Restructuring and insolvency law in Slovenia

1.  What is the primary legislation governing restructuring proceedings in your jurisdiction?

The core legal framework for restructuring proceedings in Slovenia is the Financial Operations, Insolvency Proceedings, and Compulsory Dissolution Act (Zakon o finančnem poslovanju, postopkih zaradi insolventnosti in prisilnem prenehanju  -  ZFPPIPP, hereinafter “Slovenian Insolvency Act”). An amendment to the Slovenian Insolvency Act was adopted on 20 September 2023, which fully transposes the EU Directive on Restructuring and Insolvency (Directive (EU) 2019/1023) into Slovenian law. The amendment to the Slovenian Insolvency Act entered into force on 1 November 2023. General principles of civil, corporate and labour law also apply with respect to implementing restructuring tools. 

Any out-of-court financial restructuring agreements are purely a result of negotiations and agreement between the involved parties.

2. How are restructuring proceedings initiated?

Court-sponsored financial restructuring proceedings are initiated by the debtor. Out-of-court financial restructuring can be proposed by any of the involved parties.

3. Which different types of restructuring proceedings exist and what are their characteristics?

Prior to insolvency:

(A) voluntary pre-emptive restructuring procedure (postopek preventivnega prestruktuiranja) for debtors in a likelihood of insolvency within one year; and

(B) obligatory court-sponsored restructuring procedure for preventing threatening insolvency (sodni postopek zaradi grozeče insolventnosti), as introduced by the latest amendment of the Slovenian Insolvency Act; or

(C) out-of-court restructuring.

In insolvency proceedings, the restructuring can be carried out in the compulsory settlement proceeding, which also offers special rules for compulsory settlements for small businesses. In fact, the latest amendment of the Slovenian Insolvency Act abolished the simplified compulsory settlement proceeding and replaced it with special rules for small businesses.

Preventive restructuring proceedings

A voluntary pre-emptive restructuring procedure (postopek preventivnega prestrukturiranja)

A pre-emptive restructuring procedure was introduced into Slovenian legislation in 2014 as a court-assisted voluntary financial restructuring proceeding 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 court-assisted financial restructuring proceeding has the following characteristics:

• a statutory stand-still prevails for the entire class of financial creditors during the time period of the proceeding;
• the proceeding is led by the debtor (without any administrator being appointed);
• the proceeding is intended only for the restructuring of financial claims (secured and unsecured), 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 an explicit  consent from the 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 the result of negotiation and agreement between the parties. All parties must agree to the terms of the restructuring agreement which can be, amongst others,“” standstill and D/E.

An obligatory court-sponsored restructuring procedure for preventing threatening insolvency (sodni postopek zaradi grozeče insolventnosti)

A court-sponsored restructuring proceeding has just been introduced into the Slovenian Insolvency Act. The rules governing the Judicial Restructuring Procedure will take effect on 1 January 2025. It will be offered to all debtors. Its purpose is to enable financial restructuring on the basis of a concluded compulsory settlement. Furthermore, the procedure will be conducted in accordance with the provisions of the compulsory settlement procedure (with a number of adjustments). This new procedure, which aims at a timely approach to restructuring (i.e. the management is obliged to constantly monitor the financial situation of the company and to react in case of a liquidity problem or threatening insolvency), contains a number of incentives for the debtor (for example, the court does not automatically open bankruptcy proceedings if the application for a restructuring procedure to prevent threatening insolvency is rejected, dismissed or suspended), but also safeguards to prevent moral hazard and the debtor to be relieved of liabilities despite the fact that insolvency is not even a threat.

Insolvency restructuring proceedings

Compulsory settlement (postopek prisilne poravnave)

A compulsory settlement proceeding is a proceeding available to already insolvent companies and 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 compulsory settlement proceeding has the following characteristics:

• 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;
• the proceeding affects all unsecured claims, however, the debtor may also propose only (i) restructuring of secured claims as well as (ii) restructuring of claims of financial creditors;
• the proceeding is led by an insolvency administrator, appointed by a court, who also oversees the business operations of the debtor during the duration of 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 and 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.

