The Slovak parliament recently passed a new law – The Temporary Protection of Distressed Undertakings Before Creditors – which came into effect on 1 January 2021. It replaces the current temporary protection (moratorium) adopted at the outset of the COVID-19 crisis.
The new regulation will only be granted where a majority of the unrelated creditors involved agree with the stay. This marks a departure from the COVID-19 moratorium, which could be easily accessed by all debtors impacted by the coronavirus pandemic.
The main goal of the new regulation is to provide distressed undertakings time to negotiate with their creditors to amend or extend their liabilities and to secure new financing.
What are the main features of the new regulation?
- The stay is granted upon the application of a distressed undertaking; among other requirements (such as declaration it is not insolvent) the undertaking must prove that the majority of its unrelated creditors agree with the stay.
- The stay will be granted for three months, with the possibility of extending for another three months with two-thirds majority of creditors' consent.
- The undertaking and its management are obliged to exercise sincere efforts to satisfy its creditors and to prioritise common interests of creditors over its own or third parties' interests.
- The temporary protection affects inter alia: active insolvency immunity (debtor’s obligation to file for insolvency is deferred), passive insolvency and execution immunity (no insolvency or execution proceeding, including exercise of liens can be initiated), limitation of set-off of receivables of affiliated creditors, and limitation of termination of executory agreements.
- New financing provided during the stay will be protected against avoidance actions and will have priority in case of subsequent insolvency.
- The court will cancel the temporary protection if the undertaking does not meet the requirements of the stay or violates its duties.
- Undertakings will be allowed to apply for the stay until the end of 2022; it's presumed that by then, complex regulation of preventive restructurings (including regulation of stay) will be adopted.
Find out more
To discuss the new stay in more detail, please reach out to a member of our Restructuring & Insolvency team.