In the last couple of years, Slovenia, like other member states of the European Union, has experienced a deep financial crisis, which has resulted in the beginning of numerous restructuring proceedings (court and out-of-court) of strategically important Slovenian companies.
The majority of these proceedings ended successfully either by concluding master restructuring agreements (MRAs) between banks, other creditors, and different companies, or by confirming compulsory settlements. Indeed, there was a 240% increase in successfully completed restructuring proceedings (i.e., compulsory settlements and preventive restructuring proceedings) from 2013 to 2014. The number of successful signings of MRAs shows that significant improvement has been made in terms of overcoming the current financial crisis, as well as in finding a way out.
Recently, most of the financial restructuring proceedings have come to the last, or “exit” phase, with the creditors now seeking other options to close their exposures in the recently restructured companies. As a result, it seems that most strategically important companies (such as Pivovarna Lasko d.d., Perutnina Ptuj d.d., Cimos d.d., Mariborska livarna Maribor d.d., Paloma d.d., and Trimo d.d.) have successfully avoided insolvency, and they will now use the opportunity to achieve further business growth. Due to their successful restructurings, the value of these companies has risen, and some of them have already been successfully sold, helping restart Slovenia’s economic growth.
With the financial restructuring proceedings of strategically important Slovenian companies gradually coming to its final phase, the focus should now be shifted to setting up a more appropriate legal framework for restructuring non-strategic companies – those defined as “micro” and “small-sized” in the Slovene Companies Act – that account for more than 98% of all registered companies in Slovenia and contribute a lion’s share to the nation’s economy.
The Ministry of Justice has recently published a proposed amendment to the insolvency legislation (ZFPPIPP-G) which will provide additional measures for expeditious restructuring of micro- and small-sized companies. Among the most important changes the proposed amendment will bring is the option for small-sized companies to file a proposal for the initiation of a preventive restructuring proceeding, which is currently reserved solely for medium- and large-sized companies. The proceeding enables a company which is not yet insolvent but which is likely to become so within a year to obtain certain legal protections against its financial creditors (mainly banks) in the form of a three-to-five-month stand-still period (with an option for prolongation) in which negotiations between the company and its financial creditors can take place. Provided that they result in the conclusion of a financial restructuring agreement (FRA), the agreement may be confirmed by the court by an order that certain measures of financial restructuring (e.g., reduction, postponement of the maturity, or reduction of the interest rates) contained in the FRA also apply to holders of financial claims who did not sign it.
Another proposed change that will significantly improve the position of creditors in insolvency proceedings affects the rules governing the simplified compulsory settlement proceeding. Should the proposed legislation be adopted, small-sized companies will no longer be able to initiate a simplified compulsory settlement proceeding. On the other hand, creditors of the small-sized companies will gain the right to propose the initiation of a (regular) compulsory settlement proceeding, within which secured claims may also be restructured, and the creditors’ committee may appoint a creditors’ representative to monitor the day-to-day operations of the debtor, request the court’s authorization to manage the debtor’s business, and so on. Among the financial restructuring measures in this proceeding is also the spin-off. Along with the debtor, creditors may also propose their own financial restructuring plan.
It is believed that the proposed legislative changes will further reduce the number of bankruptcy proceedings against companies registered in Slovenia (this number already fell by approximately 14% in 2015 compared to 2014).
According to the statistics provided by Ministry of Justice, the average duration of insolvency proceedings has grown slightly in recent years. On average, compulsory settlement proceedings in lasted 199 days in 2013 but 296 days in 2015, while preventive restructuring proceedings lasted 121 days in 2014 and 166 days in 2015 (although this change of duration may be related to the greater complexity of recent proceedings). Now, with the proposed legislative changes, it is expected that new legal measures will provide for prompt and more effective restructuring, which is of significant importance for the acceleration of the Slovenian economy.
However, according to the Resolving Insolvency Report as a part of its Doing Business project by the World Bank, Slovenia is already ranked 6th in the world on average duration of insolvency proceedings (0.8 years), 15th on average cost of insolvency proceedings (4% of the estate), and 12th on general resolving insolvency rank.
The passing of the amendment will enable Slovenia to further position itself as a center of excellence in SEE when it comes to resolving insolvency and to compete successfully with other Adriatic countries when it comes to the legal tools for restructuring of over-indebted corporations, making them more attractive for investors.
By Uros Ilic, Partner, and Uros Brglez, Associate, ODI Law Firm
Editor’s Note: After the February 2016 issue of the CEE Legal Matters magazine was published, ODI informed us that its article had been co-authored by Uros Brglez. This version of the article has been revised to reflect that information.
This Article was originally published in Issue 3.1 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
- The Buzz in Slovenia: Interview with Uros Ilic of ODI Law Firm
- ODI, Selih & Partnerji, Ulcar & Partnerji, and White & Case Advise on SKB Financing to KJK and Underlying Acquisition
- ODI and Jadek & Pensa Advise on Purchase of Planet Tus Shopping Center in Koper
- ODI and KRB Advise on Privatization of AHA EMMI
- Dentons and ODI Advise Innova Capital on Financing of Trimo Group