Special rules for compulsory settlement for small businesses allow the micro companies and entrepreneurs who qualify as a micro company, to effectively carry out their court-sponsored restructuring, however, their debts should not exceed EUR 700,000.

4. Are there different types of creditors and what is the significance of the differences between them?

The Slovenian Insolvency Act differentiates between the following types of creditors:

priority creditors (prednostni upniki) – hold a right to first satisfaction (prednostna pravica do poplačila) from the bankruptcy estate (e.g. salaries and wages, unpaid compensations for termination of working relationship, taxes and duties; etc.);

• preferential (secured) creditors (zavarovani upniki) – hold a right to separate satisfaction from the proceeds of the secured assets;
• creditors with exclusion rights (izločitvena pravica) – they are the true legal owners of an asset the debtor has in possession;
• ordinary creditors;  
• subordinated creditors (podrejeni upniki);
• creditors holding financial claims (finančne terjatve), which are arising from, among others, the credit agreements, bank guarantees, financial leasing agreements, guarantees, financial derivative or any other similar transaction assumed by the debtor for a financial claim against another person;
• creditors holding non-financial claims (poslovna terjatev), which are all claims other than financial claims.

5. Is there any obligation to initiate restructuring / insolvency proceedings? For whom does this obligation exist and under what conditions? What are the consequences if this obligation is violated?

In a pre-insolvency situation the management is required to initiate a restructuring proceeding in due time and/or implement other restructuring measures (e.g. capital increase, restructuring of receivables, etc.) to ensure the company’s solvency.

In the event the company is in a situation likely to lead to the debtor’s insolvency within one year (i.e. threatening insolvency), the management must prepare a financial restructuring plan with a view to resolving the impending insolvency within one month of its occurrence.

When a company becomes insolvent, the management must, among other actions, file for a start of an insolvency proceeding immediately, but no later than within one month after the occurrence of insolvency, or within three months after the occurrence of insolvency, if the insolvency occurred due to a natural disaster or other major accident, an epidemic or other similar emergency.

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. Further, pursuant to the Slovenian Insolvency Act, the management and supervisory board can also be sanctioned with a fine ranging from EUR 2,000 up to EUR 10,000 if they do not follow the steps required by Slovenian Insolvency Act when the company becomes insolvent.

6. What are the main duties of the representative bodies in connection with restructuring proceedings?

Generally, 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. In restructuring proceedings, the representative body has to put together a restructuring plan and negotiate it with the creditors.

7. What are the main duties of shareholders in connection with restructuring proceedings?

Personally liable shareholders have a right to file for compulsory settlement proceedings.

After insolvency occurs, authorizations of the shareholders’ meeting are limited to recall and appoint members of the management and supervisory board and pass certain decisions necessary for successful restructuring (e.g., if a restructuring plan anticipates a capital injection, etc.).

Further, the shareholders’ involvement is needed for certain restructuring measures - for example, if there are any demands of creditors to shareholders such us capital injection or converting shareholder loans to equity; or any decision of shareholders is required for implementing restructuring measures, or when shareholder loans are also being restructured.

1.  What is the primary legislation governing insolvency proceedings in your jurisdiction?

The core legal framework for insolvency proceedings in Slovenia is the Financial Operations, Insolvency Proceedings, and Compulsory Dissolution Act (Zakon o finančnem poslovanju, postopkih zaradi insolventnosti in prisilnem prenehanju  -  ZFPPIPP, hereinafter “Slovenian Insolvency Act”).

Certain aspects of insolvency may also fall under other areas of law, such as civil law, corporate law, labour law, public procurement law, tax law and criminal law.

2. How are insolvency proceedings initiated?

Compulsory settlement (postopek prisilne poravnave)

By filing a petition with the competent court by:

• an insolvent debtor,
• a personally liable shareholder, or
• creditors (in certain cases).  

