- if the company is insolvent, it shall be subject to a bankruptcy procedure (in Slovak: “konkurz”) (i) which inevitably leads to the deletion of the company from the Commercial Registry and (ii) the procedure merely focuses on the distribution of the existing assets of the company to its creditors
- if the insolvency of the company is impending, the process of restructuring (in Slovak: “reštrukturalizácia”) may be carried out, provided the (i) restructuring process is recommended in a Restructuring Opinion; (ii) maintenance of at least a substantial part of the operation of the company´s enterprise and (iii) higher degree of creditor satisfaction than in a bankruptcy may be.
Both types of procedures are governed by mandatory law that provides for transparency and the operation of the Slovak court in the procedures is considerable. Creditors as business partners of such companies shall be granted the possibility to claim receivables, which eventually may change the scenario, e.g. a company initiating the restructuring procedure may turn out to be insolvent and may be ultimately handled by virtue of a bankruptcy procedure.
Bankruptcy proceedings and restructuring proceedings are the procedures applicable in the case of the insolvency of the company and are therefore dealt in detail in the following parts.
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Filing an application by the company (as the debtor) or creditor
In case of the bankruptcy proceedings there are two insolvency tests under the Slovak legislation:
- company is deemed illiquid if it is not able to pay its debts that are in arrears for more than 30 days and it has more than one creditor
- company is over-indebted if its overdue liabilities exceed its total assets and it has more than one creditor
If the company is illiquid and/or over-indebted, it is deemed insolvent under Slovak law. Bankruptcy proceedings shall be initiated by the company (as the debtor) or may be initiated by its creditor.
Obligation of the company (as the debtor) to apply for bankruptcy proceedings
The company (as the debtor) shall file a proposal for the bankruptcy order within 30 days since the company has known or while maintaining due diligence should have known its status, while
- the obligation to file the application on behalf of the company (as the debtor) has the statutory body as well as the member of the statutory body of the debtor and the company’s legitimate representative
- for the event of breach of the obligation to file a proposal for the bankruptcy in time there is a penalty in the amount of EUR 12,500.
The company (as the debtor) is required to submit a list of assets, list of liabilities, list of related parties and the most recent financial statements (if applicable) with the application. When the bankruptcy petition is filed by the company (as the debtor) and the decisive facts are well-documented, the decision of the court is straightforward.
Right of the creditor of the company to apply for bankruptcy proceedings
Bankruptcy proceedings may be initiated by the creditor, while the motion shall i. describe the nature of the debt and the reasoning under which the creditor believes that the debtor is illiquid and ii. identify another creditor of the company.
It shall be noted that the claim of the creditor who is filling the application shall be duly proved in the motion in general by:
- acknowledgment of the debt by the company (as the debtor) with the verified signature of the company (as the debtor)
- final and non-appealable of a court or another authority
- confirmation of an auditor or of a court expert that the creditor accounts the receivable in accounting in accordance with accounting regulations
In general, for the petition filed by the company or the creditor applies that the petitioner (company or the creditor) is required to make a deposit to cover the expected remuneration and expenses of the bankruptcy proceedings. The deposit shall be transferred to a bank account of the court prior to filing the petition in bankruptcy and a proof of payment of the deposit shall be included in the petition in bankruptcy. If the court dismisses the petition in bankruptcy or if prior to the commencement of the bankruptcy proceedings the petitioner withdraws its petition, the deposit shall be released to the petitioner.
In case of the restructuring proceedings the proceedings can be initiated by the company (as the debtor) or by its creditor.
Initiation by the company (as the debtor)
If the company (as the debtor) is threatened by financial distress or finds itself in financial distress, it may instruct a trustee to prepare the Restructuring Opinion in order to determine, whether the criteria for the restructuring of the company are satisfied, or not (it does not affect the duty of the company to file a petition in bankruptcy in due time, if conditions for obligatory bankruptcy are met).
Initiation by the creditor
If one or several creditors agree with the company (as the debtor) to provide the necessary collaboration, they may instruct a trustee to prepare the Restructuring Opinion also on their own.
In both alternatives the trustee may recommend a restructuring of the company only if:
- the company is threatened by financial distress or already suffers from financial distress
- it is reasonable to expect that at least a material part of the business of the company shall be maintained
- it is reasonable to expect that the extent of satisfaction of the creditors will be higher as if a bankruptcy order was made.
A petition asking for the authorization of the restructuring has to be filed with the court having jurisdiction. The restructuring petition may be filed by either the company (as the debtor) or by the creditor. Attached to the restructuring petition the petitioner shall file the Restructuring opinion of the trustee.
The bankruptcy proceedings and restructuring proceedings start officially with the resolution of the court which is published in the Company Gazette (in Slovak: “Obchodný vestník”). The date of publication is also the starting date of the period during which creditors may submit their claims on receivables against the company
- in the bankruptcy procedure such period is 45 days. If the creditor delivers the application later to the trustee, the application shall be taken into consideration, but the creditor cannot exercise the right to vote. The right to proportional satisfaction of the creditor shall not be touched but it can be satisfied only from the gains put into the schedule from the general property
- in the restructuring procedure the period is 30 days. Any claim delivered after the expiration of the term shall be disregarded within the framework of the restructuring proceedings and the claim enforced thereby shall not be included in the Restructuring Plan.
