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Justice Minister attacks debt attitudes

Justice Minister Ján Čarnogurský has attacked the business sector for what he called its lax attitude to repaying debts.
Speaking at a press conference April 19, the minister praised the progress made so far in ridding Slovakia of bankrupt companies burdening the economy, but said that the business community was not keeping pace with progress made by the judiciary.
Legislation has been tightened and relevant authorities have stepped up efforts to force debtors to pay up, he said, resulting in completed bankruptcy cases rising from 224 in 1997 to 2,400 by the end of 2000. But, many businessmen still feel they can flout standard payment discipline, Čarnogurský added.


Jutsice Minister Ján Čarnogurský (right) has said businesses are not keeping up with the judiciary in bringing bad debtors to task.
photo: TASR

Justice Minister Ján Čarnogurský has attacked the business sector for what he called its lax attitude to repaying debts.

Speaking at a press conference April 19, the minister praised the progress made so far in ridding Slovakia of bankrupt companies burdening the economy, but said that the business community was not keeping pace with progress made by the judiciary.

Legislation has been tightened and relevant authorities have stepped up efforts to force debtors to pay up, he said, resulting in completed bankruptcy cases rising from 224 in 1997 to 2,400 by the end of 2000. But, many businessmen still feel they can flout standard payment discipline, Čarnogurský added.

"Part of the problem [with bankruptcies] is, as with the economy in general, that businessmen do not feel obliged to pay their debts," Čarnogurský said.

Many businesses have admitted that payment discipline in Slovakia is weak, but point to poor legislation as one of the root causes of the problem.

"Of course payment discipline in Slovakia is very bad because people have no reason to make payments. There are no laws to force people to pay, no one will go to prison if they don't pay, and this goes hand-in-hand with a general lack of discipline in wider corporate governance," said Alžbeta Rigáňová, CEO of Business Lease Slovakia, one of the country's largest operational leasing firms.

She added that her firm had implemented strict risk management measures in its operations to combat any potential problems with clients.

Although the Justice Minister praised the progress made with speeding up bankruptcies, he admitted that there were still backlogs. More than 6,000 bankruptcy cases remain pending in courts, while a total of 400 billion crowns ($8.3 billion - almost half of Slovakia's annual GDP) in debt is outstanding in the corporate sector, he said.

The government last year introduced a new Bankruptcy Law designed to speed up bankruptcy proceedings in courts and give creditors, mainly banks, more opportunity to retrieve assets.

However, economists say that while the new law will certainly improve payment discipline and is an important addition to the judiciary's weaponry in the bankruptcy war, there is a risk that the number of cases consigned to the legal queue will only grow.

"The new law will raise the discipline and transparency of company payments, but if you already have 6,000 outstanding cases, what will happen when the new Bankruptcy Law starts to have an effect? The courts cannot even handle the current situation.

"Unless something is done with the system, there is a real threat that this [the number of pending bankruptcies] will only get worse," said Mario Blaščák, analyst at Ľudová banka.

Čarnogurský also laid the blame for the current problem partially at the feet of the business environment created within the Slovak corporate sector under the regime of the last government of Vladimír Mečiar [1994 and 1998].

The Mikuláš Dzurinda administration - with international organisations such as the World Bank (WB) and International Monetary Fund (IMF) - has repeatedly blamed the former government of Vladimír Mečiar for poor policing of the business sector during its term, allowing debts in state firms to mount and not doing enough to encourage companies to be more prompt with repayments.

Many firms operating today agree, but say that the situation is improving. "Only firms which have good payment discipline will be able to stay competitive in the future. They'll have to get better with payments to keep going," said Business Lease Slovakia's Rigáňová.

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