This article appeared in the 2012 edition of The International Comparative Legal Guide to: Corporate Recovery & Insolvency; published by Global Legal Group Ltd , London.

1 Issues Arising When a Company is in Financial Difficulties

1.1 How does a creditor take security over assets in Slovenia?

The Slovenian legislation includes the following types of in rem securities relating to: (i) real properties – mortgage (hipoteka), land debt (zemljiaki dolg), real encumbrance (stvarno breme); and (ii) movables and property rights, respectively – pledge (zastavna pravica), retention of title (pridr~ek lastninske pravice), transfers by way of security (prenos v zavarovanje), and assignment by way of security (odstop v zavarovanje).

In order to establish a legally binding security, certain principles must be respected:

  • As a general rule, collateral assets must be specified (določen) or specifiable (določljiv) in order for the security interest to be (validly and enforceably) established.
  • The requirements for a valid security are: (i) the entering into of an agreement creating an obligation to create security (zavezovalni pravni posel); (ii) the entering into of an agreement on the creation of security (razpolagalni pravni posel); and (iii) the performance of an additional act prescribed by the law – aimed at ensuring publicity. For example: in the case of real estate, the creation of a mortgage must be registered with the land register (zemljiaka knjiga) while movable objects must be either (a) transferred into the possession of the creditor/pledge, or (b) registered into the registry of pledged movables (register neposestnih zastavnih pravic na premičninah) – we note that the registry is only available for certain types of goods (e.g. automobiles, inventories). As for security assignments, the notification of the debtor is not a requirement for the security assignment to be valid (we note, however, that – until such notification – the debtor may validly fulfil its obligation towards the assignor). Furthermore, in order to achieve bankruptcy remoteness (i.e. that the assignee may claim security/priority over the assigned claim), the assignment agreement must be entered into in the form of a notarial deed. The same applies also with respect to security transfers.
  • Furthermore, the security interest will only be valid and enforceable if the principle of accessority (akcesornost) - i.e. the dependence on the existence of a secured debt - is adhered to. Only land debt is not regarded as accessory security.

1.2 In what circumstances might transactions entered into whilst the company is in financial difficulties be vulnerable to attack?

Pursuant to the avoidance rules set out in the Slovenian Financial Operations, Insolvency (both on behalf of the insolvent debtor): Proceedings and Compulsory Dissolution Act (Zakon o finančnem poslovanju, postopkih zaradi insolventnosti in prisilnem prenehanju – ZFPPIPP), transactions fulfilling the following conditions may be challenged either by the bankruptcy receiver or the insolvent debtor's creditors:

A) the challenged legal act took place within the "suspect period", i.e. 12 months prior to the opening of bankruptcy proceedings;

B) the consequence of the legal act was either (a) the decrease of the net value (čista vrednost) of the debtor's assets, or (b) unfair preferential treatment vis-a-vis other creditors; and

C) the person to the benefit of which the act was performed knew or should have known that the debtor is insolvent.

It is presumed (and the burden of proof to the contrary lies with the creditor for the benefit of whom the act was performed) that the condition under (B) above is fulfilled if: (i) the act was performed due to the fulfilment of a bilateral contract (dvostranska pogodba) to the benefit of the creditor who has fulfilled its part of the contract prior to the fulfilment of the contract on the part of the debtor; (ii) due to the debtor's act, the creditor has acquired the right of separation with respect to the receivable created prior to the performance of the respective act; or (iii) if the act was performed during compulsory settlement proceedings contrary to the general regime restricting the conduct permissible during such proceedings.

It is further presumed (and the burden of proof to the contrary lies with the creditor for the benefit of whom the act was performed) that the condition under (C) above is fulfilled if: (i) the debtor has fulfilled its part of the obligation before it was due or otherwise in contrast with the established business practice between the debtor and the respective creditor; or (ii) such act was performed within three months prior to the opening of bankruptcy proceedings.

In the event that the debtor has disposed of its assets to the benefit of a creditor free of charge or at an unreasonably low price, such act may be challenged irrespective of whether or not the condition under (C) above is fulfilled (i.e. irrespective of whether or not the beneficiary of the debtor's act was aware or should be aware of the debtor's insolvency).

