Entrepreneurs may be able to avoid bankruptcy by anticipating difficulties - if they keep a close eye on the financial situation of their business.
The Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act covers all types of insolvency proceedings (compulsory settlement and bankruptcy proceedings) as well as procedures for the compulsory winding-up of corporations which are legal entities (cancellation of the Court Registration without liquidation and compulsory liquidation).
A company is in difficulties, when it is not capable of halting the negative trends shown in its financial results, although it attempts to do so by its own resources or by resources it can obtain from its members, shareholders or creditors. It will be deemed that a company is in difficulties:
- in the case of a company with share capital – if a current loss plus any loss brought forward (from previous years) reaches an amount equal to half the authorised capital and if in the last 12 months it reaches an amount equal to one-quarter of the authorised capital;
- in the case of partnerships – if a current loss plus any loss brought forward (from previous years) in the last 12 months reaches an amount equal to one-quarter of the capital shown in the accounting records.
Since, in accordance with the EU policy, the EU prefers to prevent the collapse of companies, the Act Governing Rescue and Restructuring Aid for Companies in Difficulty introduces settlement proceedings to prevent bankruptcy by abolishing the insolvency of a company through financial restructuring measures and allowing the company to increase its authorised capital by new contributions paid in (conversion of receivables, subscription of new shares etc.). State aid may be granted to help in the preparation and execution of a restructuring programme and to help in the settlement of due payments regarding severance pay for workers made redundant.
To prevent bankruptcy, a company may introduce compulsory settlement proceedings which enable the company to create better conditions for paying off the debt claims of creditors by the introduction of financial restructuring measures.
If these measures are unsuccessful, bankruptcy proceedings will be instituted. The final goal of bankruptcy is the liquidation of the assets of the debtor, the distribution of such funds to creditors and winding up the legal entity.
In accordance with the Alternative Dispute Resolution Act (ADR Act), disputes may be settled by mediation. If the parties in a dispute agree, the Court will adjourn a trial for a period which must not exceed 3 months. When it is appropriate, the Court may, after consulting with the parties in a preliminary hearing, instruct the parties to settle the dispute by an alternative dispute resolution.
The mediator's fees and travel expenses in commercial disputes will be shared equally by both parties in the dispute.
The authorised bodies for settling commercial disputes are local, district, labour and higher courts, as well as the Higher Labour and Social Court. The authorised bodies for the compulsory bankruptcy and liquidation of companies are district courts, and the local courts decide on the civil bankruptcy of entrepreneurs and personal bankruptcies.
Courts may adopt and execute the Alternative Dispute Resolution Programme as an additional activity, which may be organised directly at a Court (Court Associated Programme) or they may carry out the alternative settlement of disputes awarding this task to a contractor with whom they conclude a contract (Linked to the Court Programme). Within the Chamber of Commerce and Industry of Slovenia (GZS) there is the Standing Arbitration within the GZS, which enables the settlement of commercial disputes by arbitration and intervention.
Within one month from the date when the company became insolvent, the management of a company must submit a report to the supervisory board on the financial restructuring measures necessary to rectify the insolvency of a company. If the management assesses that there is at least a 50 % possibility that the company will succeed in paying off its debts within a reasonable short-term or long-term period, it must include in the report its proposal for financial restructuring measures and the deadlines for their execution (such measures, for example, are allowing the company to increase its authorised capital by new contributions paid in, the sale of assets which are not connected with its business activity, etc.).
If the management board does not believe in the possibility of financial restructuring it may file a Bankruptcy Petition (for the initiation of bankruptcy proceedings) with the appropriate Court. The Court will determine whether to make a bankruptcy order or not. Once a Bankruptcy Order has been issued, the notice of bankruptcy will be entered in the register: "gone bankrupt" will be recorded in the debtor's register entry. Within one month from the date when all the money realised from sale of the bankrupt's assets has been liquidated or distributed, the trustee must file his final report with the Court, and on the basis of this document the Court will issue an Order on the Discharge of the Bankrupt, which means that the bankruptcy comes to an end and the bankrupt is released from most of his previous debts. When this order becomes final, the notice of bankruptcy in the debtor's register entry will be expunged ex-officio from the register.
In accordance with the Guarantee Fund Act a proposal for the initiation of bankruptcy proceedings may also be filed by the Guarantee and Maintenance Fund, which provides for settling the debt claims of workers against an insolvent debtor (employer).
Entrepreneurs having experienced bankruptcy should not lose confidence in their ability to embark on a new business.
Bankruptcy Proceedings: Step-by-Step Guide
If the management decides that financial restructuring measures might not be successful, or the General Assembly did not allow the company to increase its authorised capital by new contributions paid in, or the subscription of new shares was not successful, within the next three days the management must file a Bankruptcy Petition (for the initiation of bankruptcy proceedings) with the authorised district Court.
The bankruptcy officially starts on the date when the court issues a bankruptcy order , and the management of the debtor in bankruptcy must immediately enable a trustee (appointed official receiver) to access the premises of the company, give him the keys and any other equipment necessary for access and protection of those premises, and hand over any other property, equipment or documents, as all of the debtor’s personal property would be treated as vested in the trustee in bankruptcy on the date of the bankruptcy order. Within 3 days from the date of the commencement of bankruptcy, the debtor must submit all the documentation on financial transactions and other business documentation to the trustee.
