Review of the Slovenian anti-corona law package proposal with a particular focus on moratorium of loans, enforcement and insolvency proceedings

This week the Slovenian Government sent a new law - the first big anti-corona law package - the Intervention Measures to Mitigate the Effects of the coronavirus (COVID-19) Infectious Disease Epidemic on Citizens and the Economy Act into the legislative procedure.

The goals of the Act are, among others, preservation of jobs, keeping companies in business, improving social status of citizens, financial assistance to self-employed, improving liquidity of companies, pay cuts for certain public office holders, and financial assistance to agriculture. According to the current proposal, the measures will be in use until 31 May 2020, and may be extended for another 30 days. The full proposal (in Slovenian) of the Act is available here.

While the main focus of the public attention is currently on salaries and subsidies, the proposed Act intends to bring changes also to (i) the already adopted act on moratorium of loan payments (Zakon o interventnem ukrepu odloga plačila obveznosti kreditojemalcev), (ii) enforcement and (iii) insolvency proceedings.

According to the law currently in effect, moratorium on loan payments applies to all obligations arising out of a loan agreement; i.e. to principal amounts, contractual interests, default interests and costs. The proposed Act intends to cancel the moratorium on contractual interests, which means that contractual interests will run on the principal amount during the agreed moratorium on principal loan payments.

With respect to enforcement, execution of all already issued enforcement decisions (with the exception of enforcement on child support payments) would be postponed until 31 May 2020. That means that creditors will not be able to enforce their claims until this date. Here we need to mention that courts in Slovenia have not been issuing new enforcement decisions already since 16 March. These proceedings were namely not categorised as urgent court proceedings.

From financial and economic perspective, the regulation of enforcement proceedings for the time of epidemic situation is problematic. All enforcement proceedings are on hold. There is no differentiation between debtors hit by the coronavirus (COVID-19) epidemic and those who are not. All debtors will be consequently given a postponement of payment. The whole financial burden linked to enforcement will be put on creditors (individuals and companies) without justifiable reason. This does not address only coronavirus (COVID-19) related enforcement cases, but all other past, current and future non- coronavirus (COVID-19) related enforcements.

The Slovenian Government should consider amending this set-up. Enforcement proceedings could be qualified as urgent proceedings for the purposes of coronavirus (COVID-19) epidemic and thus still be conducted in this time even if with certain necessary amendments (e.g. no public auctions, prolonged deadlines for filing a lawsuit in VL type of enforcement, etc.). The new proposal of the Act that seeks to postpone the execution of the enforcement to the end of May should in our view limit such relief only to coronavirus (COVID-19) related enforcement cases (eg. first time enforcement proceedings and debtors having difficulty to pay due to liquidity issues caused by coronavirus (COVID-19) epidemic).

With respect to insolvency proceedings, the proposals are the following:

• New insolvency reason: A debtor is more than one month overdue with payment of salaries and contributions to employees from the time it received the compensations from the state based on the Act, will be deemed to be illiquid and insolvent. The purpose of this proposal is to make employers pay out the amounts they had received from the state to employees instead of using them for something else.
• Suspension of obligation to file for insolvency: The obligation of management to file for an insolvency proceeding will be suspended for certain time if a company became insolvent due to the coronavirus (COVID-19) epidemic.
• More time for action in compulsory settlement proceeding: Additional time will be given to debtors for actions required in compulsory settlement proceedings (eg. execution of financial restructuring measures based on confirmed compulsory settlement).
• More time for a debtor when bankruptcy is proposed by a creditor: When a creditor files for a bankruptcy proceeding over a debtor, the debtor will have 4 months instead of current 2 months for financial restructuring to prevent bankruptcy if the company became insolvent due to the coronavirus (COVID-19) epidemic.

As we know, no similar measures with respect to insolvency proceedings have been adopted yet in the neighbouring countries, but it seems the Slovenian Government has followed the similar act adopted by the German legislator last week. For comparison, in Germany, the obligation of management to file for insolvency will be suspended until 30 September 2020, whereas the suspension is not applicable if the insolvency is not caused by the coronavirus (COVID-19) epidemic or if there are no realistic prospects of resolving the illiquidity. In Germany, the act provides for a rebuttable presumption that a company’s insolvency is based on the effects of the coronavirus (COVID-19) epidemic and that the prospects of resolving its existing illiquidity do exist if the company was not illiquid on 31 December 2019.

The proposed Act will go through the quick legislative proceeding, meaning that it will likely be passed by the legislature later this week. We will update you on the final version of the Act when it is passed.