Slovenia’s perspective on the proposed harmonisation of avoidance actions in insolvency proceedings

The proposed EU Directive on the harmonisation of insolvency law aims to establish minimum conditions for exercising avoidance actions in insolvency proceedings in order to protect the bankruptcy estate against unlawful deprivation of assets prior to the opening of insolvency proceedings. In Slovenia, existing contestation rights provide a strict legal framework to prevent such transfers of assets and the proposed Directive is expected to strengthen them.

Scope of avoidance rules

The proposed Directive was designed to prevent legal acts that harm the creditor (or group of creditors) by giving preference, undervaluing, or deliberately defrauding creditors. Furthermore, the scope of the legal acts has been broadly drawn to include both actions and omissions. 

The existing rules on avoidance in the Slovenian Insolvency Act provide for a wide range of legal acts or transactions (including acts and omissions) of a debtor that may be contested. Namely, under the Slovenian Insolvency Act, a debtor’s legal acts may be contested if they result in either a lower net value of the debtor’s bankruptcy estate, thereby reducing the payment to other creditors, or a preferential payment to a person, provided that in both cases the other party to the legal act knew or should have known that the debtor was insolvent. In addition, a legal act can be contested if it was made for no consideration or for a consideration of little value (i.e. the value is disproportionately low compared to another, or is merely symbolic).

At present, the scope of avoidance actions does not expressly include legal acts that are intentionally detrimental to creditors, but rather acts that fall under the general scope of avoidance actions and are subject to criminal law. Therefore, some minor amendments to the Slovenian legislation can be expected in order to explicitly include legal acts that are intentionally prejudicial to creditors within the scope of avoidance actions and due to the proposed long contestation period for such acts (as detailed below).

Contestation periods for avoidance claims

The proposed Directive provides for a contestation period of three months in the case of preferential treatment, 12 months in the case of legal acts for no consideration or for a consideration that is manifestly inadequate, and four years in the case of legal acts that are deliberately detrimental to creditors.

In contrast to the proposed Directive, Slovenian law generally provides for longer contestation periods.

According to the Slovenian Insolvency Act, creditors and the insolvency administrator may contest the debtor’s legal acts performed within 12 months prior to filing for bankruptcy and up to the commencement of bankruptcy proceedings. This look-back period is extended to 36 months in the case of legal acts performed by the debtor without consideration or with manifestly inadequate consideration. The most recent amendment to the Slovenian Insolvency Act, however, introduced an additional rule where legal acts can be contested even beyond these time limits if it can be proved that the debtor was already insolvent at the time that the respective legal act took place or when the respective legal act caused the debtor’s insolvency.

Limitation period for avoidance claims

One of the major changes that the Directive could bring to Slovenian insolvency law is the limitation period for contesting claims. Namely, the proposed Directive provides for a limitation period of three years from the opening of insolvency proceedings. This period is much longer than the current limitation period of one year provided for in the Slovenian Insolvency Act.

If such a long limitation period is implemented, we believe that it will be a source of uncertainty for creditors who concluded contracts with the debtor and will have to wait three years after the commencement of insolvency proceedings to be sure that their contracts will not be called into question.

Consequences of avoidance actions

Chapter 3 of the proposed Directive addresses the consequences of avoidance actions. In general, the proposed consequences are similar to those created by existing Slovenian insolvency law. There are, however, some additional rules in the proposed Directive that will have to be taken into consideration, such as consequences for liability of third parties, providing that any heir or universal successor to the other party of the legal act that has been declared void succeeds in the position of that party, also regarding the legal consequences of avoidance actions. In the Slovenian legal system, this is a general rule of civil law but is not explicitly implemented in the Slovenian Insolvency Act. Therefore, certain amendments can be expected in this regard. 

Conclusion

In general, Slovenian law already complies with the rules on avoidance actions as stated in the proposed Directive, although there are some differences between Slovenian law and the proposed Directive. Some minor amendments to certain provisions in Slovenian law may be necessary, but major changes should not be necessary.

For more information on insolvency proceedings in Slovenia and the impact of the proposed Directive, contact your CMS client partner or these CMS experts.