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.
This is a process only available for companies that do not meet the formal Bankruptcy Test, but where the directors feel that they will be unable to trade out of their existing indebtedness. In a preventative composition, the company would make an application to the court supported by a detailed overview of its trading position and net assets (and various other information) and their plan for how the preventative composition plan should proceed to enable them to settle their debts to a position where they can exit the plan and begin business as usual again.
If the court accepts the application, the company’s debt obligations will be suspended, during which time the court will appoint a trustee to supervise the directors’ management of the company. The trustee would seek to agree a plan for the company to trade out of its existing position. The plan would require the approval of a majority of its creditors holding not less than two thirds of the value of the total outstanding debts of the company. The trustee, with assistance of the court, would then oversee implementation of the preventative composition plan over a period of up to 3 years. During the term of the plan, the company is restricted from taking certain measures (such as settling claims that arose prior to commencement of the plan, taking on new debt or disposing of its assets etc.) and must generally manage the business in accordance with the terms of the court-approved plan and under the supervision of the trustee and the court. If at any time during the implementation of the plan, the company fails the Bankruptcy Test or the court determines that the plan is impossible to implement, it may terminate the plan and convert it into a declaration of bankruptcy, described below.
There are two limbs of bankruptcy under the Bankruptcy Law: Formal restructuring and Insolvent liquidation.
The initial view to be taken by the court on an application for bankruptcy is to assess whether the company can be restructured, settle its debts, and become profitable again. So, similar to the preventative composition, an expert and trustee are appointed to determine the company’s financial position, compile a complete list of creditors, and assess whether the company can be restructured in order to become profitable once more. Any such plan presented to the court requires the approval of the company and the approval of a majority of its creditors holding not less than two thirds of the value of the total outstanding debts of the company. The trustee and company then implement the restructuring plan, in a similar way to the preventative composition plan, but with the trustee taking a more executive role.
If a restructuring is not possible, the court shall issue a judgement to declare the company bankrupt and order liquidation of its assets. A declaration of bankruptcy and liquidation could also be issued in a range of other scenarios, including if the required majority approval of creditors is not reached for the restructuring plan, or if the company applied for bankruptcy and is deemed to have acted in bad faith or applied in order to delay or evade payment to a creditor. The court may also order the insolvent winding-up of a company if a plan for preventative composition or restructuring fails or becomes, in the court’s opinion, impossible to achieve.
Once bankruptcy is declared, the trustee shall arrange to liquidate the company and its assets and distribute the proceeds to the creditors in order of priority, and the balance back to the company for distribution among its shareholders.