. Must companies commence insolvency proceedings in particular circumstances?

Within one month of a company becoming insolvent, its management must prepare a report for the supervisory board on the financial restructuring measures. Part of this report is also an assessment of the management by determining, for example, if there is at least a 50 per cent chance that:

• the company’s financial restructuring can be successfully carried out in such a way that the company will regain short and long-term solvency; and
• a compulsory settlement will be possible if the management cannot resolve the insolvency and the shareholders would not undertake the measures proposed in the report on the financial restructuring measures.

If the answer to either of these questions is negative and the shareholders do not contribute new cash contributions, management must commence bankruptcy proceedings; otherwise, it must follow the plan and potentially commence compulsory settlement proceedings.

According to the amended legislation, as adopted on 20 September 2023 and entering into effect on 1 November 2023, the management of the insolvent company will now have to, without any delay and at the latest within one month after the insolvency arises, file a proposal for initiation of the insolvency proceedings.

DIRECTORS AND OFFICERS

Directors’ liability – failure to commence proceedings and trading while insolvent

17. If proceedings are not commenced, what liability can result for directors and officers? What are the consequences for directors and officers if a company carries on business while insolvent?

Directors and supervisory board members are liable for any shortfall that the creditors or the company suffer when trying to recover their claims in full in bankruptcy proceedings if they violate certain insolvency laws (eg, on the equal treatment of creditors). 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.

Directors’ liability – other sources of liability

18. Apart from failure to file for proceedings, are corporate officers and directors personally liable for their corporation’s obligations? Are they liable for corporate pre-insolvency or pre-reorganization actions? Can they be subject to sanctions for other reasons?

Slovenian insolvency legislation differentiates between two types of director liability:

• liability towards the company; and
• liability towards the company’s creditors.

Directors must:

• perform their duties with professional due diligence;
• strive for the 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 judgment rule is used to determine whether the director’s duties were performed with required diligence. Under certain circumstances, creditors may bring an action for damages on behalf of the company.

Furthermore, directors may also be criminally liable – the Criminal Code provides that they may be criminally liable for causing damages to the company by not performing their duties. Directors may also be criminally liable for causing damages to the company’s creditors or for causing the company’s bankruptcy by fraudulent or reckless actions or omissions.

Directors’ liability – defenses

19. What defenses are available to directors and officers in the context of an insolvency or reorganization?

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 that led to damages. Furthermore, 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 that 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 supervisory board member responsible for the company’s financial operations failed to prepare the necessary materials; or
• the director was unaware of or could not have prevented non-compliance, even though they performed their duties with professional due diligence.

Until 1 November 2023, if the company becomes insolvent, its management must first prepare a report on the financial restructuring measures. From 1 November 2023 onwards, the management will be obliged to file a proposal to initiate insolvency proceedings without any delay under the amended Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act (Official Gazette of the Republic of Slovenia 102/23). Therefore, the second point above will become irrelevant as of 1 November 2023.

Shift in directors’ duties

20. Do the duties that directors owe to the corporation shift to the creditors when an insolvency or reorganization proceeding is likely? When?

Under Slovenian law, once a company is insolvent, its directors have specific duties that are designed to protect the company’s creditors – in particular, to ensure their equal treatment.

Directors’ powers after proceedings commence

21. What powers can directors and officers exercise after liquidation or reorganization proceedings are commenced by, or against, their corporation?

These powers depend on the type of proceeding.

In liquidation proceedings, the company appoints a liquidation manager to oversee the liquidation. According to the Companies Act (Official Gazette of the Republic of Slovenia 42/06, as amended), the liquidation manager can be an existing manager or director of the company; therefore, the manager or director can continue to exercise their power, but solely for the liquidation of assets, repayment of creditors and distribution of remaining assets to shareholders.

In preventive restructuring proceedings, the management of the company remains in power, with the added goal of successfully completing preventive restructuring proceedings and avoiding insolvency.