1.3 What are the liabilities of directors (in particular civil, criminal or disqualification) for continuing to trade whilst a company is in financial difficulties in Slovenia?

Once the company becomes insolvent, the focus of the directors' and the management/supervisory board's obligations shifts from protecting the interests of shareholders to protecting the interests of creditors.

In particular, upon establishing that the company is insolvent, the directors/board members have the following obligations: (i) the obligation of equal treatment of creditors (e.g. to hold off all payments save for those necessary for the conduct of the company's daily business (including the payment of employment relating priority unsecured claims (prednostne terjatve), operating costs, payments matching deliveries, VAT etc.); and (ii) the obligation to prepare a financial restructuring report (poročilo o ukrepih finančnega prestrukturiranja) and submit it to the supervisory board within one month after the occurrence of insolvency. The said report must outline: (i) the description of the company's financial position; (ii) the analysis of the reasons for insolvency; and (iii) the opinion of the directors/board members as to whether or not the chances of successful financial restructuring are at least 50%. If (a) in the director's/management's opinion, the respective chances are below 50%, or (b) if the director/management deems that, in the absence of a capital increase, chances of successful judicial composition proceedings are below 50% and the shareholders' meeting fails to pass a resolution on the share capital increase/the shareholders fail to pay the contributions within the set time limit, the director/management is obliged to file for bankruptcy.

Failure to adhere to the above obligations may result in the liability of the directors/board members for damages caused to the creditors, which – absent proof to the contrary – amounts to the difference between (i) the nominal amount of the creditor's claims, and (ii) the amount paid out to the creditors following the sale of bankrupt's assets. The damages payable by a director/board member is capped – by way of a statutory provision - at twice the aggregate amount of all payments received on the account of having performed their respective function in the previous financial year; the minimal amounts depend on the size of the company (ranging from EUR 20,000 to EUR 150,000). In any event, the (maximum) cap does not apply in the event of intentional misconduct or gross negligence.

We note that the liability for damages caused to creditors (reduction of payments in bankruptcy proceedings) is without prejudice to the damages caused to the company due to the failure to adhere to their obligations pursuant to the Companies Act (Zakon o gospodarskih dru~bah – ZGD-1).

Pursuant to the Slovenian Criminal Code (Kazenski zakonik – KZ- 1), a person who (i) is aware of a company's insolvency, and (ii) by unreasonable spending of assets, disposal of assets for an exceptionally low price, assuming of disproportionate obligations etc. causes bankruptcy and a large property loss for creditors, may face imprisonment. A similar penalty is prescribed for intentional creditor discrimination. Further, such action may also constitute a business fraud, if the responsible person is aware that the company will not be able to meet its obligations towards the other contractual party, but nevertheless enters into such contract.

According to ZGD-1, a person (a) who has been finally convicted of a criminal offence against the economy, property, security of legal transactions, and/or labour relations, (b) who has been prohibited from carrying out his/her profession by way of a court order, or (c) who, acting as a member of the management board of a company against which bankruptcy proceedings were instituted, has been found liable for the payment of damages to creditors in accordance with ZFPPIPP, may not be appointed as a member of management or the supervisory board for a certain time period from the expiry of the penalty/sentence.

2 Formal Procedures

2.1 What are the main types of formal procedures available for companies in financial difficulties in Slovenia?

Slovenian law distinguishes between two types of insolvency proceedings governing the insolvency of corporations: bankruptcy proceedings (stečajni postopek); and compulsory settlement proceedings (postopek prisilne poravnave). Said proceedings are governed by the ZFPPIPP.

2.2 What are the tests for insolvency in Slovenia?

A debtor (corporation) is deemed insolvent when it is either (a) within a longer period of time unable to pay its debts in due time (trajneje nelikviden) (presumed if the debtor is either (i) more than two months late with the fulfilment of one or more due payment obligations amounting, in aggregate, to more than 20% of its liabilities as set out in the annual statements for the preceding business year, or (ii) more than three months late with the payment of minimal wages to employees or with the prepayment of employees' income taxes and social contributions), or (b) is overindebted in the meaning of the insolvency law (dolgoročno plačilno nesposoben), (presumed if (i) the value of liabilities exceed the value of its assets, or (ii) the losses of the ongoing business year along with the losses carried forward reach 50% of the debtor's share capital and cannot be covered by profits carried forward or reserves) (Article 14 ZFPPIPP).

