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.
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.
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.
The following are the main insolvency/restructuring proceedings in Italy: (i) bankruptcy, (ii) court arrangement with creditors and (iii) debt restructuring agreements. However, other minor procedures exist, such as those provided for over-indebtedness, as listed in point 3 above.
As required by Art. 1 of the Bankruptcy Act, entrepreneurs carrying out a business activity, excluding state entities, which exceed the following thresholds are subject to arrangement with creditors and bankruptcy:
- Assets in each of the last three financial years greater than €300,000.00;
- Gross revenues in each of the last three financial years greater than €200,000.00;
- Payables, including those not overdue, greater than €500,000.00.
The key insolvency procedure is bankruptcy (“fallimento”). Bankruptcy is a court-supervised procedure for the liquidation of an insolvent company’s assets and distribution of the proceeds. It results in the company’s dissolution. As noted above, bankruptcy applies to business undertakings, with the exception of state entities and small businesses.
The procedure is started by an order of the court having jurisdiction over the debtor’s principal place of business on the basis of a petition which may be submitted by: i) the debtor himself (or the directors of the debtor company); ii) a creditor; iii) the public prosecutor. The court must serve the debtor with a subpoena requiring them to attend a hearing of the bankruptcy petition. The proceeding is carried out and supervised by the following parties: a receiver; a deputy judge; a creditors’ committee representing all creditors.
The Bankruptcy Court will verify whether the petition for bankruptcy is formally valid and whether the conditions for bankruptcy are met. If both are confirmed, the Bankruptcy Court will declare the company bankrupt. The bankruptcy judgment has immediate effect starting from the day of its docketing.
The arrangement with creditors (“concordato preventivo”) is a court-supervised procedure, the purpose of which is to discharge the debtor’s debts and avoid bankruptcy. The debtor must submit a plan, which can provide for the restructuring or discharge of debts in whatever form, including transfer of assets, assumption of debts or any other transaction. In order to strengthen the position of the unsecured creditors, Article 160 of the Italian Bankruptcy Act provides that the concordato proposal must grant the payment of at least 20% of the unsecured creditors’ claims. This provision does not apply to proposals that contemplate business continuation pursuant to Article 186bis of the Italian Bankruptcy Act.
Only the debtor is entitled to start a composition plan and the relevant decision must be taken by the management body (usually the board of directors) of the company. The composition plan must be submitted to the Bankruptcy Court of the district where the debtor has its main place of business in Italy.
Moreover, in order to give the distressed company more time to prepare a viable proposal, the law also provides that the debtor may file an application for composition with creditors and simply attach the latest three financial statements, postponing to a later time the filing of the proposal, the plan and the documents to be annexed thereto (“concordato in bianco”). These other documents must be filed within a term fixed by the delegated judge (from 60 to 120 days), which term can be extended by an additional 60 days maximum. During such period, creditors are prohibited from starting or continuing enforcement and foreclosure proceedings over the debtor’s assets (“automatic stay”).
The Italian Bankruptcy Act allows for debt restructuring arrangements (“accordi per la ristrutturazione di debiti”) under Art. 182bis, whereby a debtor “in a state of crisis” enters into a composition with creditors which is binding on all the debtor’s creditors, provided that:
- The debt restructuring arrangement is agreed by creditors representing at least 60% of the value of the debts; and
- The reasonableness and feasibility of the debt restructuring arrangements, the truthfulness of the company’s accounting data and the suitability of such arrangements to ensure repayment of those creditors who did not agree with such arrangements are certified by an independent expert who fulfils the requirements set out in Article 67 of the Italian Bankruptcy Act.
In any case, the debtor must guarantee full satisfaction of the creditors who have not approved the arrangements.
The Italian Bankruptcy Act does not mandate a specific format for the debt restructuring arrangement. The parties can freely determine the specific obligations and how these are to be performed. For example, they may include the waiver of interest, guarantees, total or partial transfer of assets, different treatments between different classes of creditors or simple rescheduling.
The debt restructuring arrangement is subject to homologation (confirmation). To that end, it is recorded in the Companies Register; within 30 days of registration, creditors and any interested party may file an objection. If the Bankruptcy Court considers that the aforementioned conditions are met and that objections, if any, are ill-founded, it issues a decree of homologation. If the Bankruptcy Court does not homologate the debt restructuring arrangement, it does not automatically declare the bankruptcy of the debtor.