CMS Expert Guide to restructuring and insolvency law

A global overview

1. What is the primary legislation governing insolvency and restructuring proceedings in your jurisdiction?

The primary legislation governing insolvency and court-sponsored financial restructuring proceedings in Slovenia is the Financial Operations, Insolvency Proceedings, and Compulsory Dissolution Act (Zakon o finančnem poslovanju, postopkih zaradi insolventnosti in prisilnem prenehanju, hereinafter “ZFPPIPP”).

There is no special law or regulation governing out-of-court restructuring of financial obligations. There are only informal guidelines. 

After the start of the financial crisis in 2008 there was a period involving a number of financial restructurings in Slovenia. Based on that experience and know-how:

  • in 2011 the Managers’ Association of Slovenia adopted Principles on Restructuring of Corporate Debt 
  • in 2014 the Bank Association, in cooperation with the Bank of Slovenia and the Ministry of Finance, prepared Slovenian Principles of the Financial Restructuring of Corporate Debt. 

Out-of-court financial restructuring agreements are purely a result of negotiations and agreement between the parties. 

Bosnia and Herzegovina is divided into two entities, the Federation of Bosnia and Herzegovina (FBiH) and Republika Srpska (RS), and one self-governing district (BD), each with its own legal regime. Answers in this guide on insolvency and restructuring proceedings are based on two main pieces of legislation: the FBiH Law on Insolvency Proceedings and the RS Law on Insolvency. Further provisions regarding restructuring are found in the relevant company laws of FBiH and RS, and the Law on Financial Business Operations applicable in the territory of FBiH. 1 There is no equivalent law in RS, rather a law defining deadlines for payment of financial obligations in business operations. However, as this law does not refer to restructuring/insolvency, it will not be further discussed in this questionnaire.  

2. How are insolvency proceedings or restructuring proceedings initiated?

All insolvency proceedings and court-sponsored financial restructuring proceedings are initiated based on a request to the court which can be filed by: 

Compulsory settlement 

  • an insolvent debtor
  • a personally liable shareholder, or 
  • creditors in certain cases.   

Simplified compulsory settlement

  • an insolvent debtor, or 
  • a personally liable shareholder.  


  • an insolvent debtor 
  • a personally liable shareholder
  • creditors in certain cases, or 
  • Public Guarantee, Maintenance and Disability Fund of the Republic of Slovenia, in certain cases.

Court-sponsored financial restructuring proceeding

  • a debtor.  

Out-of-court financial restructuring 

  • can be proposed by any of the involved parties. 

An insolvency proceeding is initiated by a written petition of either the debtor or any creditor who has a legally recognised interest to conduct such proceedings. The creditor is obliged to show, by attaching the appropriate documentation, that its claim, and the inability of the debtor to make payments, is probable.

After the opening of an insolvency proceeding, a reorganisation plan may be drafted that deviates from the provisions of law governing the liquidation and distribution of the insolvency estate. The insolvency debtor may file a reorganisation plan together with a proposal to open insolvency proceedings. 

In FBiH, after the opening of insolvency proceedings, the right to file a reorganisation plan with the respective court is granted to the insolvency administrator and to the insolvency debtor until the final hearing at the latest. 
In RS, the insolvency debtor may also submit an insolvency plan during the insolvency proceedings if it could not do so when submitting the proposal for opening the insolvency proceedings and if it obtains the consent of the assembly of creditors. It is also explicitly regulated that restructuring proceedings can be initiated at the proposal of the debtor or at the proposal of the creditor if the debtor agrees with such proposal. (If the creditor initiates restructuring, the consent of the debtor must be submitted along with the proposal.) 

A bankruptcy proceeding is initiated against insolvent debtors. Under ZFPPIPP the company is considered insolvent if the following reasons exist:

  •  long-term illiquidity (trajnejša nelikvidnost), i.e. the company is not able to pay its payment obligations that are due in a longer period of time, and/or
  • the company is over-indebted (dolgoročna plačilna nesposobnost).

ZFPPIPP defines certain assumptions for a company to be considered insolvent which help to establish or prove that a company is insolvent. Certain assumptions are considered true unless proven otherwise, and certain assumptions cannot be contested.

