DRAFT OF ACT ON RESOLVING IMMINENT BANKRUPTCY

#35Draft of Act on resolving imminent bankruptcy

The proposal for the adoption of a new legal regulation concerns the area that is currently regulated by Act No. 7/2005 Coll. on Bankruptcy and Restructuring and on amendments to certain acts as amended (“BRA“), and Act No. 8/2005 on Administrators and on the amendments of certain laws as amended.

The current period requires effective solutions to the problems of entrepreneurs. One of such solutions might be the draft of a new Act of the Ministry of Justice of the Slovak Republic on resolving imminent bankruptcy. The aim of this adjustment is giving debtors sufficient space for efficient, rapid and transparent preventive restructuring at an early stage, when bankruptcy is still "imminent", thus preventing the debtor from going bankrupt, which should at the same time prevent losses of jobs and strategic know-how. At the same time, the total value for creditors should be maximized compared to what they would gain in a possible bankruptcy. And further, the proposed measures should also prevent an increase in non-performing loans. The Act also regulates the so-called early warning tools to serve to alert the trader in good time that the necessary and appropriate measures must be taken to avert imminent bankruptcy or bankruptcy.

Economic statistics show that up to 65% of entrepreneurs who went bankrupt were in a problem zone for three years before going bankrupt. Many entrepreneurs ignore such bad financial or business situation. They consider the fundamental problems in their companies to be temporary and do not undertake any steps to eliminate them in the long run. Therefore, the aim of the submitted legislation is to create effective rules for preventive restructuring in order to simplify and accelerate the recovery of a company in financial difficulties. What does the new law on dealing with imminent bankruptcy bring?

1. Transposition of the new EU directive on preventive restructuring frameworks, debt relief and disqualification, and on measures to increase the effectiveness of restructuring, bankruptcy and debt relief procedures

EU Member States have undertaken to jointly establish general frameworks for processes aimed at resolving companies in difficulties. They should enable debtors (entrepreneurs) to restructure effectively at an early stage, thus preventing bankruptcy, and helping viable businesses to get out of difficulties and prevent the abuse of economic power against small and medium-sized enterprises. At the same time, these frameworks should prevent job losses, know-how and skills, and should maximize the overall value to creditors compared to what they would gain in a bankruptcy.

2. New procedural tools for solving the situation of companies in difficulties

Until now, it was only possible to solve the imminent decline by restructuring. However, the Act envisages resolving the imminent bankruptcy with new instruments, namely public preventive restructuring and non-public preventive restructuring, while the restructuring under the BRA will be intended only to resolve the debtor's bankruptcy and is excluded from the imminent bankruptcy resolution processes. The new instruments introduce relatively strict rules for negotiations between the debtor and the creditors on the form of a rescue plan for a firm in difficulty, with small and smaller creditors and employees not being affected.

3. Special administrators

The new legislation also addresses the requirement for greater professionalism and independence of administrators by introducing a special administrative examination for administrators who will be able to be appointed to particularly demanding bankruptcy or restructuring proceedings, while these administrators will also perform the function in the so-called preventive proceedings. Transparent and independent selection of experts for the performance of this specific management activity should be ensured through a special committee, which will have established procedures for the activities and selection of these administrators to ensure the selection of only those candidates who will have expertise, skills, experience, and responsible approach. guarantee professional, independent, and lawful performance of the function in these specific proceedings. The transparency of the selection of the so-called Special administrators should also be contributed by the publication of an audio-video recording of this special administrator test.

4. Obligation of the debtor to file for bankruptcy due to insolvency

Bankruptcy legislation reintroduces the obligation for the debtor to file for insolvency and simplifies the rules for the creditor's ability to initiate bankruptcy proceedings in cases where the debtor's bankruptcy can be presumed.

5. Obligation of the debtor in bankruptcy to pay claims proportionally and preferably to unrelated creditors

The obligation of a debtor in bankruptcy, not only to file for bankruptcy, but also in relation to creditors, to pay their claims proportionately, is clearly defined. There can be no advantage to any creditor. Preference of certain creditors is even sanctioned by the norms of criminal law.

6. Greater clarity on the state of bankruptcies and restructurings for creditors and electronic processes

The new legislation simplifies the processes related to the filing of claims as well as changes in the list of creditors. The list of creditors will be compulsorily published in the bankruptcy register and will be based on it. Creditors, other than foreign creditors, will file their claims exclusively electronically. Creditors' meetings might be held by video conference.

7. Removal of barriers for entrepreneurs after debt relief

In line with the requirements of the EU Directive, in order to remove obstacles for further business, a possibility of a debtor who has been indebted, to continue in business or to acquire a trade, is explicitly introduced.