Insolvency Legislation Faces its First Real Test

The economic crisis presents a real-life test for the Slovenian insolvency legislation, unequalled in its young history. Numerous insolvency proceedings against Slovene companies have revealed several serious flaws of the Insolvency Act and forced the legislator into continuous amendments.

The global economic crisis and its local effects have put the Slovene Insolvency Act (Zakon o finančnem poslovanju, postopkih zaradi insolventnosti in prisilnem prenehanju, Official Gazette of Republic Slovenia no. 126/2007 et seq., ZFPPIPP) and its application in practice to a real test. Although it is a young act, which itself reformed the legal framework of insolvency in Slovenia, the legislator has been forced to amend it three times already, while the fourth amendment is currently in parliamentary.

The recent amendment

The most recent amendment came into force on 15 July 2010 and has brought several important changes. Firstly, the position of a receiver will become professional and will impose additional mandatory qualifications and other conditions on receivers. Until now, it was not uncommon that a receiver of a large company in a bankruptcy proceeding was a full-time primary school teacher or an engineer with limited experience or knowledge in economics and law. The obvious consequence was (is) that receivers were (are) not always up to the task of guiding a company through insolvency proceeding and protecting the best interests of the creditors of the company.

The legislator has also increased the competences of the chamber of receivers and laid down more strict and defined rules regarding the supervision of receivers' work, including fines and other disciplinary measures.

The legislator has also resolved the long pending question of whether the initiation of an insolvency proceeding affects the agreements on close-out netting; it has explicitly stated that they are not. The legislator has also put some efforts into improving the possibilities for survival of the debtor in a compulsory settlement proceeding and also into saving sound parts of the debtor in a bankruptcy proceeding over the assets of a natural person or an entrepreneur. In a compulsory settlement proceeding, the creditors may now, through the creditors' board, propose an increase in the debtor's share capital through new contributions and the issuance of new shares, which may be paid in by creditors, current shareholders and other persons – if this is foreseen in the resolution on...