Assumptions that can be contested

Long-term illiquidity 

  • if a company is late with payment for more than 2 months and with more than 20% of all of its payment obligations, as shown in its last published balance sheet/annual report, or
  • if the monies on a company’s bank account do not suffice for payment of its obligations under the writ of execution or debenture note (izvršnica) in an uninterrupted period of 60 days, or interrupted period of more than 60 days within a period of 90 days, and such situation exists on the day prior to filing for bankruptcy, or
  • if the company has no bank account with Slovenian providers of payment services and has not paid its payment obligations under the writ of execution in a period of 60 days from when such decision became final.


  • if the value of the company’s assets is lower than the total amount of its obligations
  • if the loss of the current business year with losses brought forward reached half of the registered capital and such loss cannot be paid out of the profit brought forward or the provisions.   

Assumptions that cannot be contested

ZFPPIPP defines certain assumptions for a company to be considered insolvent which are considered true and cannot be contested:

Long-term illiquidity 

  • the company is late with payment of employees’ salaries in the amount of a minimum salary for more than 2 months, or
  • the company is late with payment of taxes and contributions that need to be paid in respect to employees’ salaries, and such situation exists on the day prior to filing for bankruptcy.

Pursuant to the intervention measures of the Slovenian state amid the COVID-19 pandemic, an additional assumption for long-term illiquidity has been introduced that applies until 30 September 2020: 

  • the company is late with payment of salaries and contributions to employees for more than 1 month from the time the company received compensation from the state for salaries and contributions of employees, based on the intervention measures amid the COVID-19 pandemic.

The debtor’s inability to make payments, i.e. if the debtor is unable to meet its accrued and outstanding monetary liabilities for a period of 30 days (FBiH) or 60 days (RS). In RS, it is also deemed that a debtor is unable to make payments if its account has been blocked for 60 days continuously. 

In addition, an insolvency proceeding may also be commenced due to a debtor’s threatened inability to make payments. However, in this case only the debtor may file a petition to initiate insolvency proceedings.

4. Which different types of restructuring / insolvency proceedings exist and what are their characteristics?

For a company that is insolvent the following insolvency proceedings are available in Slovenia: 

  • compulsory settlement proceeding
  • simplified compulsory settlement proceeding
  • bankruptcy proceeding.   

Prior to insolvency there are two options of restructuring proceedings: a court-sponsored financial restructuring and an out-of-court financial restructuring.

Insolvency proceedings

Compulsory settlement (postopek prisilne poravnave)

  • a compulsory settlement proceeding is a proceeding available to already insolvent companies; it can be proposed even if the bankruptcy proceeding has already been initiated. Once bankruptcy proceeding starts, there are no longer any restructuring options 
  • the proceeding is usually proposed by a debtor, though in certain cases it may be proposed by creditors holding more than 20% of the value of all claims against the debtor
  • compulsory settlement generally affects all unsecured claims. The company, however, has the possibility to propose:
    • restructuring of secured claims as well
    • restructuring of claims of financial creditors only
  • the proceeding is led by an insolvency administrator, appointed by a court, who also oversees the business operations of the debtor during the proceeding 
  • a proposal for a compulsory settlement proceeding must be substantiated with a combination of one or more of the restructuring measures necessary for a successful restructuring; these measures may include: 
    • financial restructuring measures: principal haircut, maturity extension, and/or interest rate reduction
    • corporate restructuring measures (usually ancillary in nature): a simplified capital reduction, a capital injection with cash inflow or by way of a D/E swap, a downstream spin-off
    • operational restructuring measures: divesting non-core assets, operational turnaround, etc.
  • compulsory settlement requires a vote of 60% of all affected claims. 

Simplified compulsory settlement (poenostavljena prisilna poravnava)

  • a simplified compulsory settlement is intended for micro-sized companies and self-entrepreneurs who meet the criteria of micro- or small-sized companies. Some rules of compulsory settlement are simplified to ensure efficient restructuring of small entities. For example, in this proceeding, no administrator is appointed, creditors do not register their claims, there is no creditors’ committee and there is only limited involvement of the court
  • simplified compulsory settlement requires more than a 50% vote of all creditors. 

Bankruptcy (stečajni postopek)

  • a bankruptcy proceeding is initiated to enable a court-sponsored dissolution of an insolvent debtor with the best possible recovery terms for the creditors. After the opening of a bankruptcy proceeding, creditors’ claims can only be exercised within this proceeding. There is no possibility of the restructuring of a debtor within a bankruptcy proceeding.

