The aim of this article is to familiarize the reader with those of the aforementioned changes with which, as we presume, an entrepreneur may be rather frequently encountered with in the course of its entrepreneurial activities, and with special aim at those changes which improve creditor´s protection in bankruptcy proceedings.
Insolvency and Over-indebtedness
The dominant aim of the bankruptcy proceedings is solution of the debtor´s bankruptcy through encashment of the debtor´s assets from which financial claims of the debtor´s creditors shall be collectively satisfied. The fundamental condition of declaration of bankruptcy proceedings is the debtor´s bankruptcy which under the Act on Bankruptcy and Restructuring is recognized in two forms, i.e. insolvency (in Slovak: platobná neschopnosť) and over-indebtedness (in Slovak: predĺženosť). It is precisely the insolvency that has been most modified by the latest amendment.
Under amended wording of the Act on Bankruptcy and Restructuring an entity is held insolvent provided it is incapable of honoring at least two of its financial obligations pertaining to at least two creditors for longer than 30 days as from their maturity. Given the aforementioned, the bankrupt has to be in position of debtor vis-à-vis at least two creditors and at the same time has to be in default with respect to at least these two creditors for at least 30 days. Thus, the amended has clarified with respect to how many creditors the debtor has to be in default, as under the previous legal regulation: “A person is considered insolvent if it has more than one creditor and is incapable of paying more than one of its financial obligations for longer than 30 days upon their maturity” it was possible to conclude that an entity is also bankrupt if it has at least two creditors the receivables of whom it is incapable of honoring but it is sufficient if only in relation to one of these creditors the debtor is in default with payment of its financial obligation for at least 30 days.
It is essential, in our opinion, not to neglect the other form of bankruptcy – the over-indebtedness. Under the Act on Bankruptcy and Restructuring an entity which is obliged to keep accounting books pursuant to the Act on Accountancy (from the practical view it concerns mainly all legal forms of companies – joint-stock companies, limited liability companies, partnerships and limited partnerships) is considered over-indebted if it has more than one creditor and the amount of its due obligations surpasses the value of its assets. In this case the debtor – the bankrupt is in a situation where the aggregate amount of its due obligations vis-à-vis at least two creditors is not covered (surpasses) by its assets.
Status of creditor in the bankruptcy proceedings
The last amendment of the Act on Bankruptcy and Restructuring has also changed the status of creditor in the bankruptcy proceedings in several of its stages. One of the significant changes concerns the entitlement of creditor to file petition for declaration of bankruptcy of the bankrupt. Under the Act on Bankruptcy and Restructuring if the bankruptcy shall be declared on the basis of creditor´s petition there must exist a “reasonable presumption” of the debtor´s insolvency. The Act on Bankruptcy and Restructuring expressis verbis stipulates that such reasonable presumption exists if the debtor is in default for more that 30 days with at least two financial obligations towards more than one creditor and at the same time the debtor was asked for payment by at least one of these creditors. In other words, petition for declaration of bankruptcy is admissible provided that the bankrupt is in position of debtor vis-á-vis at least two creditors, the debtor is in default for more that 30 days with respect to these creditors and at least one creditor requested payment.
Compared to previous legal regulation, position of the creditor has been simplified, as fulfillment of the condition of reasonable presumption no longer requires call for payment to the debtor by at least two creditors (as it was in the past). Furthermore, the amendment extends the manner of proving legitimacy of creditor´s financial claims (which claims are the grounds for filing petition for declaration of bankruptcy). In connection with the aforementioned it should be noted that the previous legislation anticipated creditor´s demonstration of its claim either by means of (i) submitting written debtor´s acknowledgement of obligation or (ii) proving enforceability of creditor´s financial claim (e.g. by means of enforceable judicial decision, enforceable notarial deed, etc.), which in practice often resulted in necessity of initiating judicial proceedings before filing petition for declaration of bankruptcy. On the other hand, the current legislation under Section 12(2) of the Act on Bankruptcy and Restructuring enables demonstrating of creditor´s claim through confirmation of an auditor, bankruptcy trustee or judicial expert that the claim/receivable recorded in the accounting of the petitioner (creditor) has a documented legal title. From the practical view this extension introduced by the latest amendment simplifies the progress of the creditor/petitioner, provided that (in a nut shell) the creditor records its claim/receivable in its accounting books and keeps its accounts properly. The Act on Bankruptcy and Restructuring, however, does not expressly require that the creditor´s respective claim/receivable shall result from its financial statements (not ordinary nor extraordinary), therefore, there arises no need for elaborating any financial statements for this purpose or waiting for the end of respective accounting period. Finally, as a general rule applying to all the above manners of demonstrating creditor´s (petitioner´s) financial claims, the relevant documents (e.g. enforceable judicial decision or written acknowledgement of obligation) shall form an annex of the petition for declaration of bankruptcy.
The amendment also introduces a possibility to substantiate the creditor´s receivable on the basis of confirmation of the Ministry of Finance of the Slovak Republic on existence of receivable of the state arising from subsidy provided to debtor from the resources of the EU approved and accounted for by a certifying authority. This manner of justification, however, carries little importance for other creditors than the state, i.e. for a creditor who is a “common entrepreneur” taking part on economic competition, provided, of course, that the entrepreneur is not in position of the debtor and the state is not in position of the creditor.
