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.
The TCC provides for two phases for the Board of Directors:
- if half of the total capital of the company and the statutory reserved capital as shown in the latest annual balance sheet is unfunded, the Board of Directors shall immediately convene a General Meeting and propose reform measures for the company that would cover the losses incurred in the short term and ensure the sustainability of the company; and
- if there are indications that the company is indebted, the Board of Directors prepares an interim balance sheet of active assets on the sustainability of the company and their possible sale prices. If the interim balance sheet shows that the productive assets of the company are insufficient to cover the claims of the company’s creditors, the Board of Directors submits a legal notice to a commercial court of first instance in whose district the company’s head office is located and files for bankruptcy of the company.
If the directors fail to take the necessary measures, they may be involved in not only civil liability but also criminal liability. Accordingly, under Article 345/a of the EBL, executives (including directors) who are empowered to manage and represent the company may, at the request of one of the company’s creditors, serve a prison sentence of 10 days to 3 months if they fail to apply for bankruptcy of the company even though the relevant conditions are met.