Debtors in Default, Be Aware to File a Petition for Bankruptcy

In general, debtors are obliged to prevent bankruptcy at all times. Unfortunately, this is not always the case. The Slovak parliament has therefore recently adopted a new legislation, which has extended the obligations of a debtor in financial default.

The previous wording of the Act on Bankruptcy and Restructuring obliged the debtor to file a petition for bankruptcy if it found that it was in a state of over-indebtedness (predlženie). However, according to the new legislation, a debtor is obliged to file a bankruptcy petition if it found out it was in default (úpadok). Default is a wider term that includes not only over-indebtedness (predlženie) but also insolvency (platobná neschopnosť). The debtor is obliged to do so within 30 days since becoming aware of or, with the exercise of due diligence, could have become aware of its default.

There is a significant difference between insolvency and over-indebtedness. Insolvency affects a wider range of debtors, because it occurs when a legal person is unable to fulfil at least two monetary obligations to more than one creditor 90 days past their due date. In other words, a legal entity is insolvent, if it has more than one unsatisfied creditor and more than one monetary obligation 90 days past its due date. On the other hand, a person in over-indebtedness is one that is required to keep accounts, has more than one creditor and the value of its liabilities exceeds the value of its assets.

The threshold for examining a debtors default and the obligation to file a petition for bankruptcy has thus been shifted to an earlier point, which puts debtors under pressure to address their unstable financial situation at an earlier stage and to resolve it before it is too late.

Be aware of the sanctions in the event of failure to file a petition for bankruptcy. This does not concern only the debtors in particular, but also everyone obliged to file a petition for bankruptcy on the company’s behalf. This concerns the statutory body of the company, most often the managing director of the company.  In the event of a breach of the obligation to file a petition for bankruptcy on time, a contractual penalty in the amount of EUR 12,500 has been agreed. This forces everyone acting on behalf of the company to take due care of the company's financial obligations, as the consequences will be borne directly by them. Any agreement, which excludes or restricts entitlement to contractual penalties, is prohibited.

The new legislation is in general widely welcomed as it should lead to greater financial responsibility of debtors and better recovery capacity for creditors.

By JUDr. Valter Pieger and Mgr. Veronika Kvašňovská

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