Over the past year, digital asset investors have become acutely aware of asset custody and counterparty credit risks due to the high-profile bankruptcies of Voyager, Celsius, BlockFi, and FTX. These investors have found that, at times, their assets may be stuck in a bankruptcy proceeding for years. However, these investors—now bankruptcy claim holders—have options for more immediate liquidity.
The new Slovakian preventive restructuring framework aims to provide companies with a viable toolkit to deal with financial distress at an early stage and to counter the fact that the majority of Slovak companies enter an insolvency process having been insolvent for more than a year.
Main characteristics
The Slovak parliament recently passed a new law – The Temporary Protection of Distressed Undertakings Before Creditors – which came into effect on 1 January 2021. It replaces the current temporary protection (moratorium) adopted at the outset of the COVID-19 crisis.
The new regulation will only be granted where a majority of the unrelated creditors involved agree with the stay. This marks a departure from the COVID-19 moratorium, which could be easily accessed by all debtors impacted by the coronavirus pandemic.
Since the outbreak of COVID-19 in Europe, the Slovak Parliament has adopted a series of new laws aiming predominantly to support employment, to provide financial aid and tax relief (particularly to SMEs) and to preserve and regulate legal enforcement.
The insolvency law related measures include mainly:
Debtor's filing
The statutory time limit for debtors to file for bankruptcy due to over-indebtedness (balance sheet test) that occurred between 12 March and 30 April 2020 has been prolonged from 30 to 60 days (and is expected to be prolonged further).
Background
New rules strengthen the position of individual creditors and weaken the concept of insolvency proceedings as a means of final collective satisfaction of creditors. Taylor Wessing in Bratislava, as an advisor to the Ministry of Justice, has been actively involved in the creation of this new regime.
New provisions
Summary
The Existing System
Despite its introduction to the Slovak legal system in 2006, current laws on debt relief within the framework of bankruptcy of natural persons have not been a viable solution.
Basing the legal institute of debt relief on a two-step procedure:
- starting with bankruptcy (i.e. liquidation of (all) the debtor’s assets)
- then followed by a three-year trial period at the end of which the court releases a resolution on the possibility of personal bankruptcy
has in fact hindered debtors from filing.
Two major Slovakian construction companies, both heavily dependent on large state contracts, have recently been restructured. Both of these cases have proven that Slovakian entrepreneurs, even those who live off of public money, perceive and utilise the current regulation of the restructuring procedure as a “legally safe way” to restart their businesses and get rid of a large portion of creditors. This option is viable also in a moment, when the only solution clearly is a bankruptcy petition.
Slovakia is getting ready for a major amendment of the Commercial Code, which will also amend the Slovak Act on Bankruptcy and Restructuring. Significant changes are expected in the corporate as well as bankruptcy and restructuring law sector which is underperforming and provides insufficient protection to creditors, despite many previous attempts to improve the regulation of this area.
The U.S. District Court for the Western District of Washington recently construed the terms of a customary loan agreement to preclude certain hedge funds viewed as “acquir[ing] distressed debt and engag[ing] in predatory lending” from voting on a debtor’s plan of reorganization. Meridian Sunrise Village, LLC v. NB Distressed Debt Investment Fund Ltd. (In re Meridian Sunrise Village, LLC), 2014 WL 909219 (W.D. Wash. Mar. 7, 2014).