Bankruptcy (stečajni postopek)

By filing a petition with the competent court by:

• an insolvent debtor,
• a personally liable shareholder,
• creditors (in certain cases), or
• Public Scholarship, Development, Disability and Maintenance Fund of the Republic of Slovenia (Javni štipendijski, razvojni, invalidski in preživninski sklad Republike Slovenije) (in certain cases). 

3. What are the legal reasons for insolvency in your country?

A debtor is insolvent in case (i) the debtor is not able to pay its payment obligations that are due in a certain period of time (long-term illiquidity (trajnejša nelikvidnost)), and/or (ii) the company is over-indebted (dolgoročna plačilna nesposobnost).

Certain assumptions are available by law as follows:

Assumptions that can be contested

Long-term illiquidity

• if a company is late with payment for more than 2 months and with more than 20% of all of its payment obligations, as shown in its last published balance sheet/annual report, or
• if the monies on a company’s bank account do not suffice for payment of its obligations under the writ of execution or debenture note (izvršnica) in an uninterrupted period of 60 days, or interrupted period of more than 60 days within a period of 90 days, and such situation exists on the day prior to filing for bankruptcy, or
• if the company has no bank account with payment services providers in Slovenia and has not paid its payment obligations under the writ of execution in a period of 60 days from when such decision became final.

Over-indebtedness

• if the value of the company’s assets is lower than the total amount of its obligations,
• if the loss of the current business year with losses brought forward reached half of the registered capital and such loss cannot be paid out of the profit brought forward or the reserves.

Assumptions that cannot be contested

Long-term illiquidity

• the company is late with payment of employees’ salaries in the amount of a minimum salary for more than 2 months, or
• the company is late with payment of taxes and contributions that need to be paid in respect to employees’ salaries, and such situation exists on the day prior to filing for bankruptcy.

4. Which different types of insolvency proceedings exist and what are their characteristics?

Two insolvency proceedings are available:

• compulsory settlement proceeding, and
• bankruptcy proceeding.  

Compulsory settlement (postopek prisilne poravnave)

A compulsory settlement proceeding is available to insolvent companies and it can be proposed even if the bankruptcy proceeding has already been initiated (but not yet started), with the following elements:

• 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;
• the proceeding affects all unsecured claims, however, the debtor may also propose only (i) restructuring of secured claims as well as (ii) restructuring of claims of financial creditors;
• the proceeding is led by an insolvency administrator, appointed by a court, who also oversees the business operations of the debtor during the duration of 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 and 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, D/E swap and/or downstream spin-off;
  • operational restructuring measures: divesting non-core assets, operational turnaround, etc.;
• compulsory settlement requires a vote of 60% of all affected claims.

The Slovenian insolvency law also provided for a simplified compulsory settlement for small businesses, but this was just abolished by the new amendment of the Slovenian Insolvency Law following a number of high-profile cases of abuse. It has been replaced by special rules for the compulsory settlement for small businesses (i.e. the micro companies and entrepreneurs who qualify as a micro company), if their debts do not exceed EUR 700,000 (maximum limit to qualify for the compulsory settlement under the special rules to ensure efficient restructuring). The special rules provide for a number of exceptions to the compulsory settlement procedure (e.g., no audit report is required when filing for the initiation of the compulsory settlement procedure, no obligatory alternative proposal for the compulsory settlement tools is required, no report by a certified business evaluator on the review of the amended financial restructuring plan is required, etc.).

Bankruptcy (stečajni postopek)

A bankruptcy proceeding provides a court-sponsored dissolution of an insolvent debtor with the best possible recovery for the creditors. After opening a bankruptcy proceeding, creditors’ claims can be enforced only in this proceeding. There is no possibility of restructuring.

