Enforcement and Insolvency poceedings regulation amended again

Less than three weeks after the Intervention Measures to Mitigate the Effects of the COVID-19 Infectious Disease Epidemic on Citizens and the Economy Act (Zakon o interventnih ukrepih za zajezitev epidemije COVID-19 in omilitev njenih posledic za državljane in gospodarstvo; the “Intervention Act”) came into force, new amendments are on their way. There are also changes to the Act on Provisional Measures for Judicial, Administrative and Other Public Matters to Cope with the Spread of Infectious Disease SARS-CoV-2 (COVID-19) (Zakon o začasnih ukrepih v zvezi s sodnimi, upravnimi in drugimi javnopravnimi zadevami za obvladovanje širjenja nalezljive bolezni SARS-CoV-2; the “Provisional Measures Act”) setting out the extent and conditions under which judicial, administrative and other proceedings may run.

So, what is new?

1. Enforcement proceedings

While the Intervention Act has prohibited enforcement on income people receive under the Act, this has now been expanded to all types of income people (eg. solidarity supplement to pensioners) will receive under any (i.e. also future) intervention act passed in response to the COVID-19 epidemic.

There is an exception though: enforcement will be nevertheless allowed on the income representing wage compensation up to the allowed threshold. This exception was brought in to prevent unequal treatment considering all other people that have been working and receiving wages.

2. Insolvency proceedings

a. Employees do not have to pay the advance for costs of a bankruptcy proceeding

The Intervention Act has previously introduced a new presumption of insolvency. A company that is more than one month overdue with payment of salaries and contributions to employees from the time it received the compensations from the state based on the Intervention Act, will be presumed to be illiquid and insolvent.

If employees file for bankruptcy based on this new presumption of insolvency, they will not need to pay the advance for costs of a bankruptcy proceeding.

b. Suspension of obligation to file for insolvency is limited now

Currently, management does not need to file for insolvency proceeding until 31 August 2020 if a company became insolvent due to the COVID-19 epidemic.

With the new amendment, this suspension of obligation to file for insolvency is going to be limited, similarly to the regime in Germany. Management will now have a duty to file for insolvency within a regular deadline, if there are no prospects for a company to resolve its insolvency.

Such limitation certainly makes sense which is something we have already pointed out in our article on April 9 when we took a closer look at temporary regulation of insolvency proceedings.

c. New presumption of company’s insolvency being a consequence of the COVID-19 epidemic

Currently, it is presumed that a company’s insolvency is a consequence of the COVID-19 epidemic if the company was affected by the governmental, ministerial or municipal order stopping it or significantly limiting it in selling goods and/or offering services due to the epidemic.

This is relevant in respect to the (i) suspension of management’s obligation to file for insolvency and the (ii) possibility of an insolvent debtor to prevent a bankruptcy proceeding in case a creditor files for a bankruptcy proceeding.

In case a company is not directly affected by these orders, management needs to prove that the company became insolvent due to the epidemic.

With the new change this task will be easier for the management. A new presumption is being introduced (again, similar to the regime in Germany) that a company’s insolvency is considered to be a consequence of the COVID-19 epidemic if a company was not insolvent on 31 December 2019.

d. Bankruptcy proceeding proposed by a creditor

When a creditor files for a bankruptcy proceeding over a debtor, the debtor has under the Intervention Act 4 months (instead of current 2 months) for financial restructuring to prevent bankruptcy if the company became insolvent due to the COVID-19 epidemic.

Under the initial solution, this time extension applied to all bankruptcy proceedings, filed for by creditors until 31 July 2020. With the new change, the extension is going to be applicable to all proceedings, filed for by creditors until 31 August 2020 (and in case measures are extended, until 30 September 2020).

Also, with the new change, a debtor will be able to prevent a bankruptcy proceeding also by providing evidence of no longer being insolvent due to other financial restructuring measures that have been implemented or because of sufficient business operations.

e. Remedy for missed deadline in insolvency proceedings

Insolvency proceedings are generally classified as urgent matters, however, based on the Provisional Measures Act and the decision by the President of the Supreme Court, as of today, all insolvency proceedings in Slovenia are still on hold. This means that courts are not conducting these proceedings and no procedural and material deadlines are running.

In insolvency proceedings, no remedies are available for missed deadlines. This has been changed.

According to the amended Provisional Measures Act, a court will process and make a decision about a filing/proposal/objection even if a relevant party missed a deadline, but only if: (i) the deadline was missed due to reasons directly related to the epidemic and (ii) the court has not yet decided on the matter.

As this amendment makes it easier for parties to exercise and protect their rights given the current circumstances, it is hoped that this amendment will encourage the President of the Supreme Court to re-classify insolvency proceedings again as urgent matters. In our view (article) the insolvency proceedings should be reinstated as soon as possible.