Stricter and personal liability for executives under Slovak insolvency law
Wednesday, January 10, 2018

As of 1 January 2018, those who are obliged to file a petition for declaration of bankruptcy of a company will face stricter liability in Slovakia. This could result in them being required to pay a fine/damages and can even result in their disqualification from sitting on boards of Slovak companies.

In addition to an obligation to pay a contractual penalty in the amount of 12,500 EUR, an executive or board member who fails to file a bankruptcy petition will be liable for damages incurred by creditors as a result of breach of such filing obligation. Executives and directors are the most frequent “persons obliged to file for bankruptcy” but note that the obligation extends to a liquidator and a legal representative of an individual debtor.

But it is not enough only to file the petition. If the court refuses to declare the bankruptcy and suspends the proceedings or cancels opened bankruptcy proceedings due to insufficient assets, or if enforcement proceedings have been suspended for the same reason, executive/board members can still be liable.

The amount of damages is deemed to equal the amount of the debt remaining outstanding after suspension or cancellation of the bankruptcy or enforcement proceedings due to insufficient assets.

The creditor has to claim damages within one year from the date of cessation or cancellation of the bankruptcy proceedings/suspension of enforcement. If the court confirms that an executive/director is liable for damages, such person is disqualified from sitting on a board of directors/supervisory board or acting as an executive of a Slovak limited liability company.

This liability for damages is not new. It had existed for some time but in 2012 was replaced with the more “tangible” obligation of the “persons obliged to file for bankruptcy” to pay a contractual penalty. This was to encourage creditors to file claims for damages and to improve what was previoulsy seen as a toothless provision not really motivating responsible persons to file for bankruptcy when there were at least some assets left for creditors.

The obligation to contribute 12,500 EUR into the estate combined with disqualification should definitely work better than the previous rules. One positive is that claims for damages will be dealt with by the same court that is dealing or would be dealing with the bankruptcy. But the new rules will only work if the courts enforce this liability and deliver decisions that will discourage late bankruptcy filings.

Liability is not the only change which came into force on 1 January – from that date we will also find more useful information in the insolvency register, e.g. information about the bankruptcy estate, creditors and their claims and ranking of proceedings (primary or secondary), so proceedings should become more transparent. A positive change is also the introduction of a “success likelihood” test for the rejection of claims, which should make it more difficult to contest a registered claim. Cross-border cooperation should also now be easier, as if there are primary proceedings pending in another member state, the judge should first invite a trustee in the primary proceedings to provide a unilateral undertaking pursuant to Article 36 of the Recast Regulation 848/2015.

 

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