2.3 On what grounds can the company be placed into each procedure?

Bankruptcy proceedings must be opened by a court whenever (i) it has been established that a debtor is insolvent (insolventen) within the meaning of the ZFPPIPP, and (ii) certain other formal requirements are met (notably, the person filing for bankruptcy must be entitled to do so – please see question 2.4 below).

Compulsory settlement proceedings may be opened whenever the prerequisites mentioned for the opening of bankruptcy proceedings are met, whereby reasonable likelihood (at least 50%) must be demonstrated that (i) the debtor may still become solvent by way of financial restructuring, and (ii) the creditors may be re-paid under better conditions as compared to bankruptcy proceedings (Article 136 ZFPPIPP). In contrast to bankruptcy proceedings, an application for the opening of compulsory settlement proceedings can only be filed by the debtor.

2.4 Please describe briefly how the company is placed into each procedure.

The motion for the opening of bankruptcy proceedings may be filed with the competent court by: (a) the debtor itself; (b) a personally liable shareholder of the debtor; (c) the debtor's creditor(s); or (d) the Slovenian Public Guarantee and Maintenance Fund (Javni jamstveni in pre~ivninski sklad Republike Slovenije – JPS). A creditor applying for the opening of bankruptcy proceedings is required to substantiate (i) its claim against the debtor, and (ii) that the debtor is more than two months late with the payment of such claim. The JPS may apply for the opening of bankruptcy proceedings if it is able to demonstrate that (i) the debtor's employees have claims against the debtor, and (ii) the debtor is more than two months late with the payment of such claims.

In contrast to bankruptcy proceedings, an application for the opening of compulsory settlement proceedings can only be filed by the debtor.

2.5 What notifications, meetings and publications are required after the company has been placed into each procedure?

The bankruptcy/compulsory settlement procedure is deemed opened on the day on which the announcement on the commencement of insolvency proceedings is published in the official insolvency database ( Such announcement (edict) must, inter alia, contain:

  • the name and address of the debtor;
  • the name and address of the receiver;
  • the request to all creditors to file their claims within a certain deadline (rok za prijavo terjatev);
  • the request to all privileged creditors to claim their privilege within this deadline; and
  • instructions on the consequences of failure to adhere to this deadline.

The opening of insolvency proceedings takes effect as of 0:00 hours on the day following publication of the edict in the official insolvency database.

3 Creditors

3.1 Are unsecured creditors free to enforce their rights in each procedure?

After the commencement of insolvency proceeding they must file their claim with the receiver who may acknowledge or contest a filed claim (see question 5.1 below). They are satisfied only pro rata according to the bankruptcy or composition quota.

Once formal proceedings have commenced, it is not possible to obtain security by way of a court-instituted/executive lien (zastavna, pravica pridobljena v sodnem postopku) anymore. All execution proceedings against the debtor are suspended.

3.2 Can secured creditors enforce their security in each procedure?

The rights of secured creditors (ločitveni upniki) such as pledges remain unaffected by the opening of insolvency proceedings (save for the filing obligation – please see question 5.1 below). The rights of secured creditors may, however, be affected by the application of the bankruptcy avoidance rules (see question 1.2). Furthermore, court instituted liens obtained within the last two months before compulsory settlement proceedings are opened are no longer enforceable.

Secured creditors are entitled to preferential satisfaction with respect to proceeds gained by the realisation of the relevant assets provided as collateral.

In bankruptcy proceedings it has to be taken into account that the relevant assets still form a part of the bankruptcy estate and that they basically have to be administered and realised by the receiver.

3.3 Can creditors set off sums owed by them to the company against amounts owed by the company to them in each procedure?

Any claims of creditors that are eligible for set off against the debtor's counterclaims are set off automatically (ipso lege) upon the commencement of the insolvency proceedings. The creditor does not file his claim to the debtor, but has to notify the set off to the receiver within three months of the commencement of the bankruptcy proceeding, whereas in the compulsory settlement proceedings such term for notification is not required by law.

4 Continuing the Business

4.1 Who controls the company in each procedure? In particular, please describe briefly the effect of the procedures on directors and shareholders.