Restructuring proceedings

Court-sponsored financial restructuring (postopek preventivnega prestrukturiranja)

  • a court-sponsored financial restructuring proceeding is available to debtors who are not insolvent but are likely to become insolvent within 1 year. If financial creditors holding at least 30% of the value of all financial claims support the initiation of the proceeding this condition is presumed to be fulfilled 
  • a statutory stand-still/execution holiday prevails for the entire class of financial creditors during the time period of the proceeding
  • the proceeding is led by the debtor
  • the proceeding is intended for the restructuring of financial claims (secured and unsecured) only; claims of other creditors (e.g. suppliers) are not affected unless they expressly consent to be part of the restructuring agreement
  • the restructuring agreement may contain various restructuring measures, but only the following will achieve the “cram-down” effect on dissenting creditors: 
    • principal haircut and/or maturity extension of unsecured financial claims
    • interest rate reduction and/or maturity extension of secured financial claims (to a maximum of 5 years) 
  • other restructuring measures (e.g. D/E swap, principal reduction of secured claims, maturity extension of secured claims beyond 5 years, haircut and/or maturity extension of claims held by other non-financial creditors) require explicit the consent of affected creditors
  • the restructuring agreement must be approved by financial creditors holding at least 75% of the value of all financial claims (with a separate majority of 75% of all secured financial creditors if the restructuring agreement affects secured financial claims). 

Out-of-court financial restructuring 

  • an out-of-court financial restructuring agreement is purely a result of negotiations and agreement between the parties. All parties need to consent to the terms of restructuring agreement.

Insolvency proceedings are conducted in two phases: preliminary procedure and insolvency proceeding. 

Preliminary procedure

The main purpose of the preliminary procedure is to determine whether the conditions for the opening of insolvency proceedings are satisfied, i.e. the insolvency of the debtor; whether there is sufficient basis for the petition; whether there are sufficient funds to cover the costs of insolvency proceedings; and whether the current operation can be maintained.

Insolvency proceeding

The insolvency proceeding is conducted for the purpose of satisfying the debtor’s creditors collectively through the liquidation of its property and distribution of the generated proceeds to the creditors.
In the course of an insolvency proceeding, the reorganisation of the debtor may also be conducted for the purpose of defining the legal status of the debtor and its relationship with creditors, and especially for the purpose of maintaining its business operations. 

Restructuring procedure

In RS, apart from the insolvency proceeding, a restructuring procedure also exists. This is carried out in order to regulate the legal position of the debtor and its relationship with creditors, in order to continue performing its activities; such restructuring procedure will be completed within 5 months from the date of its opening.

5. Are there several types of creditors and what is the effect of a difference?

Under ZFPPIPP the types of creditors are: 

  • preferential (secured) creditors (prednostni upniki) – hold a right to separate satisfaction (prednostna pravica do poplačila). They are paid before the ordinary creditors (unsecured) from the proceeds of the debtor’s assets on which they have their security, depending on their rank
  • creditors with exclusion rights (izločitvena pravica) – have an ownership right on a debtor’s asset and therefore have the right to exclude this asset from a bankruptcy estate
  • ordinary creditors – are paid after preferential creditors, in the same rank and in the same share, depending on the value of the general bankruptcy estate in a bankruptcy proceeding. In a compulsory settlement proceeding, simplified compulsory settlement proceeding and a court-sponsored financial restructuring proceeding these creditors may, by law, be more affected than the preferential creditors (e.g. haircut on principal can be proposed only for unsecured claims)   
  • subordinated creditors (podrejeni upniki) – are subordinated to preferential and ordinary creditors.

ZFPPIPP also differentiates between financial and non-financial creditors. For example:

  • court-sponsored financial restructuring is only meant for the restructuring of claims of financial creditors 
  • a compulsory settlement proceeding can only be initiated with the intent to restructure financial claims. 

