Amendment of Financial Operations, Insolvency Proceedings, and Compulsory Dissolution Act

On 20 September 2023, the National Assembly adopted an amendment to the Financial Operations, Insolvency Proceedings, and Compulsory Dissolution Act (hereinafter: the »ZFPPIPP-H«), wherein the Government of the Republic of Slovenia aims to (i) address the inconsistencies of the legislation with the Constitution of the Republic of Slovenia, (ii) align the Slovenian legal order with the European Restructuring and Insolvency Directive (Directive (EU) 2017/1132 of the European Parliament and of the Council of 20 June 2019), and (iii) reinforce the principle of ensuring the best conditions for the payment of the creditors' claims.

The main novelties introduced by the ZFPPIPP-H are as follows:

• Establishment of a judicial restructuring procedure for the purpose of removing impending insolvency. This is a new procedure aimed at companies, which are facing insolvency, to prevent insolvency from occurring by means of a commercial and financial restructuring in court proceedings where out-of-court restructuring cannot be achieved due to the lack of consent of all creditors. The procedure can thus be initiated only by the debtor’s proposal.

• Abolishment of the simplified compulsory settlement proceedings. Instead of such procedure, the ZFPPIPP-H introduces a compulsory settlement procedure for small businesses, which is foreseen for companies whose value of assets in the last two years does not exceed EUR 700,000.00 and the amount of all their liabilities does not exceed EUR 700,000.00. In this respect, the ZFPPIPP-H provides for a further simplification, namely that the proposal for compulsory settlement procedure for small businesses does not require the submission of an auditor's report and a report of a chartered appraiser, and the estimated value of the assets does not require to be prepared by a certified business evaluator.

• Modification of the obligations of the management upon the occurrence of insolvency. The ZFPPIPP-H obliges the management to act immediately and to submit a proposal for the opening of insolvency proceedings as soon as possible, which is essential to prevent companies from becoming insolvent and to ensure that creditors are paid equally and in the best possible manner. This requires management to initiate insolvency or other insolvency proceedings immediately, and at the latest within 30 days of the insolvency occurring.

• Amendment of the rules defining the closely related persons. The ZFPPIPP-H provides for a broader definition of closely related parties, addressing in particular the problem of the so-called »straw creditor« chain that cooperates with the debtor.

• Creditors and the creditors' committee will now have access to the debtor's key documentation relating to the conduct of the proceedings. This will allow the creditors to take an informed decision on whether to approve the proposed financial restructuring plan or to object to the conduct of compulsory settlement proceedings.

• Improvement of the position of employees as holders of priority claims in insolvency proceedings. The ZFPPIPP-H provides for an obligation of the debtor to pay wages during the course of the compulsory settlement proceedings in the amount as agreed in the individual employment contracts and not only up to the minimum wage. In addition, the inclusion of a representative of the employees in the creditors' committee is foreseen.

• Establishment of an online search engine for sales in insolvency proceedings. This allows for greater transparency of sales, as all sales will be published in one place, and prevents collusion between stakeholders.

The ZFPPIPP-H will enter into force on the 30th day after its publication in the Official Gazette of the Republic of Slovenia.