5. Are there different types of creditors and what is the significance of the differences between them?

Types of creditors:

• priority creditors (prednostni upniki) – hold a right to first satisfaction (prednostna pravica do poplačila) from the bankruptcy estate (e.g. salaries and wages, unpaid compensations for termination of working relationship, taxes and duties; etc.);
• preferential (secured) creditors (zavarovani upniki) – hold a right to separate satisfaction from the proceeds of the secured assets;
• creditors with exclusion rights (izločitvena pravica) – they are the true legal owners of an asset the debtor has in possession;
• ordinary creditors;  
• subordinated creditors (podrejeni upniki);
• creditors holding financial claims (finančne terjatve), which are arising from, among others, the credit agreements, bank guarantees, financial leasing agreements, guarantees, financial derivative or any other similar transaction assumed by the debtor for a financial claim against another person;
• creditors holding non-financial claims (poslovna terjatev), which are all claims other than financial claims.

6. Is a solvent liquidation of the company an alternative to regular insolvency proceedings?

No, it may not be an alternative, since  solvent liquidation can only be initiated if the company is solvent. If the company is insolvent, an insolvency proceeding must be initiated.

1. If a lender wants to monitor its borrower very closely (i.e. more closely than the usual information covenants in the credit agreement require), what options are there?

The law does not grant a lender any additional rights which would enable a lender to monitor closely a borrower. Best approach is to include additional covenants in the credit agreement.  

However, if a borrower is in financial difficulties, the borrower may approach the lender with proposal for restructuring and the borrowers and lender are free to define the conditions of the restructuring. Such restructuring proceedings may include, besides the restructuring of the receivables and the collateral, a greater participation or control of the creditors - in the form of a steering committee or in the form of an appointed chief restructuring officer.

2. What issues arise if a creditor extends credit facilities or offers support conditional on additional or extended guarantees to a company in financial difficulties and/or takes asset security?

Claw back risks and potential liabilities (namely, equal treatment of the creditors should be ensured at all times) are in concern.

Transactions which may be subject to claw back are those made in a period starting from 12 months prior to the day of filing of the motion for bankruptcy and ending on the day on which the bankruptcy proceeding is opened. Such look-back period is extended to 36 months if the other (benefited) person received assets of the company without being obliged to provide consideration, or if only obliged to provide consideration of a small value (i.e. the value being disproportionately low compared to another, or merely symbolic). However, the most recent amendment to the Slovenian Insolvency Act introduced the rule that transactions and legal acts can be subject to claw back even beyond these time limits if it can be proven that the debtor was already insolvent at the time of the transaction or that the transaction caused the insolvency.

1. How does a lender sell a loan?

Under the Slovenian Code of Obligations, a creditor can sell a loan by way of assignment through the conclusion of an agreement of transfer of receivables (cesija) without any restriction or limitation of number or type of loans. No consent of the debtor is required; however, the debtor must be notified in order to enforce the assignment.

Majority of transactions with non-performing loans (NPLs) are carried out by means of a bidding process based on a teaser invitation to a pre-identified group of potential buyers. Within the portfolio itself, the seller classifies the loan portfolios according to certain criteria (e.g. payment dynamics, payment performance, collateral, debtor status, etc.).

2. If the underlying credit agreement prohibits transfer or assignment (i.e. a change in the lender of record) how else (if at all) can a lender transfer the economic risk and/or benefit in the loan? For instance, are sub-participation agreements allowed under the law of your jurisdiction?

If the credit agreement prohibits true sale, the lender may enter into a sub-participation agreement and the receivables may be transferred into the fiduciary ownership by a way of tacit assignment (tiha cesija). In such case the lender legally remains the same, however, the economic interest is transferred to the sub-participants. The sub-participants also assume the underlying risks.

3. Regulatory issues: is any form of licence or prior authorisation from any regulatory authority required for the purchase, sale and/or transfer of loans? Does it fall within the definition of providing banking or financial services in the territory of the assignor or the borrower?

A purchase of a non-performing loan does not require a banking licence if no new loans are granted, except for consumer loans portfolio, where a buyer must obtain a consumer-lending license unless such receivables are sold by a bank to an SPV for securitization.