In response to the COVID-19 pandemic, the Slovak government and Parliament have approved another measure to help entrepreneurs overcome the negative impacts of this crisis on their businesses. The bankruptcy moratorium is an opt-in model and entrepreneurs are entitled to apply for such temporary bankruptcy protection subject to certain conditions. However, before applying various legal and business consequences should be assessed.
Who can apply?
The moratorium applies to all entrepreneurs with their seat or place of business in Slovakia, if their business license started before 12 March 2020. Certain entities (e.g. financial institutions) are excluded and the applicant must fulfil certain preconditions.
How to apply
The applicant must apply using this form. The court will grant protection without undue delay. Confirmation is published in the Commercial Journal effective from the following day.
What are the consequences?
- The granted protection tries to balance the rights and obligations of the protected entrepreneur and other parties and includes:
- protection from creditor bankruptcies;
- acquittal from obligation to file for bankruptcy;
- interruption of enforcement proceedings concerning business claims after 12 March 2020;
- protection from security enforcement;
- certain restrictions to set-offs with the related party;
- time limited protection from contractual termination/withdrawal;
- obligation to make genuine efforts to satisfy creditors where possible and put their interests in front of others;
- possibility of preferential satisfaction of obligations directly related to the maintenance of operations arising after the moratorium;
- possibility of obtaining any loan or similar cashless performances from a related party and their exclusion from the performances in crisis provisions.
How long does protection last?
The temporary protection terminates:
(1) on 1 October 2020, unless the Slovak government extends it until 31 December 2020 at the latest;
(2) on the application of the entrepreneur itself; or
(3) on a court decision if the conditions were or are not met or terminated, or the entrepreneur breached its obligations.
In case of the termination under lit. (2) and (3), the entrepreneur is not entitled to apply anew.
What are the benefits?
The applicant can win time to save its business from bankruptcy and then potentially consider the application for state support measures or other options such as formal/informal restructuring. To explore other restructuring possibilities, please read our CMS Expert Guide to Restructuring Possibilities in Europe available online here.
What are the potential negatives?
The applicant should assess the negative consequences as it can only apply for the moratorium once. The debtors should also consider the lasting effect of the moratorium beyond the duration of the moratorium itself, as it would signal to future business partners that the company may be vulnerable. Additionally, for those companies that would apply for the protection when imminent threat of insolvency was not so obvious or would misuse the situation in fulfilling its obligations, its counterparties may consider them as untrustworthy. It is crucial that the key business partners are properly informed of the actions taken.
How can a creditor protect itself from the moratorium of its debtors or other business partners?
We recommend that the creditor regularly checks if its debtor or business partner has been granted bankruptcy protection on the Ministry of Justice website. Furthermore, if the creditor finds the protection ungrounded, it may file a qualified motion with the respective court to cancel the protection.