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Slovak Republic: Strengthening creditor rights

On April 23 2015, the National Council of the Slovak Republic passed amendments to the Commercial Code and some other acts, including the Act on Bankruptcy and Restructuring

Daniel FutejCyril Hric

On April 23 2015, the National Council of the Slovak Republic passed amendments to the Commercial Code and some other acts, including the Act on Bankruptcy and Restructuring.

One of the most significant changes to the restructuring process is that, on fulfilling the restructuring plan, the debtor company's debts will not be discharged. Previously, once the restructuring plan was fulfilled, the debtor was fully released from all claims ascertained in the restructuring process, regardless of the percentage or proportion in which the creditors' claims had been satisfied. Now, however, even after fulfilling the restructuring plan, the debtor must satisfy the recognised claims of the individual creditors and only then will the debtor be permitted to distribute profits or other assets to its members. The Act provides that if under a restructuring plan, less than 50% of a claim is satisfied, the original claim up to 50% will not be discharged and the remainder of the claim will be deemed the property right of the creditor. Once the plan has been fulfilled, creditors will be able to enforce recovery of their claims up to 50% of the amount owed, and will be able to enforce the remainder if it is shown the debtor company has sufficient funds.

Another measure intended to strengthen the rights of creditors is the opportunity for creditors to sell their claims acknowledged in the restructuring plan to an entity established by the government for this purpose. The entity originally considered for this purpose was Slovenská zárucná a rozvojová banka (Slovak Guarantee and Development Bank), but ultimately the Slovak Government passed a Regulation on July 8 2015 implementing section 4(5) of Act 384/2011, which imposes a special levy on select financial institutions. Under this Regulation, the Slovak Republic, represented by the Finance Ministry, established Slovenská reštrukturalizacná (Slovak Restructuring Entity). This entity will buy, in accordance with the Regulation, all unsecured claims of the original unsecured creditors owed to them by a debtor company undergoing restructuring. The fee for transferring these claims cannot exceed 50% of the overall amount of the unsecured claims, and at the same time it cannot exceed €200,000 ($227,000). The procedure for buying the claims will be initiated with an announcement published in a national daily newspaper and on the website of the entity, in which they will indicate the name of the company undergoing the restructuring process as well as the conditions for buying the relevant claims. The public announcement will also indicate the time period in which creditors must file applications to sell their claims, which must be at least six months. The Regulation does not give a limit on the total amount of claims against a debtor company that this state-run entity will purchase. The only limit indicated is on the fee that may be charged for buying these claims, so if a creditor wanted to sell a claim exceeding €400,000 where the fee charged for buying that claim would not exceed €200,000, one can infer that such a sale would not be in contravention of the Regulation. It may be disputable whether a creditor will be able to sell only a portion of his claims or if they will have to sell them in their entirety, as it is possible to interpret the provision in question to mean that the creditor must sell all of their claims and that selling only a part is not permitted. The Regulation provides that the funds of Slovenská reštrukturalizacná 'will be used to purchase all the ascertained claims of the original creditor'. Although it is a preferable interpretation, this wording could be also interpreted in the context of the purpose of these funds – that the funds are earmarked for purchasing all the claims of an unsecured creditor with no upper limit set on the percentage of the claims that may be purchased.

The money that Slovenská reštrukturalizacná will use to purchase the claims will come from the special levy on select financial institutions – that is, banks and branches of foreign banks – as the scope of use of the funds has now been extended to include the purchase of such claims (it stands at €20 million).

Daniel Futej and Cyril Hric

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