9.1.1 Would the airline be required to file for insolvency protection?
When a company becomes insolvent, the management shall, within one month following the occurrence of insolvency, present to the supervisory board a report on financial restructuring measures. The management has to give its opinion as to whether there is the probability of a minimum of 50 per cent for the successful execution of financial restructuring, the result of which would be regained liquidity and solvency of the company. If the management is of opinion there is not at least 50 per cent possibility, it shall file a petition for commencement of a bankruptcy proceeding. If the management estimates that insolvency may not be wholly eliminated with adoption of financial restructuring measures and it is of opinion there is a probability of a minimum of 50 per cent for the successful execution of compulsory settlement, the management shall file a petition for commencement of the compulsory settlement proceeding.
9.1.2 Do the available forms of insolvency protection in the Relevant Jurisdiction involve the appointment of either an officer of the court or a specifically court appointed official to take control of the Airline (an Insolvency Official) while in insolvency protection?
Yes. An administrator is appointed by the court when the decision on commencement of the bankruptcy/compulsory settlement proceeding is adopted. The exception here are the compulsory settlement proceedings over certain companies where the court appoints the administrator the following day after the institution of such proceeding. In the bankruptcy proceeding, with appointment of the administrator the powers of the debtor’s representatives, holders of procuration and other persons authorised to represent the debtor, as well as the powers of the management of the debtor to conduct its operations, expire. In the compulsory settlement proceeding, an administrator is obliged to supervise and examine the debtor’s business and the fulfilment of its obligations.
9.1.3 Does the Insolvency Official have authority to negotiate and reach agreement with the Owner in relation to matters such as the payment of unpaid rent, continuation or termination of the Lease and repossession of the Aircraft without the need for court approval?
In the compulsory settlement proceeding, the debtor’s operations shall be limited only to the performance of regular operations associated with the performance of its business activity, which is supervised by the administrator. The administrator is empowered to file a proposition to the court to prohibit certain operations and acts, which are not in line with the above-mentioned limitation. In the bankruptcy proceeding, the administrator conducts the operations of the debtor and represents it, inter alia, in legal transactions which the insolvent debtor may carry out pursuant to the Insolvency Act. In addition, rules on mutually unfulfilled bilateral contract could apply. In such case, the insolvent debtor has the right to either withdraw from such a contract or to honour the contract. If the debtor withdraws from the contract (for which the consent of the court is required), the Owner shall have an exclusion right, meaning that it can request from the insolvent debtor to deliver the Aircraft in its possession. If the debtor decides to honour the contract, the Owner is not required to register his/her claims in the insolvency proceeding, but is rather paid according to the Lease agreement and based on the rules concerning the payment of the costs of bankruptcy proceedings.
9.1.4 Does the commencement of insolvency protection involving the appointment of an Insolvency Official in the Relevant Jurisdiction have the effect of prohibiting the Owner from taking the following actions to enforce the lease after commencement of such protection:
- Applying any security deposit held by the Owner against any unpaid amounts due under the Lease? No.
- Accepting payment of rent or other lease payments from:
- (i) the Airline? After commencement of the bankruptcy proceeding, the administrator with consent of the court decides which transactions may be carried out with regard to admissible operations of the insolvent debtor, e.g. continuation of operation by the Airline. In the compulsory settlement proceeding, since payments of rent or other lease payments for aircraft would be considered liabilities arising from the performance of regular business activity of the Airline, the Airline would be permitted to continue to make such payments. In both, bankruptcy and compulsory settlement proceeding, the administrator/debtor has the right to withdraw from the mutually unfulfilled bilateral contract; please see above under 9.1.3.
- (ii) a guarantor? The Owner may accept payments from the guarantor if he/she is not subject to the insolvency proceeding.
- (iii) a shareholder? Assuming a personally liable shareholder is not himself in insolvency proceedings then there is no limitation on accepting payments from such shareholder.
- giving notice of default under the lease? The Owner is not prohibited from giving such notice, however the legal consequences of the initiation of bankruptcy proceedings have effect only for creditors’ claims which incurred before the initiation of bankruptcy proceedings.
- obtaining a judgment or arbitral award for unpaid lease payments? After insolvency proceedings have been initiated, issuing an order on execution or securing against the insolvent debtor is not permitted. All proceedings are generally suspended when an insolvency proceeding is initiated.
- giving notice to terminate the leasing of the Aircraft? The Owner may still give notice to terminate the lease.
- exercising rights to repossess the Aircraft? Since the Owner owns the Aircraft, he has an exclusion right, which grants him the possibility to request from the insolvent debtor to deliver him/her the Aircraft.