The receiver (stečajni upravitelj) is appointed by the insolvency court with the decision on the institution of insolvency proceedings. He assumes the duties of the director with a court appointment. The formation of a creditors' committee (upniaki odbor) is not obligatory in bankruptcy proceedings, unless (i) a motion for the formation of a creditors' committee is submitted by any creditor prior to the publication of the decree on the examination of claims, or (ii) (after the publication of the decree on the examination of claims) a respective motion is lodged by creditors holding an aggregate of at least 1/10 of the voting rights (calculated in proportion to the aggregate amount of all approved and plausible contested claims).

After the opening of bankruptcy proceedings, only the receiver is entitled to act on behalf of the bankrupt debtor, provided that prior court approval is obtained with regard to certain actions prescribed by law.

In compulsory settlement proceedings, the debtor is not completely deprived of his ability to dispose of his assets. Basically, the debtor may continue with regular business activities, but may not (i) dispose of its assets (unless such disposal is envisaged in the financial restructuring plan and the insolvency court approves of it), (ii) take out loans or credit facilities (unless such loans are no larger than the liquid assets necessary for the financing of the regular business activities and the insolvency court approves of them), (iii) grant surety or issue guarantees, and/or (iv) perform any actions which result in an unequal treatment of creditors. The courtappointed receiver (upravitelj v postopku prisilne poravnave) has the right to supervise and veto certain actions of the debtor. The creditors' committee (upniaki odbor) only has an advisory function but is obligatory in compulsory settlement proceedings.

The director(s) of the debtor is (are) required to support the receiver in his duty to act as the estate's attorney.

4.2 How does the company finance these procedures?

The costs for the formal procedures are considered preferential claims. They are therefore financed from the realisation of the debtor's assets. In order to initiate formal proceedings, however, the petitioner has to advance the initial costs of the procedure (unless the petitioner is the debtor himself). These costs are reimbursed to the petitioner (unless the petitioner is the debtor himself) if there are sufficient assets to cover the costs of the proceedings.

Should the debtor's business be deemed rentable and therefore continue, further costs (e.g. wages, rent) must come from operative revenues. It is the receiver's responsibility to ensure the financial feasibility of continuing the business.

4.3 What is the effect of each procedure on employees?

The opening of insolvency proceedings itself does not affect existing employment contracts. In the bankruptcy or compulsory settlement proceedings the receiver may, with a 15-day notice period, terminate the employment contracts to employed workers whose work became unnecessary.

In compulsory settlement proceedings, the receiver may, with a 30- day period of notice, terminate the employment contracts of no more than the number of workers as stipulated by the programme for the termination of employments due to financial reorganisation.

4.4 What effect does the commencement of any procedure have on contracts with the company and can the company terminate contracts during each procedure?

The commencement of bankruptcy or compulsory settlement proceedings does not affect the validity of the contracts that have been concluded before the opening of the respective procedure and have not been performed by the parties. However, the debtor has the right to rescind bilateral contracts which have not been fulfilled by either of the parties (vzajemno neizpolnjena dvostranska pogodba) within three months of the commencement of the bankruptcy proceeding and one month of the commencement of the compulsory settlement proceeding, if he obtains the court approval. Such approval is issued by the court if the rescission results in more favourable conditions for the payment of creditors in the bankruptcy proceeding or is in accordance with the financial restructuring plan in the compulsory settlement proceeding. The debtor in bankruptcy also acquires the right to cancel lease contracts concluded prior to the commencement of bankruptcy proceedings, with one month's notice.

In this regard, we note that a recent amendment to the ZFPPIPP (which entered into force in July 2010) introduced a regime explicitly providing for enforceability of close-out netting arrangements (following the 2006 ISDA Model Netting Act) – prior to the amendment, the enforceability of such arrangements under Slovenian law was disputed.

5 Claims

5.1 Broadly, how do creditors claim amounts owed to them in each procedure?

In bankruptcy proceedings, the creditors are obliged to file (i.e. apply for the payment of) their claims within 3 (three) months from the commencement of proceedings. During the so-called claims examination procedure (postopek preizkusa terjatev), the receiver has to declare whether he acknowledges or contests a filed claim (whereas claims may also be contested by other creditors). If the receiver acknowledges a creditor's claim, this creditor is entitled to participate in the bankruptcy proceeding, which means that it will eventually receive a quota from the distributed assets. If a creditor's claim is contested by the receiver (or by another creditor), such creditor has to assert its claim in civil proceedings in order to maintain its right to participate in the bankruptcy proceedings. If the creditor misses to file its claim, such claim is in relation to the debtor in bankruptcy terminated (does not exist).