In compulsory settlement proceedings, the management of the company remains in power; however, the debtor’s business activity, and consequently the directors’ powers, are 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.

In compulsory settlements, the creditors’ committee and creditors on whose petition the court initiated compulsory settlement proceedings may request the court’s authorization to manage the debtor’s business if one of the following conditions has been met:

• the sum of the debtor’s liabilities shown in the financial statements equals or exceeds the liquidation value of assets; or
• the debtor’s management violates certain obligations.

Pursuant to the recent decision by the Constitutional Court, the latter’s resolution to shift the management of debtor’s business to the creditors can now be appealed against by the debtor’s shareholders.

On the initiation of the bankruptcy procedure, the bankruptcy manager is appointed and the directors and officers cease to have any power. The bankruptcy manager’s mandate is to liquidate the assets and distribute the proceeds to creditors; only on the court’s permission may the bankruptcy manager enter into new deals with a view to secure a better recovery for creditors.

MATTERS ARISING IN A LIQUIDATION OR REORGANIZATION

Stays of proceedings and moratoria

22. What prohibitions against the continuation of legal proceedings or the enforcement of claims by creditors apply in liquidations and reorganizations? In what circumstances may creditors obtain relief from such prohibitions?

In general, creditors cannot initiate any new enforcement proceedings against an insolvent debtor after the initiation of insolvency proceedings (eg, bankruptcy and compulsory settlement procedure). Ongoing enforcement proceedings regarding unsecured claims in bankruptcy and compulsory settlement procedure are stayed. In preventive restructuring proceedings, the same applies to financial claims.

Doing business

23. When can the debtor carry on business during a liquidation or reorganization? Is any special treatment given to creditors who supply goods or services after the filing? What are the roles of the creditors and the court in supervising the debtor’s business activities?

Voluntary liquidation procedure

After a voluntary liquidation procedure is initiated, the liquidation manager may continue doing any business only with the shareholders’ consent.

Bankruptcy procedure

After a bankruptcy procedure is initiated, the debtor may carry on business only with the consent of the creditors’ board and the court. The latter will be given only if:

• more favorable conditions may be achieved for the sale of the assets;
• it does not delay the sale of the bankruptcy estate; and
• the risk management principle is not breached.

There are no special provisions for creditors that supply goods or services after the filing; however, all costs that are incurred by the debtor after the initiation of the bankruptcy proceedings are deemed to be costs of the bankruptcy proceedings that have priority ranking and are not subject to pro rata reductions.

Preventive restructuring procedure

There are no limitations on the debtor to continue doing business.

Compulsory settlement procedure

After a compulsory settlement procedure is initiated, the debtor may engage only in regular operations relating to the performance of their business (subject to the above-mentioned limitations). Also, the debtor may do the following with the court’s consent:

• sell assets not required for its business if the sale of such assets is determined in the financial restructuring plan; and
• accept loans, but not exceeding the total amount of liquid assets needed to finance the regular business operations and cover the costs of the compulsory settlement procedure.

Post-filing credit

24. May a debtor in a liquidation or reorganization obtain secured or unsecured loans or credit? What priority is or can be given to such loans or credit?

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. The costs of such loans are considered to be costs of the bankruptcy proceedings, which means they enjoy a favorable repayment ranking (paid with priority out of the general insolvent estate).

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. As the compulsory settlement does not affect such loans, they must be repaid in full.

Loans taken on after the start of preventive restructuring proceedings have priority in compulsory settlement or bankruptcy proceedings that start after the preventive proceedings are unsuccessful.

Sale of assets

25. In reorganizations and liquidations, what provisions apply to the sale of specific assets out of the ordinary course of business and to the sale of the entire business of the debtor? Does the purchaser acquire the assets ‘free and clear’ of claims or do some liabilities pass with the assets?

