Toughening up
Daniel Futej and Daniel Grigel explain the practicalities of bankruptcy and restructuring in Slovakia
S
lovak bankruptcy law has undergone dynamic changes over the past two years aimed at toughening the obligations of insolvent entrepreneurs and beefing up the rights of creditors. Under the Act on Bankruptcy of 2005, entrepreneurs are required to moni-
tor continually developments in their financial situation as well as the condition of their assets and liabilities in order to allow early detection of potential insolvency and adopt measures to avert any threat of insolvency. It is solely up to the business entity whether to circumvent insol- vency by selling part of the undertaking, selling difficult to recover receivables, agreeing with creditors, or other suitable methods. If, despite best efforts, the business entity cannot be revi- talised and insolvency is imminent, there are only two ways to resolve the situation: declaring bankruptcy or restructuring the undertaking. The chief difference between bankruptcy and restructuring is survival of the undertaking.
Bankruptcy is a liquidation process which, after converting assets to cash and distributing the proceeds among creditors, results in dissolution of the undertaking. As opposed to bankrupt- cy, restructuring is a process aimed at saving the undertaking where the business entity (debtor) and the creditors agree on a plan to satisfy the creditors’ claims to an agreed extent. Unlike bankruptcy, restructuring assumes the active approach of the debtor and it cannot take place if the debtor does not express interest in the process. Bankruptcy and restructuring are both directed according to strict statutory rules and under the supervision of the court, bank- ruptcy administrator and the entrepreneur’s (debtor’s) creditors. The Act on Bankruptcy recognises two types of financial insolvency which can be resolved
through bankruptcy or restructuring: inability to pay or over-indebtedness. An entrepreneur having at least two different creditors and at least two financial obligations 30 days past due is deemed unable to pay. For a company to become insolvent, it must be proved that it has more than one creditor and that the amount of its obligations (not just due obligations, but any obligations) exceeds the value of its assets. Consequently, the definition does not allow debtors to conduct business while they are over-indebted on the books. In the interest of allowing businesses to obtain financing from shareholders or from related persons other than by con- tribution to the share capital, however, the debtor’s obligations to shareholders and related per- sons will not be counted toward the sum of obligations for the purposes of determining over- indebtedness. In ascertaining over-indebtedness, the value of a debtor’s assets is not based sole- ly upon the real current value of its assets, but will take into account future economic results achieved in association with continued management of assets and future operation of the debtor’s business. Determination of obligations and the value of the debtor’s assets is based on the debtor’s books or on the value designated by expert assessment, which will always have precedence over the debtor’s accounting books. An entrepreneur who is unable to pay is not yet required to petition for a declaration of
bankruptcy over its assets. Conversely, a debtor who is over-indebted (not meeting the test of over-indebtedness) must file a declaration of bankruptcy within 30 days. The 30-day period is calculated from the moment when the statutory body learned of its over-indebtedness or by the exercise of professional diligence could have learned of the over-indebtedness. Persons who
038 IFLR|RESTRUCTURING & INSOLVENCY
difference between bankruptcy and restructuring is survival of the undertaking
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The chief
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