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.
As explained before, our legislation provides three different types of bankruptcy proceedings which allow negotiation between the debtor and its creditors with the purpose of maximising the value of the debtor’s assets.
Ordinary Restructuring Proceeding
This can be initiated voluntarily at the request of the debtor, or involuntarily by one or more creditors. This proceeding is applicable to debtors who are immersed in a financial and economic crisis situation, and in order to qualify, they must meet certain requirements provided in the Peruvian Bankruptcy Law.
This proceeding begins with a publication that generates a framework, which protects the debtor’s estate and suspends the enforceability of its obligations (automatic stay). In this proceeding, recognised creditors adopt decisions at a creditors’ meeting and may choose to reorganise the debtor’s assets or, alternatively, approve its liquidation. If creditors opt for reorganisation, the company must submit a proposed Restructuring Plan that must be approved by a qualified majority of recognised creditors. In Ordinary Restructuring Proceedings, the shareholders’ meeting is replaced by a creditors’ meeting. Also, in certain cases, the debtor’s administration is replaced by an administrative entity registered with INDECOPI. This process concludes with the payment of claims contained in the restructuring plan.
Preventive Refinancing Proceeding
This is initiated exclusively at the request of the debtor and is applicable to those debtors facing a financial crisis, but that still have financial and economic solvency which requires them to refinance their obligations to have better management of their liquidity.
In this scenario, the debtor faces a temporary impossibility of complying with the payment of obligations to its creditors. The debtor can request a suspension of the enforceability of its obligations (automatic stay) and must propose a Global Refinancing Proposal to creditors. The creditors’ meeting must decide on the viability of the Global Refinancing Proposal filed by the debtor. With the approval of the referred proposal, the proceeding ends and the company exits the insolvency proceeding.
Accelerated Bankruptcy Refinancing Proceeding (PARC)
Taking into consideration the consequences generated by the pandemic, new insolvency legislation was passed in May 2020 approving a proceeding called the Accelerated Bankruptcy Refinancing Proceeding. This is a transitory, exceptional and electronic proceeding. This proceeding is similar to the Preventive Refinancing Proceeding explained above, as it is initiated exclusively at the request of the debtor and is applicable to those debtors who are facing a financial crisis caused exclusively by the COVID-19 crisis, but who still have financial and economic solvency which requires them to refinance their obligations to have better management of their liquidity.
Once the commencement of an Accelerated Bankruptcy Refinancing Proceeding is published, an automatic stay is imposed. The automatic stay suspends enforcement of its obligations and protects the debtor’s estate. The purpose of this new legislation is to provide a platform that allows companies to negotiate with their creditors the approval of a Business Refinancing Plan. With the approval of the Business Refinancing Plan, the proceeding ends. In this case, the appointment of a supervisor to verify the compliance of the Business Refinancing Plan is allowed. This is a very short proceeding that shall last between 45 and 90 business days.