There are no specific provisions regarding the sale of assets in a voluntary liquidation procedure. In bankruptcy proceedings, specific rules apply. Before the sale, the bankruptcy manager must obtain a valuation of the asset and the court’s consent. The bankruptcy manager first tries to sell the assets in a competitive process (ie, a public auction with binding offers).

If this is unsuccessful, they may enter into direct negotiations with the interested buyer. Any assets sold in bankruptcy proceedings are deemed ‘free and clear’ of claims. The entire business of the debtor (or a part thereof) may be purchased. In this case, the purchaser also obtains any concessions, licenses, intellectual property (IP) rights and official permits required to conduct business.

Negotiating sale of assets

26. Does your system allow for ‘stalking horse’ bids in sale procedures and does your system permit credit bidding in sales?

Slovenian insolvency law neither allows for ‘stalking horse’ bids nor recognizes the concept of credit bidding in sales. Nevertheless, creditors can participate in the sale of assets and it is possible to offset the debtor’s claim towards the creditor with the creditor’s claim towards the debtor. Offsetting is possible only after the repayment amount with respect to such creditor’s claim is established. For instance, unsecured claims that will not be repaid cannot be offset against a purchase price of an asset from a bankruptcy estate. Where assets cannot be liquidated or their liquidation would incur disproportionate costs, creditors are invited to take over such assets.

Rejection and disclaimer of contracts

27. Can a debtor undergoing a liquidation or reorganization reject or disclaim an unfavorable contract? Are there contracts that may not be rejected? What procedure is followed to reject a contract and what is the effect of rejection on the other party? What happens if a debtor breaches the contract after the insolvency case is opened?

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.

Restructuring proceedings do not generally affect existing agreements. On 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 a right of termination by law; however, individual contracts often include provisions under which such contracts can be terminated in the case of a debtor’s insolvency.

However, the amended Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act (Official Gazette of the Republic of Slovenia 102/23) that will come into force on 1 November 2023 provides for a statutory override of the ipso facto clauses in the ‘essential/key contracts’.

Therefore, a party to any such essential or key contract (ie, a contract the performance of which is necessary for continuous operation of the debtor’s undertaking, including contracts for supplies, the termination of which would stop the performance of the debtor’s business) will not be permitted to withhold performance, terminate or otherwise detrimentally modify the contract solely due to the debtor’s threatened insolvency or the initiation of the compulsory settlement proceedings, notwithstanding contractual regulation (which will be, if existing, deemed void).

However, prohibition will not apply if the debtor has not paid its debts that have accrued and fallen due after initiation of the proceeding.

Intellectual property assets

28. May an IP licensor or owner terminate the debtor’s right to use the IP when a liquidation or reorganization is opened? To what extent may IP rights granted under an agreement with the debtor continue to be used?

There are no special insolvency provisions regarding IP rights owners. Rules on mutually unfulfilled bilateral contracts or other general rules applicable in insolvency apply.

Personal data

29. Where personal information or customer data collected by a company in liquidation or reorganization is valuable, are there any restrictions in your country on the use of that information or its transfer to a purchaser?

Slovenian insolvency law contains no special rules regarding personal information or customer data. Nevertheless, the Personal Data Protection Act (Official Gazette of the Republic of Slovenia 163/22, as amended) and Regulation (EU) 2016/679 (General Data Protection Regulation) provide strict limitations on the use and transfer of personal information or customer data, irrespective of whether a company is undergoing liquidation or reorganization procedures.

Arbitration processes

30. How frequently is arbitration used in liquidation or reorganization proceedings? Are there certain types of disputes that may not be arbitrated? Can disputes that arise after the liquidation or reorganization case is opened be arbitrated with the consent of the parties?

The Slovenian courts have exclusive jurisdiction over liquidation or reorganization proceedings and any disputes arising in connection therewith. This disqualifies the use of arbitration. After bankruptcy proceedings have been initiated against a company, disputes relating to the company cannot be arbitrated.

