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THE IMPACT OF NEW LEGISLATION

Insolvency in Slovakia

THE INSOLVENCY situation in Slovakia was radically changed by new legislation that came into effect on January 1, 2006.

THE INSOLVENCY situation in Slovakia was radically changed by new legislation that came into effect on January 1, 2006.

The new legislation replaced the old Czechoslovak Federal Republic's Bankruptcy and Settlement Act of 1991. The new act and its possible impact were heavily discussed during its preparation and we expect that even now, discussions will continue.

Although figures show that the number of insolvencies in 2006 reached a record level of 1,985, if we examine this number more closely, we find that the new legislation had a significant impact on the insolvency process. Only 424 of these 1,985 insolvencies, 21.4 percent, were made up of insolvency proposals that were registered at the courts through the new legislation. The remaining 78.6 percent was due to the former legislation and reflects the high number of bankruptcy proposals that were submitted in the second half of 2005. This situation is explained by the time lag that occurred between the time when the proposals were submitted and the time when the court rendered its decision.

The number of insolvency proposals that have been submitted under the new legislation is very low compared to before. The total number of proposals submitted in 2006 came to only 719, compared to the 3,907 that were submitted in 2005. Out of all those submitted in 2006, 698 were proposals for bankruptcy, 10 were proposals for restructuring and 11 were proposals dealing with the personal bankruptcy of private entrepreneurs (a new option offered by the new legislation). Out of these 698 proposals for bankruptcy, only 100 were submitted to the court by creditors. The rest came mainly from the debtors themselves.

The aim of the new legislation was to speed up the whole insolvency process, and in this it has been successful (more than 90 percent of the insolvency proposals submitted were processed by the courts). On the other hand, there are certain new formal restrictions on proposals submitted by creditors that can make procedures more difficult. According to the new legislation, in the case of a creditor's bankruptcy proposal, the court's decision or an authorized acknowledgement of debt is necessary, and this requirement acts as a brake. Once he has the court's decision, it is easier for the creditor to proceed with the execution than submit a bankruptcy proposal. As a result, it is mainly debtors that propose the bankruptcy of their own companies.

This document reflects the opinions of Euler Hermes Servis, s.r.o., which is part of the Euler Hermes Group. Euler Hermes protects companies of all sizes and industry sectors from the risk of customer default. Euler Hermes is the leading credit insurance group with a global market share of 35.8 percent and a presence in more than 45 countries. Euler Hermes offers a range of integrated credit management services covering each phase of the transaction between the policyholder and its customer: protection from customer non-payment, debt collection, and loss indemnification. In Slovakia, Euler Hermes co-operates with Allianz - Slovenská Poisťovňa, a.s.


- Karel Tkáč,
Euler Hermes Servis, s.r.o.


Insolvencies in Slovakia
Year 2001 2002 2003 2004 2005 2006
Insolvency proposals 2,082 1,743 1,258 2,184 3,907 719
Declared bankruptcies
and endorsed restructurings
548 368 278 223 293 525
Bankruptcies refused due
to lack of assets
715 1,142 984 767 1,352 1,458
Total bankruptcies 1,263 1,510 1,262 990 1,645 1,985

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