In proceedings where a company has declared insolvency, the trustee , who represents interests of creditors, will be appointed by the court. The legislation has introduced detailed rules on communications between the Ministry for Justice and the Court relating to the designation of trustees.
The trustee in bankruptcy will prepare a report on the state of affairs, and immediately after that he will convert the debtor’s property into money, and use that money to pay the bankrupt’s debts in accordance with the deadlines specified in the repayment plan. In accordance with the legislation relating to insolvency proceedings the trustee must treat all creditors which are in the same relationship with the insolvent debtor equally, and carry out his activities in such a way as to provide the most favourable conditions for the creditors' claims regarding their amounts and deadlines.
During the bankruptcy proceedings, the estate (assets) of a bankrupt company, including the funds for the company's debts, is administered by a trustee in bankruptcy. Each creditor must deliver a Notice of Pursuit of Claim, no later than 3 months from the date of the bankruptcy order. In the 'Notice of Pursuit of Claim', the creditor must specify all data required by the electronic questionnaire, available below, and submit proof of his claims.
Within a month from the expiration of the deadline for the submission of the Notice, the trustee must make an assertion, recognized or contested, on each Notice of Pursuit of Claim received in due time, by filing a list of verified claims with the Court. The function of the trustee is to liquidate the assets included in the bankrupt's assets
- in the form of a sale of the debtor's assets,
- pursuing the debtor's unpaid receivables, and
- any other legal transaction for the realisation of the debtor's rights.
The Agreement for the Sale of Assets of the debtor in bankruptcy may be concluded only on the basis of a prior announcement in the media or on the basis of a binding search for offers. The money realised from the sale of bankrupt's assets will be distributed for the payment of debt claims in the following order:
- Preferential debts
- Ordinary creditors
- Deferred creditors.
The preferential distribution is the distribution of the bankrupt's assets for the settlement of preferential debts.
The common distribution is the distribution of the bankrupt's assets for the settlement of ordinary and deferred debts.
The subsequent distribution is the subsequent distribution carried out when all the bankrupt's assets have been sold.
The trustee must obtain a court order for any payment or other settlement from the bankrupt's assets.
Within one month from the date when all money realised from sale of the bankrupt's assets has been liquidated or distributed, the trustee must file his final report with the Court, and on the basis of this document the Court will make an Order for the Discharge of the Bankrupt and relieve the trustee. On the basis of the final order for the discharge of the bankrupt, the debtor in bankruptcy will be expunged ex-officio from the register.
A bankruptcy petition may also be filed with the court by a creditor or the Guarantee and Maintenance Fund. Those workers whose employment contract was terminated due to the insolvency of the employer or to the winding-up of the company without liquidation, are entitled to at least 4.5 minimum wages as a lump-sum payment from the Guarantee Fund, against submitting a request for the settlement of liabilities. In accordance with the Guarantee Fund Act, if the registered office of an employer is in another EU Member State, and the worker was performing his activities in Slovenia on the basis of an employment contract, he will be entitled to apply for the settlement of liabilities.
All major activities of management and activities in insolvency proceedings must be published on the Agency for public and legal records and services (AJPES) Website or even entered them in the Court Register.
The data which will be published and are available free of charge are:
- Data on any compulsory settlement, bankruptcy and liquidation proceedings,
- the court orders,
- announcements of the commencement proceedings, the date of a hearing and other announcements,
- the minutes of hearings and the meetings of the creditors’ committee,
- the reports of trustees,
- the lists of verified claims,
- any announcements of public sales and binding searches for offers relating to the sale of the bankrupt's assets.
Civil Bankruptcy relates to private entrepreneurs. The bankruptcy petition my be filed by a debtor or creditor.
The court appoints a trustee in insolvency, which monitors the financial situation of a debtor; the latter is obliged to report on any changes to the trustee in insolvency.
When insolvency proceedings start, the debtor's status as a private entrepreneur is terminated.
The Financial restructuring is a group of measures which are taken to achieve the short- or long-term solvency of a debtor. Such measures are:
- the reduction and postponement of the maturity of the debtor's obligations,
- allowing the company to increase its authorised capital by new contributions paid in relating to the conversion of receivables, or the subscription of new shares.
Companies in difficulties may resolve their problems by State aid in the form of:
- interest rate subsidies,
- capital investments,
- deferred payment of taxes and contributions;
however, they must submit a restructuring programme, which must include:
- an analysis of the reasons for the problems which occurred with an assessment of the economic and social consequences if the company goes bankrupt,
- a presentation of the company’s objectives and a strategy for achieving those objectives by various aspects,
- restructuring (marketing, technology, financial policy, staffing policy, ecological requirements),
- projections of business development over a 5-year period (various solutions: optimistic, realistic, or pessimistic solutions),
- a schedule of activities.
One type of compulsorily winding-up a company is compulsory liquidation. The court is the body authorised to start liquidation in the following cases:
- ex-officio, if specified by law, or
- on the petition of a person who is authorised (by law) to file petitions with the court relating to compulsory liquidation.
The parties to proceedings in compulsory liquidation are the partners of a legal entity over which the proceedings are instituted. The creditors are not parties to this proceeding, which also does not allow creation of a creditors' committee. If the legal entity over which the compulsory liquidation proceedings are instituted has become insolvent, the trustee must, in no more than 15 days from the date of insolvency, file in its name a bankruptcy petition with the court.
Lists of the various insolvency proceedings already commenced are available on the Website of the Supreme Court of the Republic of Slovenia.
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