CREDITOR REMEDIES

Creditors’ enforcement

31. Are there processes by which some or all of the assets of a business may be seized outside of court proceedings? How are these processes carried out?

Where an agreement on out-of-court sale exists regarding certain collateral, the creditor may sell the assets out of court or as part of court proceedings. Furthermore, sales of any financial collateral are not affected by the initiation of insolvency proceedings.

Unsecured credit

32. What remedies are available to unsecured creditors? Are the processes difficult or time-consuming? Are pre-judgment attachments available?

In regular enforcement proceedings, the creditor may use every available means to enforce its claim against all valuable assets of the debtor. However, these procedures are usually time-consuming.

In the case of bankruptcy proceedings, unsecured creditors are repaid out of the general (ie, not subject to collateral) bankruptcy estate after all priority creditors are repaid. The possibility of any repayment for unsecured creditors is typically low.

CREDITOR INVOLVEMENT AND PROVING CLAIMS

Creditor participation

33. During the liquidation or reorganization, what notices are given to creditors? What meetings are held and how are they called? What information regarding the administration of the estate, its assets and the claims against it is available to creditors or creditors’ committees? What are the liquidator’s reporting obligations?

The notices on the initiation of voluntary liquidation and insolvency proceedings are published online on a government-run portal, which serves as notification to the creditors to lodge their claims in the relevant proceedings. In insolvency proceedings, all further relevant notices and information for creditors, including the list of creditors’ claims, are published in the same manner.

The notices are deemed to be served to the creditors when published on the government portal and may include important deadlines for the creditors (eg, to lodge their claims in bankruptcy proceedings or appeal the list of creditors’ claims).

In bankruptcy proceedings and compulsory settlement proceedings, the (bankruptcy) manager must publish periodic bankruptcy reports and a special report at the request of the creditors’ committee.

Creditor representation

34. What committees can be formed (or representative counsel appointed) and what powers or responsibilities do they have? How are they selected and appointed? May they retain advisers and how are their expenses funded?

In compulsory settlement and bankruptcy procedures (if requested by the creditors), a creditors’ committee is formed. The committee comprises the largest creditors of the debtor and its aim is to:

• decide on opinions of or consent to matters prescribed by law;
• review the insolvency administrator’s reports; and
• perform other responsibilities provided by law.

The creditors’ committee is also entitled to review the debtor’s corporate books and other documentation received by the administrator from the debtor.

The members of the creditors’ committee are appointed by way of election by the debtor’s creditors. The creditors’ committee may appoint advisers; however, the costs of doing so cannot be recovered in insolvency proceedings.

Recent amendments to the Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act (Official Gazette of the Republic of Slovenia 102/23) (applicable as of 1 November 2023) introduce a right of the administrator to reject a request by the creditors’ committee to review the debtor’s books and documentation if the documents represent the debtor’s business secret or their disclosure could cause harm to any other person or affect the proceedings or repayment of creditors.

In this case, the creditors’ committee will be entitled to appeal the rejection to the court.

Enforcement of estate’s rights

35. If the liquidator has no assets to pursue a claim, may the creditors pursue the estate’s remedies? If so, to whom do the fruits of the remedies belong? Can they be assigned to a third party?

In liquidation proceedings, creditors have no such rights. In bankruptcy proceedings, creditors can challenge certain actions of the debtor. However, in general, if the insolvency estate is too small, bankruptcy proceedings are closed outright. In certain cases, creditors also have the ability to pursue claims if the debtor cannot pay their debts.

Claims

36. How is a creditor’s claim submitted and what are the time limits? How are claims disallowed and how does a creditor appeal? Can claims for contingent or unliquidated amounts be recognized? Are there provisions on the transfer of claims and must transfers be disclosed? How are the amounts of such claims determined?