There are four categories of persons acting as creditors involved in insolvency proceedings:

  • Insolvency creditors (stečajni povjerioci): creditors who at the time of the opening of insolvency proceedings have established a claim towards the insolvency debtor
  • Creditors of the insolvency estate (povjerioci stečajne mase): creditors who during insolvency proceedings acquire a claim towards the insolvency estate 
  • Extraction creditors (izlučni povjerioci): persons who have the right to extract an asset from the insolvency estate as the latter does not belong to the insolvency debtor, and who are not considered as insolvency creditors
  • Secured creditors (razlučni povjerioci): creditors with a claim secured by an asset included in the insolvency estate that are authorised to request separate settlement of their claim from the subject of the security.    

According to their type of claim, creditors are classified in payment priorities:

  • creditors of higher payment priority
  • creditors of general payment priority, and 
  • creditors of lower payment priority. 

6. Is there any obligation to initiate restructuring / insolvency proceedings? For whom does this obligation exist and under what conditions? What are the consequences if this obligation is violated?

When a company becomes insolvent, the management of the company must, among other actions: 

  • submit a report on financial restructuring measures to the supervisory board within 1 month of the company becoming insolvent. (If there is no supervisory board, the obligation is the same with the exception of not submitting the report to the supervisory board.) Such report must clarify the company’s financial position, analyse the causes of insolvency and provide the management’s opinion as to whether a financial restructuring is more likely than not to succeed, and if so, provide a financial restructuring plan
  • file for bankruptcy within 3 business days if the management is of the view that:
    • the probability of successful financial restructuring is less than 50% (the deadline starts when the term of 1 month, outlined in the previous item, expires), or 
    • the shareholders do not approve the capital injection (the deadline starts when the shareholders’ meeting is concluded), or
    • when approved, all the shares have not been registered and paid in time (the deadline starts when the term for registration and payment of shares expires)
  • file for a compulsory settlement proceeding within 3 months of the company becoming insolvent if the probability of a successful restructuring is more than 50%.  

Pursuant to the intervention measures of the Slovenian state amid the COVID-19 pandemic, management does not need to file for insolvency proceedings until 31 August 2020 if a company has become insolvent due to the COVID-19 pandemic.

Management, however, will have a duty to file for insolvency within the regular deadline if there are no prospects for a company to resolve its insolvency. If a bankruptcy proceeding is proposed earlier by a creditor, management will have 4 months (instead of the usual 2 months) for a financial restructuring to prevent bankruptcy.

Generally, under the Slovenian Companies Act and ZFPPIPP, members of the management board and supervisory board have a duty to act in the benefit of the company with the diligence of a conscientious and fair-minded businessperson. They are jointly and severally liable to the company for any damage caused pursuant to the rules of the Companies Act and ZFPPIPP, unless they can prove they acted with due care and in line with the business and financial rules and rules of management.

A claim for damages against the management board and supervisory board members can be exercised by creditors in the case that the company cannot pay their claims, and by a bankruptcy administrator for the benefit of creditors in a bankruptcy proceeding.

Pursuant to ZFPPIPP, the management and supervisory board can also be sanctioned with a fine ranging from EUR 2,000-10,000 if they do not follow the steps required by ZFPPIPP when the company becomes insolvent.
In a pre-insolvency situation the management is, pursuant to the rules of the Slovenian Companies Act and ZFPPIPP, required to initiate a restructuring proceeding in due time and/or implement other restructuring measures to ensure the company’s solvency.

Once the inability to make payments occurs, a debtor’s authorised representatives are required to file, forthwith, a proposal to open an insolvency proceeding. The proposal must be filed within 30 days (FBiH) or 60 days (RS) of the day the inability to make payments occurs. The authorised representatives are required to compensate the legal entity for the loss of property caused by their legally binding actions taken after the inability to make payments occurs, unless they can prove that these actions were taken with due care and diligence. 

The responsible person of the insolvency debtor shall be fined with a monetary penalty in the amount of BAM 500-1,700 (approx. EUR 250-870) in FBiH and BAM 10,000- 20,000 (approx. EUR 5,113-10,226) in RS, if he/she does not submit the proposal for the opening of insolvency proceedings. 

7. What are the main duties of the representative bodies in connection with restructuring / insolvency proceedings?

Once a company becomes insolvent, the management has, in addition to those described under point 6 above (among others), the following duties:

  • equal treatment of creditors
  • to take on no new obligations or make payments on behalf of the company, except for those that are necessary for regular business operations.

