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Better times for firms in trouble?

2013-07

On 3 June 2013 two amendments came into force: The Act Governing the Rescue and Restructuring Aid for Companies in Difficulty (ZPRPGDT) and the Takeovers Act (ZPre-1). The aim of the both amendments is to enable easier access to fresh capital for firms in financial trouble in order to increase the possibility of successful financial restructuring.

ZPre-1 introduces the possibility in the Slovenian legal system that a person who has achieved the takeover threshold (one third of voting shares) in a company in trouble can postpone for up to five (5) years the obligation to submit a takeover bid (within the framework of financial restructuring measures conducted before the introduction of formal insolvency procedures according to ZFPPIPP). One condition for delaying the obligation to submit a takeover bid is that the acquisition of such shares be approved in advance by the Securities Market Agency (Agencija za trg vrednostnih papirjev - ATVP). If the acquirer of the shares acquires new shares within five years from the day of acquiring such shares as part of the financial restructuring process, and if such person still exceeds the takeover threshold, he is obliged to submit a takeover bid (unless he secures a delay regarding the submission of a takeover bid for a new acquisition as well.) ZPre-1 does not set clear criteria according to which the AVTP would decide on such agreement; it only requires a proposal to be explained and accompanied by the favourable opinion of an appropriate expert who thereby reaffirms that the measures are necessary for financial restructuring and that it is probable that the restructuring will be successful.

ZPre-1 further imposes the possibility that the ATVP temporarily abolish the prohibition on exercising the voting rights of persons who were prohibited from exercising voting rights by a decision of the ATVP. According to ZPre-1, there are two justified reasons for a temporary abolition of the suspension of voting rights: (i) when this is necessary for successful financial restructuring of a company in trouble (in such instance, suspension of the prohibition lasts 5 (five) years) or (ii) if this is necessary in order to realise the public interest. Eligible proposers must address their proposal to the ATVP no later than 10 days before the general assembly of the company where voting on the proposed measures is to take place. Here, too, the basis for the decision-making of the ATVP is not defined in detail, making it especially interesting how it will evaluate the (non)existence of a public interest, as this concerns a standard which, in the Slovenian legal system, is often more politically than legally coloured.

The ZPRPGDT-E amendment establishes that now also unsecured loans and surety bonds issued on the basis of ZPRPGDT will be treated as (higher) priority claims in insolvency proceedings. At the same time, it also abolishes the requirement that all companies in trouble must, according to ZPRPGDT, ensure appropriate guarantees for received loans and surety bonds. The elimination of the mentioned requirement is appropriate, as a company in trouble is normally not able to fulfil the mentioned requirement; companies in trouble namely do not normally have unencumbered assets that they could offer as guarantees. This is because such assets are usually already pledged as guarantees to banks and other claimants.