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NEW LEGAL REGULATION OF CORPORATE BANKRUPTCY IN THE ACT ON BANKRUPTCY AND RESTRUCTURING

On September 13, 2011 the National Council of the Slovak Republic adopted an amendment to the Act No. 7/2005 Coll. on Bankruptcy and Restructuring as amended (the „Bankruptcy Act“), the main aim of which is to amend such fields of the legal regulation of corporate (company) bankruptcies, which have been found as problematic, little effective, complicated, or insufficiently regulated since the adoption of a new Act on Bankruptcy and Restructuring in 2005. The new legal regulation primarily focuses on corporate bankruptcies. The amendment to the regulation of personal bankruptcies is planned in the future.

The above mentioned amendment to the Bankruptcy Act shall become effective on January 1, 2011 with the exception of certain provisions, which shall become effective as of January 1, 2013.

The current legal regulation of bankruptcy and restructuring shall change mainly in the following fields:

Modification of the terms debt overburden and insolvency

With the effectiveness as of January 1, 2012 the term insolvency shall be specified in that sense that insolvent will be a subject, which will not be able to fulfil thirty days after the due period at least two financial obligations to more than one creditor. Unlike the current legal regulation, not that subject will be insolvent which shall have more than one creditor and shall not be able to fulfil more than one financial obligation, but insolvent will be the subject which will be in delay with fulfilment of its financial obligations towards more than one creditor.

The definition of debt overburden shall be modified with the effectiveness as of January 1, 2013. Under the new legal regulation, a debtor will be overburdened by debt when the value of all its obligations, not only due obligations, shall exceed the value of its assets. Determining these values will be based on accounting records or an expert opinion, which shall prevail before accounting records and the expectable economic results of management of assets or operation of the company will be also taken into consideration. The liabilities which shall be connected with the subordination liability shall not be included into the amount of liabilities nor shall be included the liabilities which would be satisfied as subordinated liabilities in the bankruptcy proceedings.

Liability of the statutory body of the company

With the effectiveness as of January 1, 2013 the liability of the members of the statutory board of the company will be moderated in a way that in case the company being the debtor becomes overburdened by debt and the member of the statutory body (executive director/member of the board of directors) does not file the petition for declaration of bankruptcy on time, he/she will be obliged to pay into the bankrupt’s assets the amount equal to the registered capital of the debtor, however not more than twice the minimal amount of the registered capital of the company determined by law, which will represent in case of a limited liability company the amount of EUR 10.000 and in case of a joint stock company the amount of EUR 50.000. This obligation shall apply to persons which shall, during the period prior to commencement of the bankruptcy proceedings, breach the obligation to file a petition for commencement of bankruptcy proceedings on time. The above mentioned model of liability of the members of the statutory body of the debtor shall follow the principle of maintaining the registered capital of the company. The new legal regulation does not establish the liability of the member of the statutory board of the respective company automatically. The new regulation requires the member of the statutory board to take all appropriate measures in the respective period i.e. either initiate an informal or formal restructuring or to file a petition for bankruptcy. In case the member of the statutory board takes such measures on time, the liability shall not be applicable. According to new legal regulation the burden of proof is on the side of the member of the statutory board, which has to prove that the adopted such measures on time and therefore is not liable for the breach of his/her legal obligations.

In case of joint manner of acting of the members of the statutory board on behalf the company, that member, which shall file to the Collection of Deeds of the respective court within the statutory period for filing a petition for bankruptcy an announcement that the company is overburdened by debts and that the member has not obtained the consent of other members of the statutory board for filing the petition for bankruptcy, he/she will not bear responsibility for delayed filing of petition for bankruptcy.

Initiation of the bankruptcy proceeding

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The new legal regulation aims to make feasible the creditor’s petitions for bankruptcy due to insolvency of the debtor and thereby make a pressure for maintaining the payment discipline by debtors and timely solution of the threatening insolvency by the debtor by another way instead of bankruptcy, i.e. informal or formal restructuring.

Unlike the current legal regulation, when the debtor has a duty to file a petition for bankruptcy both for the reason of debt overburden as well as for the reason of insolvency, the new legal regulation, which shall become effective as of January 1, 2013, leaves out the duty of the debtor to initiate the bankruptcy proceedings for the reasons of insolvency and keeps this duty only in case the debtor is overburdened by debt. Therefore, the new legal regulation does not force the debtor to initiate bankruptcy proceedings due to its insolvency of temporary nature in case the creditors are willing to accept such state of a debtor, i.e. that the creditors themselves do not decide to initiate such bankruptcy proceedings.

With the effectiveness as of January 1, 2012, unlike as in presence, the courts will not automatically refuse those petitions for bankruptcy, which shall not fully comply with all statutory requirements. In case the court shall find out that the petition for bankruptcy does not fulfil all statutory requirements, the court will not later than 15 days from the delivery of the petition inform the petitioner on the defects of the petition and shall invite him to correct such deficiencies of the petition. In case the applicant shall not do so, the court will refuse the petition within 15 days after the lapse of the period for correction of deficiencies. Otherwise the court shall decide on commencement of the bankruptcy proceedings. An appeal against the refusal of the petition for bankruptcy shall not be admissible.