In a compulsory settlement procedure, creditors must lodge their claims as well as any rights of separate settlement against the insolvent debtor within one month of the publication of the announcement of the initiation of this procedure. In a bankruptcy procedure, creditors must lodge their claims against the insolvent debtor within three months of the publication of the announcement of the initiation of this procedure.

Missing the deadline in a compulsory settlement procedure affects the creditor’s right to participate in the proceedings, whereas a missed deadline in bankruptcy means the creditor loses the claim against the debtor in bankruptcy.

The insolvency administrator tests the claims and must declare for each claim whether it is recognized or contested in a basic list of all tested claims. After this list is published, a creditor may file an objection against their own contested claim or a recognized claim of another creditor. In such disputes, the court has the final say over the disputed claims.

Interest on claims is fully recognizable (accrued from the maturity date of the claim until the date of initiation of the insolvency proceeding). Contingent claims may be recognized; however, the effect of the bankruptcy proceedings depends on whether the condition in relation to the claim is fulfilled by the time the final distribution plan is made.

There are no restrictions regarding claims transfers and such claims can be recognized in their full nominal value (ie, any transfer discount is irrelevant); however, limitations on set-off claims apply. New creditors wishing to become part of the insolvency proceedings must notify the insolvency administrator and enclose relevant proof of the transfer.

Set-off and netting

37. To what extent may creditors exercise rights of set-off or netting in a liquidation or in a reorganization? Can creditors be deprived of the right of set-off either temporarily or permanently?

The legislation prescribes automatic set-off of claims in insolvency proceedings. In the case of preventive restructuring proceedings and voluntary liquidation proceedings, there is no ex lege set-off prescribed; however, the rules regarding set-off under the Obligations Code (Official Gazette of the Republic of Slovenia 97/07, as amended) may apply.

As regards financial collateral agreements, set-off and netting rights are unaffected by insolvency or restructuring proceedings.

In bankruptcy cases, it is prohibited to set off against the insolvent debtor claims that are acquired after the start of bankruptcy proceedings against claims arising before the start of bankruptcy proceedings. Furthermore, claims against the insolvent debtor arising before the start of bankruptcy proceedings cannot be set off against claims of that insolvent debtor arising after bankruptcy proceedings have commenced.

Modifying creditors’ rights

38. May the court change the rank (priority) of a creditor’s claim? If so, what are the grounds for doing so and how frequently does this occur?

The courts cannot unilaterally change the rank of a creditor’s claim. Challenges may be lodged by creditors and the insolvency administrator under the rules of avoiding preferential treatment.

Priority claims

39. Apart from employee-related claims, what are the major privileged and priority claims in liquidations and reorganizations? Which have priority over secured creditors?

The most important priority unsecured claims are:

• bankruptcy proceeding costs;
• six-month back salaries;
• wage compensation;
• other employment-related payments and taxes relating to such payments and social security contributions;
• claims arising from loans granted on the basis of the law governing aid for rescuing and restructuring firms in difficulty and cooperatives; and
• guarantees given for these loans.

The above-mentioned claims have priority over regular claims only and have no priority over secured creditors’ claims.

Employment-related liabilities

40. What employee claims arise where employees’ contracts are terminated during a restructuring or liquidation? What are the procedures for termination? (Are employee claims as a whole increased where large numbers of employees’ contracts are terminated or where the business ceases operations?)

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 does not affect employment relationships, as the debtor continues to operate. Nonetheless, employment contracts may have a shorter termination period in a compulsory settlement if the termination is envisaged in the financial restructuring plan.

Employee claims have a special status in insolvency procedures. Salaries and wage compensation for the six months before 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.

Pension claims

41. What remedies exist for pension-related claims against employers in insolvency or reorganizationproceedings and what priorities attach to such claims?

There are no special rules regarding pension plans or schemes, save for the claims arising out of social security contribution obligations, which are treated as priority unsecured claims, together with other employment-related claims.