In addition to the considerations under item 6 above, a director is always required to act in accordance with the company’s best interests. Should a director violate this obligation, the company is entitled to claim damages from the director. In FBiH, fines ranging from BAM 1,500-3,000 (approx. EUR 767-1534) may be imposed if the director of an illiquid company makes any payments other than those necessary for the ordinary course of business.

Furthermore, the director is obliged to take all necessary measures to ensure the company’s liquidity and to manage the assets and liabilities of the company so that it is capable of performing all its due obligations. Please note that the measures and actions mentioned are explicitly regulated only in FBiH, i.e. not in RS. 
Further obligations of the representative bodies are regulated in the Law on Financial Business Operations of FBiH which is explained in detail in point 12. 

  • in a bankruptcy proceeding, representation of the company is transferred to the bankruptcy administrator
  • in a compulsory settlement proceeding, simplified compulsory settlement proceeding, court-sponsored financial restructuring or out-of-court financial restructuring, the company is still run by the existing management, supervised by its supervisory board
    • in a compulsory settlement proceeding, an administrator is appointed but has only a limited supervisory role. 

In both FBiH and RS, an insolvency administrator is generally appointed in the court order for the opening of an insolvency proceeding. From that moment on, the debtor’s right to administer and dispose of assets belonging to the insolvency estate, as well as the rights of the representative bodies’ proxies, are transferred to the insolvency administrator. If the debtor disposes of assets after the opening of an insolvency proceeding, such actions have no legal effect, except for those for which the general rules on the protection of trust in land registers and other public registers apply. However, during an insolvency proceeding the representative bodies have duties of disclosure and cooperation in order to assist the insolvency administrator with the fulfilment of its duties. If the representative bodies refuse to disclose and cooperate with the insolvency administrator during the proceedings, the court may order coercive measures against the representative bodies. 

9. What are the main duties of shareholders in connection with restructuring / insolvency proceedings?

Personally liable shareholders have a right to file for compulsory settlement proceedings and bankruptcy proceedings. 

After insolvency occurs, authorisations of the shareholders’ meeting are limited to recall and appointment of members of the management and supervisory board and the passing of certain decisions necessary for successful restructuring (e.g. if a restructuring plan anticipates a capital injection, etc.).

In a bankruptcy proceeding, shareholders must provide the insolvency administrator with explanations of the bankruptcy debtor’s transactions and other facts and circumstances relevant to the bankruptcy proceeding and for preparing financial statements.

In a case of insolvency, administration of the legal entity is transferred primarily to the insolvency administrator, supported by the insolvency judge, assembly of creditors and board of creditors, each within their competence defined by the applicable legislation. Therefore, once insolvency proceedings are opened, shareholders are effectively stripped of the decision-making powers they typically exercise within the shareholders’ assembly.

In terms of legal transactions between shareholders and the legal entity, note that the legal transaction by which security is provided for the claim of a shareholder of the company for repayment of a loan replacing capital can be annulled if the action was taken in the 5 years immediately before submission of the proposal for the opening of insolvency proceedings or after that deadline. Legal transactions by which the claim of a shareholder of the company for repayment of a loan replacing capital is secured may also be annulled if the action was taken in the 1 year (FBiH) or 3 years (RS) before submission of the proposal for the opening of insolvency proceedings or after that deadline.

Personal liability

Regarding the potential personal liability of shareholders: 

  • in RS, shareholders may be personally liable to third parties for the company’s obligations if they use the company for illegal or fraudulent purposes or if they dispose of the company’s property as their own property 
  • in FBiH, in addition to the above, a shareholder will be personally liable if it uses the company to achieve a personal goal that is not in line with the goals of other shareholders or the company, or if it uses the company to damage its own creditors, affect the company’s assets in its favour or for the benefit of third parties, or influence the company to assume obligations even though the shareholder knew, or should have known, that the company is not or will not be able to perform its obligations.   

10. Are the shareholders of a company involved in restructuring / insolvency proceedings?

For certain restructuring measures, the shareholders’ involvement is needed (for example, if there are any demands of creditors to shareholders such us capital injection or converting shareholder loans to equity; or any decision of shareholders is required for implementing  restructuring measures, or when shareholder loans are also being restructured). 

In a bankruptcy proceeding, the shareholders’ involvement is limited to their duty to provide the bankruptcy administrator with certain information relevant to the proceeding.