Creditor’s petition for bankruptcy

According to the new regulation, which shall become effective as of January 1, 2012 in case the petition for bankruptcy shall be filed by the debtor’s creditor, the creditor will be obliged to state in the petition the facts from which it will be possible to reasonably expect the insolvency of the debtor. It will be possible to reasonably expect the insolvency of the debtor in case the debtor shall be delayed more than 30 days with the fulfilment of at least two financial obligations to more than one creditor and in case the debtor will be requested in writing to pay such obligation by one of those creditors.

In the petition, the creditor will be obliged to describe its due receivable which is 30 days after its due date and to determine another creditor with the receivable which is 30 days after its due date. The creditor will be obliged to attach such documents to the petition, which will evidence his claim.

The creditor will be allowed to substantiate his claim with (i) written recognition of the claim by the debtor with the notary verified signature of the debtor, (ii) enforceable decision or another document based on which it will be possible to order enforcement of the decision or perform execution, (iii) confirmation of the auditor, trustee or an expert on the fact that the petitioner keeps the receivable in its accounting records in compliance with the accounting regulations and in case the receivable was acquired by the transfer, also by the confirmation of the auditor, trustee or an expert on the fact that the respective receivable kept in the accounting books of the petitioner has a documented origin in case the petitioner files a petition against the legal entity or (iv) confirmation of the Ministry of Finance of the Slovak Republic on existence of the receivable of a state from the contribution provided to the debtor from the funds of the European Union, approved and recorded by the certification body.

According to the present legal regulation the receivable of the petitioner is considered as proved in case the receivable was recognized by the debtor with the notary verified signature of the debtor or proved by the enforceable decision of the court or other authority. Therefore, since January 1, 2012 the number of ways how the creditor may prove its receivable shall be extended.

The aim of the legislator was to modify the bankruptcy proceedings with respect to the creditor’s petition for bankruptcy in order to become effective and fast but at the same time to ensure that the debtor shall have the possibility to defend itself in case its bankruptcy was questionable.

The court will send a copy of the creditor’s petition for bankruptcy to the debtor via registered mail within five days from the commencement of the bankruptcy proceedings and will ask the debtor to prove its payment ability. At the same time the court will determine the date of the court hearing. The court will require the presence of the debtor at the court hearing and shall notify the creditors stated in the petition. The court shall declare the bankruptcy of the debtor in case the debtor shall not prove its payment ability otherwise it will decide to discontinue the bankruptcy proceedings.

The participant to the bankruptcy proceedings will be entitled to file an appeal against the decision of the court on discontinuing the bankruptcy proceedings. Only the debtor will be entitled to file an appeal against the decision on declaration of bankruptcy.

Simplifying the submission of claims into the bankruptcy proceedings

The submission of claims of the creditors into the bankruptcy proceedings shall be simplified with the effectiveness as of January 1, 2012 as follows:

- the creditors will be able to submit more unsecured claims by one application form unlike the current regulation when the creditors have to submit each claim by a separate application form;

- the applications will have to be filed, within the basic 45 day period from the declaration of bankruptcy for submission of claims, only to the bankruptcy trustee and only in one counterpart; the creditor will be obliged to deliver one counterpart also to the court;

- the creditor will be able to submit the claim to the bankruptcy proceedings also after the lapse of the basic 45 days period from the date of commencement of the bankruptcy proceedings, however only as unsecured claim without the voting right on the creditors meetings and without other rights connected to the submitted claim. However, the right of the creditor for satisfaction of his claim is not affected.

Limitation of voting rights of related creditors

It used to be common in the bankruptcy proceedings that the members of the statutory board of the debtor, or the persons directly connected with the shareholder or the statutory body of the debtor were significant creditors. The interest of such persons was often not to achieve the highest possible satisfaction of the creditors but to maintain the status prior to commencement of the bankruptcy proceedings. The related creditors had the possibility to influence the business of the debtor prior to commencement of the bankruptcy proceedings or to make profit from such business. The new legal regulation subordinates the satisfaction of the related creditors to the satisfaction of other creditors and at the same time the new legal regulation withdraws from them the right to vote at a meeting of creditors and the right to be elected to the creditors' committee.

Along with the related creditors, also contractual penalties, which without any economic reason favour some creditors and therefore disadvantage other creditors or deform the bankruptcy proceedings through the voting ratios belong to the subordinated class of creditors.

Replacing the bankruptcy trustee

With the effectiveness as of January 1, 2012 the Bankruptcy Act allows the replacement of the bankruptcy trustee any time during the bankruptcy proceedings in case of decision of the ¾ majority of votes of all creditors in contrary to the current legal regulation which allowed the replacement of the bankruptcy trustee only at the first meeting of the creditors. It was possible to adopt a decision on the replacement of a trustee on the following meetings of the creditors only in case the trustee repeatedly or significantly breached his duties or in case the ratio of voting rights of the creditors significantly changed from the last meeting of the creditors.

Mgr. Lucia Prazňáková, JUDr. Milan Malata