Environmental problems and liabilities

42. Where there are environmental problems, who is responsible for controlling the environmental problem and for remediating the damage caused? Are any of these liabilities imposed on the insolvency administrator personally, secured or unsecured creditors, the debtor’s officers and directors, or on third parties?

If the subject of the special bankruptcy estate is contaminated property or real property, the costs of prescribed waste management that are borne by the insolvent debtor under environmental protection regulations are deemed to be costs of the insolvency proceedings. These costs are paid from the bankruptcy estate before any distribution of the general bankruptcy estate.

Liabilities that survive insolvency or reorganization proceedings

43. Do any liabilities of a debtor survive an insolvency or a reorganization?

Generally speaking, no liabilities of a debtor survive bankruptcy proceedings (even though after the bankruptcy proceedings are completed, unfulfilled obligations may still be validly fulfilled by a third party or, in the case of a personal bankruptcy, by the debtor itself).

If any assets of a debtor are discovered after bankruptcy proceedings have concluded, bankruptcy proceedings over such additionally discovered assets can be initiated based on a proposal of a creditor or a shareholder of the debtor.

Distributions

44. How and when are distributions made to creditors in liquidations and reorganizations?

Voluntary liquidation

The distribution of assets is performed based on a shareholders’ decision to distribute the assets of a company in liquidation. The shareholders’ decision is passed based on a report from the liquidation manager only after all debts of the company are repaid. The deadline for the distribution of assets is 30 days after the issuance of the shareholders’ decision.

Bankruptcy 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 such as six-month back salaries, wage compensation 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.

In reorganizations, creditors are repaid in accordance with the terms of the compulsory settlement or the restructuring agreement, as applicable.

SECURITY

Secured lending and credit (immovables)

45. What principal types of security are taken on immovable (real) property?

The main forms of security over real estate are mortgages and maximum mortgages (used for securing several existing and future claims of an individual creditor up to a maximum secured amount). Mortgages and maximum mortgages are perfected with their entry into the land register. A mortgage agreement must be concluded in a written form with the signature of the pledgor notarized; however, mortgages are generally concluded in the form of a directly enforceable notarial deed.

Secured lending and credit (movables)

46. What principal types of security are taken on movable (personal) property?

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. 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.

CLAWBACK AND RELATED-PARTY TRANSACTIONS

Transactions that may be annulled

47. What transactions can be annulled or set aside in liquidations and reorganizationsand what are the grounds? Who can attack such transactions?

As a general rule, according to the Obligations Code (Official Gazette of the Republic of Slovenia 83/01, as amended), 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 176/21, as amended) 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 the 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 favorable conditions for one of the creditors for the payment of their claim against the debtor.

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.

Pursuant to the recent amendments to the insolvency legislation (entering into effect on 1 November 2023), a creditor will be allowed to challenge the insolvent company’s legal actions and transactions that were executed before the challengeable period, provided that the creditor proves that the insolvent debtor was already insolvent in the period of such action or transaction being performed or executed, or that the action or transaction resulted in the insolvency of the debtor.

Equitable subordination

48. Are there any restrictions on claims by related parties or non-arm’s length creditors (including shareholders) against corporations in insolvency or reorganization proceedings?

There are no special restrictions in terms of insolvency legislation; however, in such cases, the general rules applicable to corporations, capital maintenance, the limitation of shareholders loans and tax apply. Under Slovenian corporate law, equitable subordination is prescribed for certain loans in limited liability companies by any shareholder and for certain loans in stock companies by a 25 per cent shareholder. Furthermore, affiliates of the insolvent company have no voting rights in compulsory settlement procedures.

As of 1 November 2023, when the amendments to the Financial Operations, Insolvency Proceedings and Compulsory Winding-Up Act (Official Gazette of the Republic of Slovenia 102/23) come into effect, an insolvent company will be explicitly prohibited to make any distribution of profits or repayments of contributions to the shareholders following the confirmed compulsory settlement, namely until all claims of all creditors affected by the compulsory settlement are paid in the amounts and with interest set out therein.

