As of January 1, 2018, those who are obliged to file a petition for declaration of bankruptcy of a company will face stricter liability in Slovakia, which could even result in their disqualification to sit on boards of Slovak companies.
In addition to the obligation to pay a contractual penalty in the amount of €12,500, an executive or board members who fail to file a bankruptcy petition will be liable for damages incurred by the creditors as a result of breach of such filing obligation. We refer to executives and directors only as these are the most frequent ”persons obliged to file for bankruptcy“, but this obligation extends also to liquidators and legal representatives of a debtor (for individuals).
But it is not enough only to file the petition. If the court rejects the declaration of bankruptcy and suspends the proceedings or cancels opened bankruptcy proceedings, in both cases due to insufficient assets of a debtor, or if enforcement proceedings have been suspended due to the same reason, the executive or board members are still liable.
The amount of damages is deemed to equal the amount of receivables that remain 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 or suspension of enforcement or similar proceedings, in all cases due to insufficient assets. If the court confirms that the executive or director is liable for damages, such person is disqualified from sitting on the board of directors or supervisory board or acting as an executive of a limited liability company.
This liability for damages is not new. It existed until December 31, 2011 and, in 2012, it was replaced with a more “tangible” obligation of the “persons obliged to file for bankruptcy” to pay a contractual penalty. The reason was that the creditors were not really filing claims for damages and it seemed to be a toothless provision, not really motivating responsible persons to file for bankruptcy when there were at least some assets left for the creditors.
Combining “old” improved liability with the obligation to contribute €12,500 into an estate and with a disqualification should definitely work better than the current rules. One benefit is that claims for damages will be dealt with by the same court that is, or would be, dealing with the bankruptcy petition. But at the end of the day, it all comes down to the ability of the courts to enforce this liability and deliver decisions that will discourage everybody from late bankruptcy filings.
Liability is not the only change coming into force on January 1, 2018. From January 1, we will find more useful information in the insolvency register https://ru.justice.sk/ru-verejnost-web, e.g. information about the bankruptcy estate, creditors and their claims, ranking of proceedings (primary or secondary), so the proceedings should also become more transparent. A positive change is also the introduction of a ”success likelihood“ test for rejection of claims which should make it more difficult to contest a registered claim. Cross-border cooperation should also be easier as now, in case there are primary proceedings pending in another member state, the judge should first invite a trustee in the primary proceedings to provide unilateral undertaking, pursuant to Article 36 of the Recast Regulation 848/2015.
Let us wish you a joyful and peaceful Christmas season and prosperous year 2018.