Please see our response under item 9. 

If insolvency proceedings are opened against a company whose shareholders are personally liable for the company’s obligations, claims against shareholders of the company based on their personal responsibility, arising from the provisions of the Insolvency act or from any other law during the insolvency proceedings, may be made only by the insolvency administrator.

In addition, shareholder loans are considered as capital replacements if such loans are granted at a time of crisis instead of procuring fresh capital. Such loans have the lowest priority in settlement since they are treated as capital contributions.  

11. Is a solvent liquidation of the company an alternative to regular insolvency proceedings?

A solvent liquidation may be an alternative to an insolvency proceeding, but only if an insolvent company can become solvent (by way of capital injection, for example) first. Solvent liquidation can only be initiated if the company is solvent.

Generally, shareholders can initiate liquidation proceedings if the legal entity is capable of meeting its existing obligations. However, if the debtor is unable to meet its accrued and outstanding monetary liabilities (see point 3 above), shareholders cannot decide to voluntarily liquidate the company and solvent liquidation is not an alternative to regular insolvency proceedings. In other words, if shareholders initiate a liquidation procedure in an entity where conditions for conducting the liquidation procedure have not been met, the liquidator shall within 15 days submit a proposal to suspend the liquidation procedure and open insolvency proceedings. 

Yes, preventive (court-sponsored) restructuring is regulated in Chapter 2.3 of ZFPPIPP.

The relevant laws do not provide for specific preventive restructuring. However, the Law on Financial Business Operations of FBiH provides for certain obligations of the relevant bodies in order to maintain liquidity and capital adequacy in a legal entity. 
A company is deemed to be illiquid if it does not meet its short-term financial obligations within a period of 60 days after such obligations become due, provided that the amount due exceeds the amount equal to 20% of its total short-term financial obligations determined in its financial report for the previous year. In addition, the law stipulates that illiquidity also exists if the company fails to pay salaries and the corresponding taxes and social contributions within a period of 30 days after such obligations become due.

In the above-mentioned cases, the company is only allowed to make the payments necessary for ordinary business such as: 

  • procurement of goods and services for ordinary business activities
  • operational costs (electricity, water and similar)
  • salaries
  • taxes, and 
  • administrative fees and costs related to preparation of the documents necessary for financial consolidation and restructuring. 

In other words, the company is not allowed to transfer receivables to third parties, to provide loans, distribute profits, to procure automobiles or to incur costs associated with hospitality and accommodation. 
In the case of illiquidity, the company is obliged to carry out financial restructuring measures within a period of 60 days with the aim of becoming liquid.

13. What is the average success rate after completed restructuring / insolvency proceedings?

According to publicly available data, the following success rates apply:

Compulsory settlement proceeding

  • ordinary claims: approximately 30-40% with payment deferral of 4-6 years 
  • claims with rights to separate satisfaction: 100% with payment deferral of 4-6 years.

Simplified compulsory settlement proceeding 

  • ordinary claims: approximately 30-50% with payment deferral of 4-5 years
  • claims with rights to separate satisfaction: 100% with payment deferral of 4-5 years.

Bankruptcy proceeding

  • ordinary claims: below 10%
  • claims with rights to separate satisfaction: approximately 20%.  

For court-sponsored restructuring there is no publicly available data since master financial restructuring agreements are commercially confidential.

The success rate depends on several conditions such as the value of the insolvency estate, the number of claims by the debtor’s employees, the number of payment priority creditors etc. 

In other words, the payment of insolvency creditors whose claims are accepted by the insolvency administrator is conducted according to a priority hierarchy; and unless the higher priority insolvency creditors are paid in full, lower priority insolvency creditors will not receive even partial payment. In most cases, financial institutions are secured creditors with claims over real estate or other property of a greater value, and they are the ones who have the best success rates. Satisfaction of other creditors depends on a case-by-case basis, and there are no official statistics regarding their success. In our experience to date, we have learned that such rates tend to be very low and that the proceedings tend to last a long time.

Maja Zgajnar
Picture of Irena Sik
Irena Šik Bukovnik
Attorney-at-Law for banking & finance
Maja Šipek
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Andrea Zubović-Devedžić
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Ana Terzić
Senior Associate