Furthermore, if any affiliate or closely related person of the insolvent company assigns its claim after the opening of the compulsory settlement procedure, the new creditor will not have the right to vote on the compulsory settlement. The amended insolvency law also broadened the definition of the person closely related to the debtor, which now also includes, among others:

1. any person holding a management or supervisory position in the debtor or acting as its procurator;
2. any shareholder with at least 10 per cent shareholding in the debtor’s share capital or voting rights; or
3. any person related in such manner with the person under (1) or (2).

Lender liability

49. Are there any circumstances where lenders could be held liable for the insolvency of a debtor?

No. However, partly related to the question, in a recent judgment the Ljubljana Higher Court confirmed the position that the court of first instance may annul the decision on the confirmation of a simplified restructuring procedure if it was concluded by fraud. In the mentioned case law, the court found indications of a collusion between the company and (some of) its creditors, the aim of which was to prevent a bankruptcy procedure in favour of a simplified restructuring procedure.

GROUPS OF COMPANIES

Groups of companies

50. In which circumstances can a parent or affiliated corporation be responsible for the liabilities of subsidiaries or affiliates?

Parent company liability is prescribed as part of the general Companies Act (Official Gazette of the Republic of Slovenia 42/06, as amended), which also applies outside insolvency and restructuring procedures to solvent companies. A parent company may be held liable under the piercing-the-corporate-veil rules or by instructing 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.

Combining parent and subsidiary proceedings

51. In proceedings involving a corporate group, are the proceedings by the parent and its subsidiaries combined for administrative purposes? May the assets and liabilities of the companies be pooled for distribution purposes?

Slovenian insolvency legislation provides no such option.

INTERNATIONAL CASES

Recognition of foreign judgments

52. Are foreign judgments or orders recognized, and in what circumstances? Is your country a signatory to a treaty on international insolvency or on the recognition of foreign judgments?

Foreign insolvency proceedings are generally recognized 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:

• l that fall within the scope of Council Regulation (EC) 1346/2000 (the Insolvency Regulation), which is directly applicable in Slovenia; or
• l where an international treaty applies.

Slovenia has also adopted the UNCITRAL Model Law on Cross-Border Insolvency.

Domestic courts may generally refuse to recognize 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.

UNCITRAL Model Laws

53. Have any of the UNCITRAL Model Laws on Cross-Border Insolvency been adopted or is adoption under consideration in your country?

Yes, Slovenia has adopted the UNCITRAL Model Law on Cross-Border Insolvency.

Foreign creditors

54. How are foreign creditors dealt with in liquidations and reorganizations?

Foreign creditors have the same status and rights as Slovenian creditors.

Cross-border transfers of assets under administration

55. May assets be transferred from an administration in your country to an administration of the same company or another group company in another country?

Slovenian insolvency legislation does not provide such an option.

COMI

56. What test is used in your jurisdiction to determine the COMI (centre of main interests) of a debtor company or group of companies? Is there a test for, or any experience with, determining the COMI of a corporate group of companies in your jurisdiction?

A company’s centre of main interests (COMI) is determined in accordance with the Insolvency Regulation, which is directly applicable.

Under Slovenian law, if not proven otherwise, a company’s COMI is determined as the country in which it has its registered seat.

Cross-border cooperation

57. Does your country’s system provide for recognition of foreign insolvency proceedings and for cooperation between domestic and foreign courts and domestic and foreign insolvency administrators in cross-border insolvencies and restructurings? Have courts in your country refused to recognizeforeign proceedings or to cooperate with foreign courts and, if so, on what grounds?

According to Slovenian insolvency legislation, domestic courts must cooperate with foreign courts in managing cross-border insolvencies to the highest extent possible. No special form of 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 based on a direct request from a foreign court or administrator.

The Insolvency Regulation rules on cooperation are transcribed into local laws.