Secured creditors are obliged to file both (i) an application for the payment of the claim, and (ii) an application for (the recognition of) the security interest (the right to be compensated from the value of the underlying collateral). Similarly, a failure to file the claim/security interest in due time results in the loss of the right to be repaid from the bankrupt's estate/loss of the right to priority payment (we note that this does not apply for secured creditors holding a valid title to realise collateral by way of extra judicial sale – dogovor o izvensodni prodaji).

In compulsory settlement proceedings, the creditors are obliged to file their claims within 1 (one) month from the commencement of proceedings. The claims examination procedure is similar to the above, whereby the following should be noted: first, secured creditors are not obliged to file their claims (as their claims are unaffected by the compulsory settlement procedure). Second, a failure to file a claim in due time does not result in the loss of the right to repayment (it does, however, prevent the creditor from being able to participate in the voting on the compulsory settlement proposal). It is to be noted that a court-approved compulsory settlement affects even the claims that have not been filed at the proceedings commencement.

5.2 What is the ranking of claims in each procedure? In particular, do any specific types of claim have preferential status?

Unsecured creditors' claims

Unsecured creditors are creditors in bankruptcy and compulsory settlement proceedings, whose claims arose prior to the opening of insolvency proceedings and who have no right to preferential satisfaction. They are satisfied only pro rata according to the bankruptcy or composition quota.

In bankruptcy proceedings, unsecured creditors' claims are satisfied from the so-called general distributive estate (sploana razdelitvena masa) that is formed when bankruptcy proceedings costs (stroaki stečajnega postopka) are subtracted from the general bankruptcy estate. The bankruptcy proceedings costs are all costs of the debtor that arise after the commencement of the bankruptcy proceeding, including the debtors recurring costs. The unsecured creditors' claims are satisfied from the general distributive estate in the following order:

(A) priority unsecured claims (prednostne terjatve – e.g. employees' wages for the three months preceding the institution of bankruptcy proceedings, damages for occupational diseases/industrial accidents, severance payments, social contributions, etc.);

(B) ordinary claims (navadne terjatve – other unsecured creditors' claims); and

(C) subordinate claims (podrejene terjatve – unsecured creditors' claims which, based on the legal relationship between the debtor and the creditor, only become due upon payment of other unsecured creditor's claims, e.g. subordinated loans/similar junior debt structures).

In bankruptcy proceedings, unsecured claims falling into a single category (as set out above) rank pari passu among each other, whereby the claims falling into a lower rank order are only satisfied upon the satisfaction of all claims falling into a higher rank order (Article 359 ZFPPIPP).

Privileged and preferential claims

Claims which lawfully arose against the estate after the opening of the proceedings (privileged claims/costs of the insolvency proceedings) or claims which are subject to a security interest in rem (preferential claims) enjoy priority over unsecured claims in insolvency proceedings (as defined above).

Generally, claims which arose prior to the opening of bankruptcy proceedings are not, as such, preferential; still, claims falling into the category of priority unsecured claims (as defined above) enjoy priority over other categories of unsecured claims. Moreover, in compulsory settlement proceedings, such priority unsecured claims are considered privileged and must be satisfied by the debtor in full (i.e. not merely in quotas pursuant to the composition plan). In essence, privileged claims are, inter alia:

(A) in bankruptcy proceedings:

(i) the costs of the insolvency proceedings, including the receiver's fees and the court expenses;

(ii) the expenses of the administration and realisation of the assets;

(iii) the claims arising from the continuation of the business;

(iv) the salary claims of employees accruing after the opening of the proceedings; and

(v) claims for fulfilment of mutual contracts provided that the receiver has decided not to rescind such contract; and

(B) in compulsory settlement proceedings:

(i) priority unsecured claims (as defined above).