In both procedures the submission of claims is free of charge. Each submitted claim shall be reconciled by the trustee with due care. If trustee finds out while analysing the claims, that any of them is disputable (as to the title of its existence or enforceability), the trustee shall be obliged to contest such claim to the extent in which it is disputable. However the creditor holding a contested claim may file with the court an action asking the court to acknowledge the claim.
Sanctions against debtor´s or creditor's management
Sanctions on the side of the company (as the debtor)
I. Penalty for company´s (as the debtor) management
Company as the debtor is obliged to file a proposal for the bankruptcy order within 30 days since it knew or while maintaining due diligence should have known of its status. This obligation on behalf of the company (as debtor) has mainly the statutory body as well as the member of the statutory body of the company.
For the event of breach of the obligation to file a proposal for the bankruptcy in time, there is a fiction stipulated by the law, that between the company and the person obliged to file the proposal for the bankruptcy a contractual penalty in the amount of EUR 12.500 is negotiated (equal to the half of the lowest value of the basic capital for a joint-stock company). This sum serves for the satisfaction of bankruptcy costs and satisfaction of creditors (if the sum surpasses the bankruptcy costs). Any agreement between the company and the person obliged to file proposal for the bankruptcy, which excludes or restricts entitlement for the contractual penalty, shall be prohibited.
Entitlement for the contractual penalty shall not affect the entitlement to compensation for damage exceeding the contractual penalty.
II. Disqualification of the member of the statutory body to execute the function of the statutory
If the court decides that the person breached the obligation to file a proposal for the bankruptcy in time and therefore the person is obliged to pay the contractual penalty as described above, the person will be disqualified by the court to be a member of the statutory body of the company (as debtor) and also of other companies and the prohibition can be up to 3 years.
Further the person will be registered in the state Registry of Disqualification which is a public registry operated by the district court.
III. Criminal offenses on the side of the company (debtor)
There are several relevant criminal offenses according to Slovak Criminal Code concerning acting in insolvency status or in respect of the bankruptcy or restructuring proceedings, as:
- Fraudulent insolvency
- Culpable insolvency
- Fraudulent conveyance of a creditor
- Fraudulent preference of a creditor
- Distortion of data in financial and business records
- Deceitful practices in bankruptcy or restructuring proceedings
- Obstructing bankruptcy or restructuring proceedings.
Sanctions on the side of the creditor
Criminal offenses for an improper acting in the bankruptcy or restructuring proceedings are mainly:
- Deceitful practices in bankruptcy or restructuring proceedings
- Obstructing bankruptcy or restructuring proceedings
Sanctions for any third person
All third persons are obliged to collaborate under the Act of bankruptcy and restructuring. The collaboration shall be provided promptly and free of charge. If any third person fails to provide collaboration as required by the law, the court may penalize such person by a fine up to EUR 3.300.
Property division rules
The property which is liable to the bankruptcy shall made up a bankruptcy estate, which shall be split between:
- general bankruptcy estate
- individual separate bankruptcy estates of secured receivables (receivables for example secured by the pledge over the specific asset).
The creditors are satisfied by the funds which were converted by the sale of the assets from the respective group.
In general, the receivables are satisfied in the following order:
- costs of the insolvency procedure which include mainly costs of selling the assets, fee of the trustee
- employees´ wages and other claims of employees that arose after the bankruptcy was declared
- taxes, duties, health insurance payments, social insurance payments and other contributions to the state
- other claims.
In the restructuring proceedings is applied that the property is divided as it is proposed in the Restructuring Plan, which shall be approved by the creditors and subsequently ratified by the court.
According to the law, the rate of satisfaction of any of the unsecured receivables shall not be lower than 50% of the amount of the claim, this does not apply if the concerned creditor agrees in writing with a lower level of satisfaction.
- Act No. 7/2005 Coll., Bankruptcy and Restructuring Act
- Act No. 513/1991 Coll., Commercial Code
- Act No. 300/2005 Coll., Criminal Code
Final solution (possible options)
The objective of the bankruptcy proceedings is the termination of the company and the distribution of its assets. The trustee shall converse all the property of the company to funds in cash with the aim to satisfy the creditors. The proceeds from the sale of property shall be released to creditors holding proven claims, under a Distribution Scheme, which of course shall be approved by the respective body in the bankruptcy proceedings, respectively by the court.
Other possible final solutions in the bankruptcy proceedings may be mainly:
- the court dismisses the petition in bankruptcy, if the petition in bankruptcy does not contain the essentials prescribed by the law and this deficiency was not removed in the stated period
- the court terminates the bankruptcy due to insufficient assets if it finds out that the property of the company (as the debtor) is not sufficient to cover at least the costs of the bankruptcy proceedings.
In the restructuring proceedings, a Restructuring Plan is prepared which includes two main sections: the descriptive part and the binding part which is crucial as it contains a specification of all rights and obligations to be constituted, altered or expired with respect to participants of the Restructuring Plan, such as prolongation of maturity, partial expiration of the obligations or instalments schedule.
The Restructuring Plan shall be approved by the creditors at the approval meeting and ratified by a decree of the course, once it was approved by the creditors.
Other possible final solutions in the restructuring proceedings may be that the court abandons the restructuring proceedings, if it finds out that:
- the final draft of the Restructuring Plan was not submitted by the term prescribed by the law
- the Restructuring Plan was not approved by the required quorum of the creditors at the approval meeting
- a request of the ratification of the Restructuring Plan to the court was not filed, by the law prescribed term.