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Bankruptcy law to create employment

Only a few days before figures released by the National Labour Office showed that unemployment had crept back above 20%, Deputy Prime Minister for the Economy Ivan Mikloš denied that new laws on bankruptcy would fuel the jobless rate.
Heralding the recent amendments to Slovakia's bankruptcy laws, due to come into effect August 1, as "the most significant economic law to be passed by this government during its term so far", Mikloš said July 21 that there would be no major effect on unemployment from the new law.
The Deputy PM added that the new laws would in fact have a long-term positive effect on employment levels by forcing inefficient companies to restructure, by giving companies easier access to credit lines and alowing firms to continue operations even when in bankruptcy proceedings.

Only a few days before figures released by the National Labour Office showed that unemployment had crept back above 20%, Deputy Prime Minister for the Economy Ivan Mikloš denied that new laws on bankruptcy would fuel the jobless rate.

Heralding the recent amendments to Slovakia's bankruptcy laws, due to come into effect August 1, as "the most significant economic law to be passed by this government during its term so far", Mikloš said July 21 that there would be no major effect on unemployment from the new law.

The Deputy PM added that the new laws would in fact have a long-term positive effect on employment levels by forcing inefficient companies to restructure, by giving companies easier access to credit lines and alowing firms to continue operations even when in bankruptcy proceedings.

However, officials at Mikloš's office have admitted that there may be some immediate effects felt in the job market. "We're not counting on any kind of major effect. But in the short-term we may see some effect on unemployment," said Mikloš spokesman Karol Zimmer. He added: "But the same laws are in effect in other countries and we haven't seen any such problems."

Opposition deputies have attacked the new laws, claiming that unemployment would soar as the law allowed creditors to force inefficient firms to downsize and streamline their operations, raising fears of potential mass lay-offs at larger companies. However, business analysts have agreed that the new law will bring a new efficiency to many companies and boost not just employment, but also both the banking and corporate sectors.

"This is an absolutely essential law for the economy to work. For a small economy like Slovakia's, innovative companies have to be created - this is where the future of employment development will be," said Anton Marcinčin, a consultant at the World Bank.

With the country's largest banks, Slovenská sporiteľňa (SLSP) and Všeobecná úverová banka (VÚB) among the biggest creditors in the country, the bankruptcy laws will see a triple long-term boost, with falling unemployment, banks being more able and willing to extend credit to companies, and the corporate sector being revitalised following the much-needed injection of fresh capital.

"There used to be a failure of economic activities because of the credit crunch. Without banks lending even viable companies without funds were having to close down. The previous situation was very unfair to small enterprises and things [in the corporate sector] were slowed down, affecting employment," said Marcinčin. "There was little room for doing banking business before, but the banks have been involved in this law and are really going to benefit from it. It is crucial for them," he added.

Under old legislation, firms were often automatically pitched into bankruptcy when in deep financial trouble and creditors had little say in what happened next, often unable to recover any viable parts of the company. The new regulations strengthen the position of creditors in bankruptcy cases by establishing a creditorsş council to oversee the bankruptcy process. The law also allows the state-owned banks to write off many of their bad loans, a process essential for the financial institutionsş restructuring prior to up-coming privatisation.

The new law also speeds up the bankruptcy process by stipulating that a debtor is bankrupt when he owes money to creditors and is unable to settle obligations 30 days after the term of payment. Eighty days after this date company creditors are obliged to meet and decide whether they will declare the company bankrupt or try to revive it.

The Justice Ministry has also secured technical assistance from the World Bank in a bid to strengthen Slovak bankruptcy courts, a move considered vital for Slovakia's further integration into western organisations such as the European Union and the Organisation for Economic Cooperation and Development (OECD).

Both groups have said that potential members [Slovakia is expected to be invited to join the OECD in the next few months, and has begun negotiations on accession with the EU - Ed Note] must bring their judiciary into line with EU standards, including speeding up the time it takes for bankruptcy cases to go through court. Corporate and banking sector chiefs had been vocal in their opposition to past delays in bankruptcy cases, claiming that often healthy parts of companies were left to rot as cases languished in court for months and sometimes years.

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