These privileged claims have to be paid in full from the estate. The rights of secured creditors (upniki z ločitveno pravico), such as pledgees, and the rights of creditors with a right of separation of assets (upniki z izločitveno pravico), such as creditors with retention of title, remain unaffected by the opening of insolvency proceedings (save for the obligation to file their respective claims). Secured creditors are entitled to preferential satisfaction with respect to the relevant assets. Creditors with a right of separation may ask for the separation of their property.


It follows from the above that creditor's claims are satisfied in the following order:

  • secured creditors and creditors with a right of separation;
  • privileged creditors/costs of the proceedings; and
  • unsecured creditors, which rank pari passu among each other within a category.

5.3 Are tax liabilities incurred during each procedure?

The opening of formal procedures does not have an effect on the general tax regime. Insolvent companies are therefore required to continue to pay taxes.

6 Ending the Formal Procedure

6.1 Is there a process for "cramming down" creditors who do not approve proposals put forward in these procedures?

Among the two formal insolvency proceedings available under Slovenian law, "cramming down" is only possible in compulsory settlement proceedings as it is the only procedure where a restructuring proposition may be filed and put to a vote.

As already indicated, compulsory settlement proceedings are intended to discharge the debtor from a part of its debts and to enable the debtor to continue its activities. The debtor has to offer equal quotas, interest and payment terms to all unsecured creditors. If the debtor is a corporation (kapitalska dru~ba), the debtor may – as an alternative – also offer to the creditors the conversion of their receivables into equity stakes in the debtor (debt-to-equity swap), whereby such an offer may also be made to/accepted by the secured creditors.

A qualified majority of creditors must then approve the composition plan and the court must confirm it. Qualified majority means approval by creditors whose pondered eligible claims (i.e. claims which have been duly filed and found by the court to be plausible) amount to at least 6/10 of the aggregate pondered eligible claims of the all creditors.

6.2 What happens at the end of each procedure?

Bankruptcy proceedings: after the final distribution of the proceeds achieved from the realisation of the bankrupt's estate, the receiver is obliged to draw up a final report, on the basis of which the insolvency court issues a resolution on the ending of the bankruptcy proceedings, resulting in the deletion of the debtor from the court registry (and thereby loss of its legal personality).

Compulsory settlement proceedings: if the composition plan is accepted by the creditors, confirmed by the court and fulfilled by the debtor, the latter is released from the remainder of its debts. We note that a decision on the confirmation of compulsory settlement may be challenged by the creditors if (i) the debtor is, in fact, able to repay its debts in full, or (ii) the compulsory settlement proceedings have been instituted on the basis of fraudulent misrepresentation of facts by the debtor.

7 Alternative Forms of Restructuring

7.1 Is it common to achieve a restructuring outside a formal procedure in Slovenia?

In what circumstances might this be possible? Extrajudicial restructurings are possible, but not very common. It is not possible to force a dissenting creditor to agree to restructuring plans outside the formal (judicial) procedures. From an economic perspective the alignment of interest between the shareholders and creditors could be reached, mainly, if the latter are: (i) familiar with the debtor's industry; (ii) not too numerous/disperse; and (iii) aware that either of the available formal proceedings is likely to result in a considerable loss of value.

7.2 Is it possible to reorganise a debtor rather than realise its assets and business?

A voluntary pre-insolvency reorganisation outside of the insolvency proceedings is possible in compliance with the Slovenian corporate law. Should the debtor become insolvent and an approval of creditors for a reorganisation within the compulsory settlement proceeding is not achieved, the receiver is obligated to realise the assets of the debtor in the bankruptcy procedure.

7.3 Is it possible to achieve an expedited restructuring of the debtor by means of a pre-packaged sale? How is such a sale effected?

Slovenian insolvency law does not provide for an expedited restructuring through a pre-packaged sale.

8 International

8.1 What would be the approach in Slovenia to recognising a procedure started in another jurisdiction?

Cross-border insolvency proceedings are recognised based on two main sources:

The EU Regulation 1346/2000 requires the recognition of all proceedings opened in a fellow Member State without a formal recognition procedure from the time that it becomes effective in the State of the opening of the proceedings.

The provisions on international insolvency law in the ZFPPIPP regulate the effects of insolvency proceedings opened in another State and the decisions issued in these proceedings and – more or less – mirror the regime provided for by the UNCITRAL Model Law on Cross-Border Insolvency.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.