We are not aware of any case in which the Slovenian courts have refused to recognize foreign proceedings (if the conditions set out in the Slovenian insolvency legislation and the general conditions on the recognition of foreign court judgments are met) or to cooperate with foreign courts.

Cross-border insolvency protocols and joint court hearings

58. In cross-border cases, have the courts in your country entered into cross-border insolvency protocols or other arrangements to coordinate proceedings with courts in other countries? Have courts in your country communicated or held joint hearings with courts in other countries in cross-border cases? If so, with which other countries?

No.

Winding-up of foreign companies

59. What is the extent of your courts’ powers to order the winding-up of foreign companies doing business in your jurisdiction?

The courts’ power is limited to companies or subsidiaries that:

• are registered in Slovenia;
• have their COMI in Slovenia; or
• have assets in Slovenia.

The Insolvency Regulation and other EU regulations are directly applicable in Slovenia.

UPDATE AND TRENDS IN RESTRUCTURING AND INSOLVENCY IN SLOVENIA

Trends and reforms

60. Are there any emerging trends or hot topics in the law of insolvency and restructuring? Is there any new or pending legislation affecting domestic bankruptcy procedures, international bankruptcy cooperation or recognition of foreign judgments and orders?

Although the deadline for the transposition of Directive (EU) 2019/1023 (the Restructuring Directive) passed on 17 July 2021, the Slovenian legislator has only transposed it to local legislation by adopting amendments to the Financial Operations, Insolvency Proceedings, and Compulsory Dissolution Act (Official Gazette of the Republic of Slovenia 102/23) on 20 September 2023. The new Slovenian insolvency legislation, introducing several material changes to the insolvency proceedings (some of them exceeding the requirements of the Restructuring Directive), enters into force on 1 November 2023.

In addition to the existing preventive restructuring procedure, the amended Slovenian Insolvency Act provides for another pre-insolvency restructuring, namely a judicial restructuring procedure to remedy threatened insolvency, which will become available as of 1 January 2025. Both pre-insolvency restructuring procedures will be applicable in the case of threatened insolvency (this term is now explicitly defined in the amendments to the insolvency legislation), that is, if the debtor is not yet insolvent but is likely to become insolvent within a period of one year.

The main difference between these two procedures is that the new judicial restructuring procedure will be applicable to all companies and entrepreneurs and for the restructuring of all claims (ie, both financial and commercial claims). The existing preventive restructuring procedure is, however, only available to small, medium-sized and large companies, and only financial claims may be restructured thereunder.

Furthermore, under the current regulation, a debtor threatened with insolvency may apply for preventive restructuring, but is not obliged to do so. However, under the amended legislation, threatened insolvency will trigger similar obligations for the debtor’s management as currently apply to the management of the company that is already insolvent.

The new judicial restructuring procedure to remedy threatened insolvency may not be conducted if the debtor did not comply with certain obligations related to the submission of annual report or tax payments or was convicted of a certain crime.

The following changes, among other things, have been introduced by the recent amendments to the insolvency legislation:

• the existing simplified compulsory settlement procedure intended for micro companies and entrepreneurs has been renamed to the compulsory settlement for small businesses, and certain changes, mostly related to the cost reduction and required documentation, have been introduced;
• the possibility of using special rules for compulsory settlement procedures currently available only to small, medium-sized or large companies has been extended to companies of any size as well as to sole entrepreneurs;
• certain issues that were put forth by the Slovenian Constitutional Court have been addressed;
• the possibility for judicial review by the Supreme Court in certain insolvency procedures has been introduced;
• management responsibilities upon the occurrence of the insolvency or threatened insolvency have been extended;
• a statutory override of the ipso facto clauses in essential or key contracts has been provided; and
• generally, the amendments aim to improve the repayment of creditors in bankruptcy procedures and the position of workers affected by insolvency procedures.

* The information in this chapter was accurate as at October 2023.

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