The amendment also introduced a new obligation of the bankruptcy court to either decide on commencement of bankruptcy proceedings within period of 15 days as from delivery of petition for declaration of bankruptcy (provided the petition meets all the statutory criteria), or to instruct the petitioner on deficiencies of the petition in the same period and to call the petitioner for remedy of such deficiencies within 10 days. In the event that the petitioner fails to remedy deficiencies objected by the court, the court will reject the petition no later than on the 15th day from the lapse of period for remedy of deficiencies – otherwise the court will decide on commencement of bankruptcy proceedings in the same period. The aforementioned change fits to the general concept of improving the creditor´s status in bankruptcy proceedings, as under previous legislation the bankruptcy court did not called for remedy of deficiencies of the petition, but directly rejected the petition instead.
Subscription of receivables
Similarly to previous legislation, also upon the latest amendment of the Act on Bankruptcy and Restructuring the creditors assert their receivables against the bankrupt via applications conforming to statutory requirements as to the content and form. The application shall be filed by the creditor within so-called “basic subscription period” of 45 days as from declaration of the bankruptcy, while one counterpart of the application shall be delivered to bankruptcy trustee and one counterpart to respective bankruptcy court. The essential change, which fits to the general concept of improving position of the creditor, is that, contrary to previous legislation, the creditor´s delay in the said 45 days period will not have such significant legal consequences, especially if considered that under previous legislation the court did not accept applications delivered after the said 45 days period. Contrary to previous legislation, under the current legal state in the event that the creditor shall deliver its application later, the application will be accepted, thus, the creditor will not be deprived of the opportunity to have his receivable satisfied from the assets of the debtor. On the other hand, as a sanction for late delivery of the counterpart of application to the bankruptcy trustee, the creditor is not allowed to perform its voting right and other rights pertaining to the creditor´s receivable, thus, the creditor looses opportunity to actively interfere with the course of the bankruptcy proceedings. The creditor´s right to proportionate satisfaction of its receivable is, however, not effected by late subscription, i.e. the creditor´s receivable may still be satisfied from the assets of the debtor upon encashment. The default of the 45 days basic subscription period and thereto related loss of voting rights of the creditor concerns only delivery of the counterpart of application to the bankruptcy trustee, i.e. default of the said period with respect to delivery of the counterpart of application to the court shall not result in loss of these rights (assuming, of course, that one counterpart of application is delivered to the bankruptcy trustee in time) and the application shall be considered as duly filed. Although the Act on Bankruptcy and Restructuring stipulates an obligation to deliver one counterpart of the application to the court as well as to the bankruptcy trustee, it does not determine any period with respect to delivery to the court.
Liability for timely filing of petition for declaration of bankruptcy by the debtor
A debtor who is bankrupt is obliged to file petition for declaration of bankruptcy within 30 days as from the day it became familiar or could have become familiar, if it acted with professional care, with its bankruptcy. In the event that the debtor is a company (artificial legal entity) the above obligation shall be in the name of the debtor fulfilled by its statutory organ or member of statutory organ or liquidator.
If the person obliged to file petition for declaration of bankruptcy in the name of the debtor (which shall predominantly be its statutory organ, i.e. executives, members of board of directors, etc.) fails to file the petition in time, such person shall be liable vis-á-vis the creditors for the damage which arose due to such failure, unless such person proves that it acted with professional care. The Act on Bankruptcy and Restructuring quantifies the damage so that the amount of damage shall correspond to amount of receivables which after termination of bankruptcy were not satisfied due to lack of debtor´s assets. The law thus unburdens the creditors from the obligation to prove the actual amount of damage incurred and replaces it by the difference between the amount of subscribed receivables and the amount of satisfaction of these receivables, which in consequence means that the receivables of the creditors may by satisfied in full extent.
The latest amendment of the Act on Bankruptcy and Restructuring makes the liability of the responsible persons even stricter, as under new provision of Section 74a bankruptcy trustee is obliged to request the persons the trustee deems have breached their obligation to file petition for declaration of bankruptcy in time to prove in set period that they fulfilled their obligation duly and timely. If such person fails to prove that it has not breached its obligations or that it acted with professional care or that there is other reason excluding its liability, the bankruptcy trustee will file a motion with the court so that the court will bind such person to pay an amount corresponding to registered capital of the debtor registered with the Commercial Register at the time when the obligation to file petition for declaration of bankruptcy on time was breached, however, not more than double the minimum registered capital determined for the debtor by the Commercial Code.
Consequently, the requested/responsible person may prove to court that the late filing of petition for declaration of bankruptcy was justified in the same manner as with respect to bankruptcy trustee, otherwise the court will bind such person to pay an amount corresponding to registered capital of the debtor registered with the Commercial Register at the time when the obligation to file petition for declaration of bankruptcy on time was breached, however, not more than double the minimum registered capital determined for the debtor by the Commercial Code. Similarly as with all other changes the latest amendment has brought about, the main purpose of this restricted recourse of responsible persons is in the long run improving of protection of creditors in bankruptcy proceedings.