9.1.5 Can the commencement of Insolvency Proceedings have retrospective effect in relation to any such actions taken before commencement? If so, for what period can there be a look back?
Generally, the legal consequences of commencement of bankruptcy proceedings come into effect as of the beginning of the day of publication of the notice of the commencement of bankruptcy proceedings. However, all legal transactions and other legal actions which the debtor in bankruptcy has concluded or carried out in the period as of the beginning of the 12 months prior to the introduction of bankruptcy proceedings up to the initiation of bankruptcy proceedings may be challenged within six months after the commencement of the bankruptcy proceeding. In certain cases, even legal transactions carried out by the debtor in the period as of the beginning of the 36 months prior to the introduction of bankruptcy proceedings up to the initiation of bankruptcy proceedings may be challenged.
9.1.6 Is there, either under law or as a matter of practice in the Relevant Jurisdiction, a period of time within which the Insolvency Official will either “adopt” the lease and pay rent and other lease payments as an expense of the insolvency or “reject” the lease and permit the Owner to enforce such rights as it may have under the lease?
In line with one of the core principles of insolvency proceedings under Slovenian law, i.e. the principle of conducting insolvency proceedings in such a manner as to strive for the optimum conditions for payment of creditors, the administrator may, within one month of the initiation of the bankruptcy proceeding, ask the court for the approval of completion or continuation of debtor’s operations:
- Completion of debtor’s operations that were started prior to initiation of bankruptcy proceeding: such completion is permitted if it is necessary to prevent a reduction of the bankruptcy estate and if such completion does not cause a delay in selling of the bankruptcy estate and provided the risks are limited;
- Continuation of debtor’s operations: continuation is permitted if more favourable conditions are reached for the sale of assets of the debtor which are used in such operations, as a business whole, than in case of completion of operation and provided the risks are limited.
In both bases, the court makes a decision also based on the opinion of the creditors' committee.
As already stated under question 9.1.3 above, the administrator has also the right either to withdraw from mutually unfulfilled bilateral contract or to honour such contract. In the bankruptcy proceeding, the administrator may exercise the right to withdrawal within three months after the initiation of bankruptcy proceedings or within three months of being notified of existence of such contract, whichever is later, while in the compulsory settlement proceeding, the administrator may exercise such right one month after the initiation of the proceeding at latest. Court's approval for withdrawal is required.
9.1.7 If the lease is “adopted” will the Insolvency Official also pay any unpaid lease payments due as at commencement of the insolvency protection?
No legal consequences of the initiation of bankruptcy proceeding apply for the mutually unfulfilled bilateral contracts. Consequently, if the debtor does not withdraw from such a contract, it has to pay the obligations arising out of the mutually unfulfilled bilateral contracts towards the creditor in line with such contract and such payments will be, simply put, considered as costs of bankruptcy proceedings, meaning they will be paid before any claims by other creditors.
9.1.8 If not or if the lease is “rejected”, would the Owner’s claim for any outstanding sums rank equally with other ordinary unsecured creditors of the Airline?
Yes.
9.1.9 Are there certain types of preferred creditors whose claims will rank above claims of the Owner?
Yes, there are creditors with the right to separate settlement. Creditors with the right to separate settlement are creditors who are enforcing their claims, which are secured with a right to separate settlement in the insolvency proceeding. The right to separate settlement is a right that ensures that creditor's claims are paid from certain assets of the insolvent debtor before the claims of other creditors of such debtor are paid from such assets. This is a statutory definition. In practice, these provisions refer to creditors that have secured their claims with pledges of certain assets of the insolvent debtor and therefore have the right to repay their (secured) claims from the pledged assets before other (unsecured) claims. Moreover, of all unsecured claims, priority claims are paid from the common distribution estate with first priority order.
9.1.10 If the Aircraft is in the possession of a person other than the Airline at the commencement of Insolvency Protection of the Airline, for example an independent maintenance facility, will such person be entitled, under the laws of the Relevant Jurisdiction, to assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline?
When certain kinds of contracts, e.g. contract for work, contract of mandate, commission agency contract etc. are entered into, a contractual party who is obliged to perform specific transactions, acts, or deeds, in return for payment could claim to have a lawful lien on the Aircraft in its possession in order to secure payment for work performed and costs. In the event a debtor becomes insolvent, such creditor is entitled to a retention right even though his claim is not yet due.
9.1.11 Is a person other than the Airline, for example an airport authority, entitled under the laws of the Relevant Jurisdiction to seize possession of the Aircraft after commencement of Insolvency Protection and assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline.
No. If security was not established prior to commencement of the insolvency proceeding, no person is entitled to assert a lien after the commencement of insolvency proceeding.
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